What is budget?
Budget is a financial plan for a defined period, mostly one year. It also includes planned sales volumes and revenues, resource quantities, expenses and costs, assets, cash flows, and liabilities. Companies, governments, families and other organizations use it to show strategic plans of activities in measurable terms. There are 4 common types of budget: incremental budget, activity-based budget, value proposition budget and, zero-based budget.
List of Types of Budget
- Production budget
- Overheads Budget
- Personnel Budget
- Marketing Budget
- Cash flow budget
- Operating Budget
- Financial budget
- Sales Budget
The preliminary calculation of the income and expenses of a financial activity during the course of a certain period of time is called a budget.
There are different ways to classify budgets :
According to flexibility :
RIGID, STATIC, FIXED OR ASSIGNED BUDGETS: it receives this name because once it has been made it is not possible to make any adjustment or modification to it. Consequently, the political, economic, demographic, etc. behavior of the territory where the company has interference is not taken into account. This type of budget is used to carry out control in advance.
Flexible Budget: This type of budget has the possibility of adapting to the various questions that arise once it has been made. The flexible budget allows you to visualize income, expenses and costs, adapted to the magnitude of commercial operations.
According to the period they cover :
Short Term Budget: they are those designed to cover a certain period of operation, but they do not cover more than one year.
Long Term Budget: on the contrary, long-term budgets are made in order to cover an extended period of time, and take into account economic factors such as employment, security, infrastructure, etc.
According to the content :
Auxiliaries: they offer the operations for each area of a certain organization, and they are presented analytically.
MAIN: they include auxiliary budgets, and provide information about important characteristics of the set of budgets of a company or organization.
According to the evaluation technique:
Estimates: they are carried out taking into account previous experiences. That is, they are presuppositions made empirically, so they constitute the probability that what has been projected will occur.
Standard: they are made based on scientific elements so that any possibility of error is ruled out. The numbers that it throws are those that must be obtained.
According to the type of company :
Public: they are owned by the state, the municipality or decentralized companies. In this type of budget, it calculates the amount necessary to cover social needs, and from there, a model is created with the purpose of creating sufficient income.
Private: inversely to the public ones, in the private budget the income is calculated first and from this, planning for its distribution is made.