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When a budget is compiled its based on information at the time of creation and the income/expenditure that a company will undertake normally for the nest trading year. These are assumptions. If during the trading period unforeseen expenditure is forced on accompany, if income drops to unexpected levels (i.e. a customer becomes bankrupt owing money) the there will need to be changes made to the budget to account for this. By reviewing the budget against the business one a monthly or at least bimonthly period changes to forecast can be made in a timely manner and buffer the company. The intention is to minimise the impact of the budget becoming uncontrollable and losing the company profits.
The other reason for review is to identify areas where spend is required to take place i.e. purchasing new machinery, investing in a new product. Where budgets are not used companies will recover that amount back into the profit margin and in the following year reduce the allocation to that department.
Esta McGlynn
Wiki User
∙ 11y agoWhen a budget is compiled its based on information at the time of creation and the income/expenditure that a company will undertake normally for the nest trading year. These are assumptions. If during the trading period unforeseen expenditure is forced on accompany, if income drops to unexpected levels (i.e. a customer becomes bankrupt owing money) the there will need to be changes made to the budget to account for this. By reviewing the budget against the business one a monthly or at least bimonthly period changes to forecast can be made in a timely manner and buffer the company. The intention is to minimise the impact of the budget becoming uncontrollable and losing the company profits.
The other reason for review is to identify areas where spend is required to take place i.e. purchasing new machinery, investing in a new product. Where budgets are not used companies will recover that amount back into the profit margin and in the following year reduce the allocation to that department.
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It helps people record how much they save and what they need to fix on their budget.
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Why does a business need to set budgets?
it is important they set budgets because they could easily need more than they can pay.
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