One final note: budgeting is an iterative process. The first draft of the budget may show a cash shortage that involves going back over the plan to cut costs, borrow money, or rethink the product mix entirely. Or there may be a cash excess that could be reinvested in new equipment that would ultimately reduce costs and/or increase production. Also, as soon as the budget is complete and the company moves into executing the plan, managerial accountants, in conjunction with the financial accountants, must produce progress and performance reports in order to monitor and control operations, using the information gathered in that process to begin to quantify management’s future plans. Therefore, budgeting is a continuous task.
In addition, for a new business seeking funding, a critical component of the business plan is the projected financial statements and forecasts, including sales, production, and cash flows.
Here is one last look at the budgeting process:
You can view the transcript for “How to Build a Basic Financial Projection – Business Finance” here (opens in new window).