Do you complete a budget simply because it is supposed to be done? Or perhaps you aren’t doing one at all. Chances are you aren’t utilizing your budget to its full potential. Here are a few ways can utilize your budget once completed.
Controlling expenses:
This is the most common use of the budget. You can use this to limit overages for spending or to let you know if the income is there to support the proposed expense. Budgeting is an ongoing process, not something you do once and set on the shelf. Unforeseen circumstances do come up but a budget is a tool to help you manage the risk of overspending.
Projecting cash flow:
Budgeting is not just about projecting income and loss. If you do not complete a balance sheet and a statement of cash flows with your budget, then your budgeting process is incomplete and you are missing out on vital details. Budgeting can tell you if you will need a line of credit and how long you will need it. Budgeting can also help you decide if you can afford the new equipment you have been investigating. A budget is a great “what if” tool.
Budget to actual:
Comparing the budgeted financial statements to actual statements can indicate areas where additional scrutiny of performance is needed or an area to adjust in future budgets to increase the reliability of the budget for other forms of analysis. Comparing budget to actual is the least you should do with your budget.
Rolling budget:
Under the rolling budget method of budgeting, you always budget 12 months (or longer) into the future. For example if it is the end of June, your budget should encompass July through June of the next year. This allows you to always project out to a certain point in the future, rather than only a few months ahead in some times of the year.