The importance of budget cannot be overemphasised. It is important both in the family as well as in every organisation. Without a working budget, there is every tendency that a person or company will eventually run into more debt than can be handled. Absence of a budget is the fastest way to become bankrupt.
One importance of producing a budget in an organisation is that it gives the organisation power to control its cash expenditures. This is also true for families as budget helps to keep a check and balance between the income and the expenditure in every home.
In an organisation it is necessary for every department to have a budget; this will help to manage the department with ease. It helps the department keep a good track of its expenses. The departmental budget should include the office expenses, repairs, salaries and cost of maintenance. The budget is not to be rigid and should be reviewed periodically.
When producing a budget, departmental variance should be put into consideration. The variance in previous year’s budget and the changes in the cost of item must be considered. This will make it easy to have an effective and working budget for the forthcoming year.
For a business organisation, a budget should be produced by first considering the expenses that were in the previous budgets. Itemise each spending and determine what each of the departments require.
It is also important that a meeting be held; this meeting should include all departmental heads. This meeting will give them the opportunity to present an estimate of what they expect to spend in the coming year. These expenses should include recurrent and travel expenses.
Compare the expenses to the revenue that the organisation currently has. You should also compare it with the estimated revenue of the organisation.
Determine the wants and needs that are present in the expenses. Ensure that the budget includes all the needs of the organisation. Eliminate as many wants that are in the budget as possible.
This process of producing a budget does not only apply to organisations but also to individual families.