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Budgeting as the tool of financial planning

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Budgeting as the tool of financial planning

Composition of the budgets is the inherent element of the total process of planning. Mechanism of budgeting planning of income and expenditure is reasonably to introduce in order to provide the economy of money, the more operatively of financial management, decrease of unproductive expenses and loss and increase of truthfulness of plan’s indexes. Budgets are usually composed for one year with division into quarters.

Budget is the operative financial plan which is composed within limits of one year. It reflects the expenses and receipt of moneys in operative, investment and financial activity of the enterprise. Two types of budget are used in the practice of financial management of the company: current (operative) budget and capital budget.

Budgeting is the process of development of concrete budgets according to the aims of operative planning. This is the integrative part of financial planning which is based on the business strategy, business plan and marketing plan.

You can check all financial indexes in future with the help of marketing and economical due diligence.

Different informative sources are used in order to compose budget plans. Among them are:

–        data of book-keeping report and fulfillment of financial plans for the previous period (month, quarter, year);

–        contracts, concluded with consumers of the products and with suppliers of material resources;

–        financial projections of sale, plans of sale according to the orderings, projections of demands, level of prices and other market conditions. The volume of production, charges on the output of production, profits, rate of return and other indexes are calculated on the basis of the indexes of sale;

–        economical normative, established by legislative acts (tax rates, norms of amortization expenses, standard bank interest rate, minimum monthly rate of labor payment and so on);

–        established accounting policy.

Developed on the basis of these data financial plans can be considered to be the guide  for finance of the current financial and exploitation demands, investment programs and projects.

It is suggested to compose the following walk-through system of budgets in order to organize the effective system of budgeting planning of the company’s activity:

–        budget of material expenses;

–        budget of power consumption;

–        budget of labor compensation fund;

–        budget of amortization expenses;

–        budget of other expenses;

–        budget of bank’s repayment of loans;

–        tax budget.



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