Literature review
Budgeting
Establishing a planned level of expenditures, usually at a fairly detailed level. A company may plan and maintain a budget on either an accrual or a cash basis.
Business budgeting is one of the most powerful financial tools available to any small-business owner. Put simply, maintaining a good short- and long-range financial plan enables you to control your cash flow instead of having it control you.
The most effective financial budget includes both a short-range, month-to-month plan for at least one calendar year and a long-range, quarter-to-quarter plan you use for financial statement reporting. It should be prepared during the two months preceding the fiscal year -end to allow ample time for sufficient information-gathering.
The long-range plan should cover a period of at least three years (some go up to five years) on a quarterly basis, or even an annual basis. The long-term budget should be updated when the short range plan is prepared.
While some owners prefer to leave the one-year budget unchanged for the year for which it provides projections, others adjust the budget during the year based on certain financial occurrences, such as an unplanned equipment purchase or a larger -than-expected upward sales trend. Using the budget as an ongoing planning tool during a given year certainly is recommended. However, here is a word to the wise: Financial budgeting is vital, but it's important to avoid getting so caught up in the budget process that you forget to keep doing business. Many financial budgets provide a plan only for the income statement; however, it's important to budget both the income statement and balance sheet. This enables you to consider potential cashflow needs for your entire operation, not just as they pertain to income and expenses. For instance, if you'd already been in business for a few years