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Each and every business endeavor is taken up with the simple aim of making profit .
However profit is not a stand alone entity and is correlated with income to be earned and related expenses .
Business budgeting is the process of systematically analyzing these three related factors .
An effective budgeting exercise conducted before the start of a business will help in realizing the profit making motive .
But the budgeting exercise can become a very frustrating and unfruitful activity if it is conducted in a haphazard manner .
The need of the business is to be deeply analyzed in a pragmatic manner for coming up with a budget plan that identifies with the businesses mission and vision statement .
Such an analysis based on factual data will also ensure that the business sticks with developing realistic revenue targets leading to a reduced gap between the expected profits and actual profits .
The expenses or costs are further divided into a variable , semi -variable and fixed costs during the budgeting exercise .
These components are further compared with the projected monthly business growth rate for coming up with the maximum amount of permissible expenditure .
The effective management of costs is an essential component of the business budget plan .
Profit making being the primary motive of any business demands proper attention and the budgeting process should be able to calculate the basic profits in a realistic manner .
Being able to predict and formulate plans for achieving the projected revenue also forms part of the budgeting exercise .
If the business continuously monitors its actual performance in relation to the budgets , it would be able to earn the optimum profit by making the required adjustments .
This monitoring can be done on a daily , weekly or monthly basis as per the internal and external environment of the business .
On -time funding is a must for the smooth running of any business entity .
The accurate estimation of the expenses to be incurred for earning the projected revenue forms the key to making available these funds in a timely manner .
Estimation always being a judgmental outcome need to be backed up with proper budgeting techniques lest the business encounters the dangers of not properly gearing up to match any financial crunch faced .
The business cannot be expected to realistically handle the day to day activities in an optimal manner without utilizing at least some amount of proper budgets or budgeting techniques .
The business also needs to keep itself abreast of all the changes in the business environment through continuous monitoring .
This will help the business to be prepared against any negative factors which may lead to erosion of expected revenue .
The budgeting exercise demands a clear and accurate data for coming up with inferences that are based on the relevant facts .
The negative impact of a volatile market affects the smaller enterprises in a more severe manner .
The actual expenses are to be matched against expected expenses as a percentage of estimated revenue for getting a clearer picture regarding the company 's profitability .
This does not mean that the budget is to be rigidly followed .
The budget should provide for some deviations which may occur in real life situations .
But it will be worth your time if you could also point out some cost reduction techniques in case of negative deviations during the budget exercise .
This will also help in keeping the budget more pragmatic and may eventually lead to overall business triumph by actually providing some effective cost cutting techniques .
Unless and until the business machinery runs in a well oiled manner the very objective of its existence is threatened .
Budget plans work as the lubricant to help the business machinery run in that smooth manner .
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