Developing a Budget And Financial Forecasts

Budgeting and its Importance

Budgets are financial plans that provide a precise forecast of future revenue and expenses (Michael n.p.) Budgeting is crucial in the day-to-day operations of a firm. It is vital for critical business operations such as making management choices and measuring a firm's performance, among others (Kung et al. 121). Facility managers are responsible for budgeting and ensuring that those facilities are treated like businesses that provide services at a set fee.

Components of a Budget

Keeping in mind the three important components of the budget, revenues, expenses, and profits, the manager would be tasked with estimating earnings first. Ideally, the best basis to forecast revenue would be using actual sales figures from the previous years (Kung et al. 121). However, seeing to it that the manager does not have access to the previous data, they would have to estimate the figures based on market research. Further, they'd also have to decide their target profit margins. It is obtained from the difference between revenue and expenditure (Michael n.p.) Also, the different types of costs involved in the enterprise should be determined. They include fixed costs which remain unchanged throughout the year regardless of an increase or decrease in sales, e.g., rent, insurance, etc. Variable costs such as the cost of raw materials, inventory, etc. are also inclusive. Other expenses to include are semi-variable costs. Semi-variable costs have a fixed component though they vary depending on the business volume (Kung et al. 123). After estimating the sales and expenses figures, what follows is a readjustment of the estimates to ascertain that the targeted profit margins are reached. Budgets should be reviewed and frequently revised to ensure that they are used effectively (Kung et al. 127).

Works Cited

Kung, Fan-Hua, Cheng-Li Huang, and Chia-Ling Cheng. "An examination of the relationships among budget emphasis, budget planning models, and performance." Management Decision 51.1 (2013): 120-140.

"Michael A. Weber, "Developing Budgets And Financial Forecasts," AIA Best Practices - Google Search - Google Search." Google.com. N.p., 2017. Web. 14 Sept. 2017.