What a Grow, without budgeting

You may use budget for following key areas

• Plan future Profits – ie.forecast of revenues and expenses
• Cash budgeting – forecast of cash needs and sources
• Balance sheet forecasting – To increase future net assets and get through solvency

Plan Future Profuts

The sales forecast and corresponding costs and expenses are the major inputs to a Profit Plan. Why is profit planning important? It enables you to see the complete picture and to analyze how each cost and expense item behaves in relation to changes in the level of sales. Budgeted amounts are then compared with actual results and variances are analyzed and corrected.

Cash Budgeting

A Cash Budget is used to determine anticipated cash inflows and outflows so that the business maintains the optimum level of cash (cash on hand being a non-earning asset). It also provides information on whether or not additional financing is required to address cash shortfalls.

The first step in preparing a Cash Budget is to list down all transactions having cash flow implications.some items included under Cash Receipts are: receipts form debtors, cash sales, and receipts form loans. Cash Disbursements, on the other hand, may include cash operating expenses, inventory purchases, equipment and other asset purchases, and repayments on bank loans with interests. From this exercise, a Net Cash Balance is derived. This is then carried over to the next period (month or quarter, depending on the level of detail of the cash budget) as the beginning cash balance. Some businesses choose to have a pre-determined minimum required cash balance which they maintain at all times.

Balance Sheet Forecasting

This involves estimating asset levels to support the foretasted sales targets. For example, if the higher sales targets would necessitate opening more retail outlets, then necessarily, investments in fixed assets is a must. Moreover, changes in the funding mix (i.e., a higher level of long-term loans vs. short-term borrowings) may also occur.and also at present business world and according to the new companies act in sri lanka, every company must satisfy the solvency test and directors are liable of an offence if they fail to satisfy such regulations.

Lets prepare a budget and develop your business