Introduction

A budget is a short-term financial plan, usually for a twelve-month period. On approval, a budget ultimately becomes a target and tool for management control.

A budget will record the budgeted figures, the actual figures and the variance between the actual figures and the budgeted figures.

Budgets should ideally not be treated as the only way to control finances, but as one of the tools in a range of measurement control.

Usually each business unit/department manager will prepare a budget. These budgets are then aggregated to form the overall budget for the organisation.

Budgets should be consistent across the organisation, prepared using the same headings expectations and assumptions so that they can be aggregated into the final budget. For example, manufacturing budgets need to be aligned with what sales are budgeting. Also ensure that interest rates or exchange rates are being used consistently across different business units.

Click here to view a video that explains the budgetary process.