We explain what the budget is and why it is so important. Also, elements, characteristics and real examples.
What is budget?
A budget is a document that details the expenses YProfits which is expected to have a organism, business or entity (private or state) within a period ofweather determined.
The preparation and execution of a budget has four steps or requirements: its preparation, approval by the corresponding individuals or agencies, execution and control. State budgets are regulated by law.
Theobjective central to a budget is having control over theshopping and sales, and quantify the income and money. In addition, it has the purpose of preventing and correcting errors and carrying out the financial controls of the entity or organization. The budget allows you to keep track to establish priorities and pursue objectives.
Budget types
Budgets are classified based on different criteria:
According to the weather:
- Short-term budgets. They cover a period of time that does not exceed one year.
- Long-term budgets. They cover a period of more than one year, are used by large companies and bystate.
According to flexibility:
- Flexible budgets. They allow modifications to be made according to the circumstances that may occur.
- Rigid budgets. They do not allow modifications despite the changes that may occur.
According to the economic sector:
- Public sector budgets. They are carried out within entities or agencies dependent on the State. They include all those expenses and investments that derive from the Public Management.
- Budgets of the private sector. They are carried out in companies or organizations that do not depend on the State but are in private hands.
According to the area within the organization:
- Main budgets. They are carried out taking into account the budgets of all areas within the organization and include auxiliary budgets.
- Auxiliary budgets. They are carried out based on a specific area within the organization.
Budget importance
The budget is a fundamental piece in any organization that has income and expenses of money, since it allows to plan operations to fulfill the proposed objectives.
It is done in advance to determine and organize the amount of money or resources that are expected to be available in a period of time (which is usually a year). Having this control allows, among other things:
- Control income and expenses.
- Measure therisk and decrease it.
- Review the tactics and policies taken by the agencies.
- Carry out financial control.
- Pose goals Y objectives based on the available budget.
Elements of a budget
When planning and making a budget, certain elements must be clear:
- Means. Everything necessary for the realization of the objectives is taken into account.
- Context. The social, political and economic framework in which the activity will take place is analyzed.
- Target. The goals to be pursued are defined.
- Plan. The way in which the goals will be sought is defined.
- Operations. The expected income is detailed, as well as the expenses.
- Human Resources. All individuals representing the different areas of the organization are involved.
Characteristics of a budget
The main characteristics of any budget are:
- It is regular. It is carried out in periods of weather determined.
- It is comprehensive. It takes into account all sectors and areas of the organization.
- It is foresight. Seek to anticipate and organize a future time period.
- It is quantitative. Use a monetary unit to represent the action plan.
- It is goal oriented. Look for the realization of general or particular goals.
- It is detailed. It includes all the information necessary for the description of situations.
- It is realistic. Make projections based on concrete and reliable data.