The establishment of budgets forces top management to develop detailed and specific plans for the upcoming financial year. Establishing budgets is meant to kick off a series of other activities by company managers to get them to think about the business vision, objectives, strategies, and developing the detailed plans that will be required the next year in order to achieve the budgeted financial results. Thus, budgets are a catalyst for the annual business planning process.
Budgets also represent an important tool for management control to continually evaluate the business’ actual financial performance in the current year against the budget and hold managers accountable for variances. Thus, budget targets are used as benchmarks against which actual performance is compared. Managers can closely monitor progress against or departures from the budget goals and if necessary, initiate correcting actions to keep the business on track.
One can see that budgets can be powerful tools for a business. Not surprisingly, the development of useful budgets require significant time, effort, and experience.
The team at Nagel & Vanden Heuvel CPAs, LLC has many years of experience helping business owners and their managers in preparing and using budgets and financial projections. If you are interested in learning more about budgets or financial projections, please contact a member of the NVH CPA team using the form below.