What is Financial Budgeting
Financial budgeting is the process of planning company expenses and revenues for a time period. Budgets set forth the plans of management in financial terms. This includes allocating financial resources and identifying available cash flows for required spending.
A budget and financial planning strategy detail a company’s expectations for what it aims to achieve for the current, upcoming year or another timeframe. For example:
- Expense and revenue estimates
- Cash flows expected
- Debt reduction expected
- Comparison of actual versus projectedbusiness financial budget,calculation of variances between them
Financial budgeting represents the overall financial position, goals, and cash flow of an organization. This regular practice of timely operational and financial budgeting creates a baseline for comparison to see how actual results vary from expected performance.
Basic corporate financial budgeting process steps for an annual budget usually take between three to six months to complete. The components of this process, which remains confidential, might include:
- Establish and communicate management targets and goals
- Develop the detailed, final budget to directly support those targets and goals, and attach financial documents such as the balance sheet, income statement, and cash flow statement
- Finalize employee compensation plans (usually this is part of the process)
- Compile and adjust budget model and measurement metrics so management can assess progress
- Review and make final changes
- Approval
- Disseminate subordinate and/or line of business budgets across the organization
Financial budgeting enables a team to implement a business plan tactically to achieve corporate goals based on a detailed and descriptive roadmap using set metrics. This allows for careful monitoring of performance over time and the ability to make changes while in progress to eventually achieve the desired goals.