Developing Budgets

A budget is itself a financial plan. Specifically, a budget sets forth management expectations for revenues and, based on those financial expectations, allocates use of specific resources throughout the firm. You may live under a ca constructed budget of your own. A business operates in the same way. A business becomes the primary basis and justification for financial operations in the firm.

Most firms compile yearly budgets from short- and long-term financial casts. There are usually several budgets established in a firm:

An operating budget.

A capital budget.

A cash budget.

A master budget.

An operating budget is the projection of dollar allocations to various costs and expenses needed to run or operate the business, given projected revenues. How much the firm will spend on supplies, travel, rent, advertising, salaries and so on, is determined in the operating budget.

A capital budget highlights the firm's spending plans for assets whose are expected to occur over an extended period of time (more than one year capital budget primarily concerns itself with the purchase of such assets as property, buildings, and equipment.

A cash budget is the projected cash balance at the end of a given period (for example, monthly, quarterly). Cash budgets can be important guidelines that assist managers in anticipating borrowing, debt payment, cash disbursements and short-term investment expectations. Cash budgets are often the last budgets that are prepared.

The master budgets ties in all the above mentioned budgets and summarizes the proposed financial activities of the firm.

At this point it should be obvious that financial managers play an important role in the operations of the firm. These managers often determine what long-term investments to make, when specific funds will be needed and how the funds will be generated. Once a company has projected its short- term and long – term needs and established budgets to show how funds will be allocated, the final step in financial planning is to establish financial control.

Words you may need:

expectation - ожидание

allocate - выделять

justification - оправдание

rent – арендная плата

advertising- рекламирование

property-имущество

generate-вызывать, порождать