# Budgeting

Source: https://projectalevel.co.uk/business_studies/finance/budgeting

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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.