Budgeting and Its Various Forms

Budgeting refers to making a detailed financial plan that quantifies future expectations and actions relative to using existing resources and acquiring new resources.

Budgeting can take various forms and can provide the basis for setting up detailed sales targets, staffing plans, inventory production, cash management, borrowings, capital expenditure etc. Budgeting provides benchmark to compare actual results and to accordingly develop corrective measures.

Different types of Budgeting that is undertaken in an organization are as follows:


  • Financial Budgeting for an organization refers to forecasting income statement, balance sheet and cash flow statement for future years.
  • Financial Budgeting also refers to preparing budget for capital expenditure, corporate budgets, sales/ revenue budget, cash budget etc.
  • Financial Budgeting is crucial for management to estimate financial position of the company for the period under consideration and for investors to get an insight on the future performance.
  • Corporate Budgeting refers to planning of financial budgets by a company and implanting the same in its operations.
  • In developing the corporate budget, an underlying business strategy is followed which is finalized by the management of the organization.
  • Typically corporate budget is prepared by collating information from all business units and discussions with business heads.
  • Capital Budgeting refers to the planning process in which a company takes a decision for its long term investments i.e. investment in plant & machinery, investment in fixed assets, investment in new projects etc.
  • Capital Budget is generally prepared considering the financial budget, long term requirements of the company and financial resources available to the company in that period.
  • The management’s aim in capital budgeting is to maximize shareholder’s value while selecting a project/ investment opportunity. There are various tools which are used for capital budgeting e.g. Net Present Value (NPV), Internal Rate of Return (IRR), Real options etc.
  • NPV of an investment is project is the PV of expected cash inflows with the project less the PV of projected cash outflows, discounted at a suitable cost of capital.
  • IRR is defined as the rate of return that matches the PV of an investment’s expected inflows with the PV of its outflows.
  • Sales budget refers to forecasted sales volumes and is influenced by previous sales patterns, current and expected economic conditions, activities of competitors etc.
  • Sales Budget is also complemented by resulting expected cash collections.
  • Expenditure budget refers to forecasted expenditure for planned expenditure which is influenced by composition of fixed costs and variable costs, production levels, marketing budgets, forecasting of general and administrative expenses etc
  • Expenditure budget is also benchmarked with competitors to optimize the available resources.
  • Productions Budget (which has direct correlation to sales budget) refers to setting up production targets in line with the forecasted sales keeping in view the existing inventory levels.
  • Production is a function of beginning finished goods inventory and desired ending finished goods inventory.
  • The budgeted units of production can be calculated as number of units sold, plus the desired ending finished goods less the beginning finished goods inventory.
  • Cash budget refers to forecasting all the future cash receipts and cash payments of a business for a specified period.
  • Cash Budget is crucial for construction businesses as they provide the estimated cash surplus/ deficit over a period of time.
  • Company’s subsequently plan for meeting any cash deficit by drawing short term loans from financial institutions.
  • Marketing Budget refers to planning for different forms/ mode of marketing required for a specific product/ entire organization.
  • The budget is subsequently prepared by summing up the expenditure forecasted on various mediums of marketing for the specified period.
  • Marketing Budget also depends on the product life cycle and level of completion that is expected in the future periods.
  • Project Budget refers to planning the budgeting activity for a specific project i.e. forecasting project related revenues, project related expenditures, capital investments in the project etc.
  • Project budgets are required while deciding project financing opportunities which require finalization of project cost and means of finance.
  • Individual project budgets are subsequently consolidated at the corporate level to prepare overall financial budget for the organization.

What? No liquor budget?

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I suspect we have a new member who wants to establish to everyone their domain of expertise.

Or there is an advertiser who didn’t put a link in (which is for the best, since advertisers have to go through Chad to put stuff here, with minor exceptions for members with an established track record of contributing to the forum - like numi with his career advisory services)

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