A budget allows a business to plan because it states what money is available and what the money can be used for. For example, a business has one hundred thousand pounds’ worth of a budget. Fifty thousand pounds of that budget has to be spent on wages, twenty thousand has been spent on table and chairs, ten thousand has been spent on IT, ten thousand has to be spent on resources such as paper, printer ink and stationery and the remaining ten thousand has to be spent on lighting. This example has planned what the business needs to spend their money on. The business can only spend their budget on the equipment that is needed; the business cannot spend the budget on desired items.

Monitor:

A budget allows a business to monitor because it shows what money of the budget has been spent and what the budget has been spent on.

For example, a business has budgeted to spend fifty thousand pounds on wages but in that time they have given pay rises, the business now has to pay sixty thousand pounds on wages.

Monitoring the budget shows that pay rises have been granted to employees but it also shows that other sectors of the budget have had to be compromised.

If one sector has risen and other sectors haven’t been compromised but have stayed the same means that the budget has been exceeded. When monitoring a budget, it also shows if a budget has been exceeded.

Exceeding a budget means that the business has spent more money than they should have but can also mean that the business might not have had the extra money on top. If the business didn’t have sufficient money to pay all of their expenses because they had exceeded their budget it is more than likely that they have had to borrow money. Borrowed money means that at some point it has to be paid back, this is another worry for the business. It is essential to keep within or below the budget otherwise: other