A business budget is an essential tool for your company. Not only does it guide your spending patterns throughout the year, but it also enables you to make critical financial decisions and helps you avoid overspending. Many companies use business budgeting software to create their unique budget to meet various needs.
There are several types of business budgets. These include the operating budget, cash flow budget, and capital budget, among other budgets.
Let’s dive deep into the different types of business budgets.
Common Types of Business Budgets
Various companies can create different types of business budgets depending on their needs. While all budgets have the same goal – to track income and expenses to make conscious financial decisions – each type of budget is tailored to a specific business and its unique circumstances.
The following are the types of business budgets:
1. Operating Budget
The operating budget is a blueprint of how a company plans to utilize its current resources to generate future income. Also, known as the operational budget, it includes the cost of goods sold, overhead expenses, and projected profits. In other words, it outlines the funds your company needs to run effectively.
2. The Cash Flow Budget
An essential component of a business budget is managing and forecasting your cash flow. A cash flow budget is a projection of the amount of money your company will have over some time. In other words, it outlines a company’s cash inflows and outflows over a specific time.
The cash flow budget helps you make important financial decisions, detect problems, and prevent overspending. The budget includes income from sales, investments, and loans as well as expenses like payroll, rent, and debt payments. You can create a cash flow budget for a single fiscal year or multiple years.
3. The Capital Budget
The capital budget is a plan for how a business will invest its money in the future. It helps you plan for purchases or investments of large assets like:
- Vehicles, and
Furthermore, it includes money for new hires, repairs, and marketing campaigns.
4. The Sales Budget
The sales budget is essential to your business. It projects your sales revenue and costs; and also how much you can sell within a specific time.
With a sales budget, you can plan and make adjustments to your spending. With an accurate sales budget, your business will have plenty of materials and inventory to help you keep up with the demand of your customers.
5. The Static Budget
Some businesses may create a static budget. That is those companies that have predictable sales and expenses such as:
- Subscription fees
- Warehouse rent
- Contractor fees
- Supply expenses
- Utilities, and
- Any other costs that do not change throughout the year
Businesses can use a static budget to point out differences and evaluate sales performance. However, this budget doesn’t change throughout the year.
6. The Master Budget
The master budget integrates all your company’s budgets. It represents the financial state of your business. It shows you where specific income and costs are suitable for your business.
As much as master budgets are common in larger companies, small businesses can also use them to narrow down their finances departmentally.
The master budget comprises several budgets such as:
- Cash flow
- Sales, etc
The Benefit Of Creating a Business Budget
A business budget acts as a roadmap for your company. It can help you predict the cash flow, and spot functional areas in your business that need improvements. It can also help you run the operations in your company efficiently.
Many successful companies invest their time and effort in creating realistic budgets to track their business’s achievements. However, creating a budget can be a daunting task for new businesses. That is because of the lack of previous figures to guide their estimates. With budget forecasting software, you can easily create a good road map for your future budgets.
Companies can create different types of budgets depending on their needs. For instance, a business might want to develop a budget for its marketing or research and development departments. No matter what type of budget a company wants to create, it’s essential to ensure that it is accurate and up-to-date.