A budget is a financial plan which sets out targets for company expenditure and company revenues.

Budgeting is drawing up one of these financial plans in order to monitor the performance of a business in sticking to the quantifiable financial targets set out by a budget. Budgeting is an integral and important source of financial control.

Budgets are also another way of controlling cash flow more effectively and in some ways are practical solutions to problems highlighted by cash flow forecasting.





Of course budgets have their advantages and disadvantages. One advantage of budgeting for example is that can work as a way of cutting the entire cost base of a particular organisation. A disadvantage may be however that financial allocations are too generous for a particular budget which leads to inefficient use of company cash. These problems can be overcome by flexible budgeting and zero budgeting, where all expenditure must be justified to ensure allocations are not excessive for any particular section of a budget.