Definition of ‘Financial Budgets’
Business financial budgets are estimates of financial statements (income statements, balance sheets, and cash flows) based on a set on assumptions which reflects what the business wants to happen in the future.
For example, the business might want to increase sales by twenty percent over the next year, or they might want to reduce energy costs by ten percent. Using these and other assumptions the financial budget will reflect what the business wants to achieve over the next few years, it gives it a target to aim for.
Although the format looks the same, financial budgets are different from financial forecasts. A financial forecasts is based on a set of underlying ‘most likely’ assumptions which may not necessarily reflect what the business actually wanted to achieve. For example, although the business wants to increase sales by thirty percent (budget), current indications might show that sales are most likely to increase buy only five percent (forecast).
Financial budgets are normally drawn up for a period of three to five years after the last balance sheet date, on a monthly, quarterly or annual basis depending on requirements.
As the starting point for most business plan financial budgets is historic information, the financial budgets should be in a similar format to the financial statements from the accounting system; this also makes comparisons to actual numbers easier at a later date.
For further information see the Wikipedia financial budgets definition.
Using the Financial Projections Template
If you are looking to manage and grow a startup business, financial budgets will almost certainly be needed, the process for creating financial budgets is detailed in our How to Make Financial Budgets section.
If you would like to create your own financial budgets, then download our business plan financial budgets template, which will produce income statements, balance sheets, cash flows, and important ratios for the next five years of trading.
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