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Business studies> Finance> Budgeting

A budget is a targeted amount of cost or revenue that the company will hope to achieve which can also be split up into certain departments of a company. A budget is drawn up by looking at past and present figures and then trying to predict future needs. Zero budgeting is a type of budgeting which starts afresh each year and does not just modify past figures.

A budget has many purposes:
Helps planning for the business.
Makes it easier to monitor the businesses progress.
Helps communication within the business.
Helps to motivate staff.
Helps establish the businesses priorities.

Problems with budgets:
May not allow for change and therefore be inaccurate.
No control over external factors.
May lead to demotivation of staff.

Budgets can be compared with actual outcomes to find the variance. A variance is known as adverse if the company is disadvantaged due to the variance. A variance is known as favourable if the company benefits due to the variance.