What is the primary purpose of a business budget?

The primary purpose of a business budget is to plan and control income and expenditure to achieve financial objectives.

A business budget is a financial plan that estimates income and expenditure over a specific period, typically a year. It serves as a roadmap for the company's financial and operational goals. The budgeting process involves setting financial targets, forecasting future income and expenses, and then comparing actual results with the forecasted figures. This allows businesses to monitor their financial health and make informed decisions.

The budget is a crucial tool for planning. It helps businesses allocate resources efficiently, prioritise spending, and ensure that money is available for important expenditures. By forecasting income and expenses, businesses can anticipate financial needs and challenges, and plan accordingly. For example, if a company expects a decrease in revenue, it can plan to reduce costs or seek additional funding.

Control is another key purpose of a budget. By comparing actual results with budgeted figures, businesses can identify variances and take corrective action. If a company is spending more than budgeted, it can investigate the reasons and take steps to reduce costs. Conversely, if a company is underperforming in terms of revenue, it can analyse the causes and develop strategies to improve sales.

Moreover, a budget provides a benchmark for performance evaluation. It sets financial targets that the company aims to achieve. By comparing actual results with these targets, businesses can assess their performance and identify areas for improvement. This can motivate employees to work towards achieving the company's financial goals.

In summary, a business budget is a vital tool for planning and control. It helps businesses manage their finances effectively, make informed decisions, and achieve their financial objectives.