finance
Budget
Planned revenue and expenses for an upcoming period. The financial map for the year.
Definition
A budget is the financial plan for a future period - usually a year - covering expected revenue, expected expenses by category, and the implied profit. Budgets are working documents, not rigid contracts: variance from budget is information, not failure. The discipline is to update the forecast (what you now expect) while preserving the original budget (what you planned), so you can learn from the gap. Service businesses typically build a budget in November/December for the following year and review quarterly.
In your business
- →Build the budget with categories that match your accounting setup - otherwise variance analysis is useless
- →Review actual vs budget monthly - investigate any line off by more than 10%
- →Update the forecast quarterly without erasing the original budget - the gap is the lesson