Budgets

HA401 : The Class : Finance : Revenues : Budgets

Budgets and Forecasting

BUDGETS

Budgets are annual operating plan established for future years. They generally involve the next year and provide specific sales, expense and profit goals. They are based on last years actual sales and profits and generally include an increase to show that the business or enterprise is growing in sales and profits. Budgets are usually prepared in the fourth quarter for the next year. Budgets are important because they project future operations. They can be used by bankers and investors to make loan or investment decisions. They are used by senior management to evaluate management’s performance. Finally, they show whether the business is expected to improve or decline.

FORECASTS

Forecasts are used to update annual budgets. Management considers any recent changes in the economy, the industry, competition, or other relevant trends that effect the business. The budget is then updated in the forecast to consider these changes. The formal budget does not change, but the forecast is used instead to manage the business. Forecasts can be done quarterly or semiannually or as often as needed. They help adjust operations to reflect current economic environment. They are important because they update the budget to current conditions and help management operate the business more efficiently and more profitably.

Once you have completed this module you should:

Go on to Reading 6: Comparisons
or
Go back to Topic 1: Revenues

E-mail Lloyd Shelton at Lloyd.Shelton@nau.edu
or call (928) 527-7518