FINANCIAL
BUDGETING
Financial Budgeting
Financial budgeting is the process
of planning company expenses and
revenues for a time period.
Budgets set forth the plans of
management in financial terms.
This includes allocating financial
resources and identifying available
cash flows for required spending.
WHY IS IT IMPORTANT?
WHY IS IT IMPORTANT?
Greater resource Inform financial goals Prioritize projects and
availability initiatives
The primary function of Financial planning and The value proposition of
financial budgeting is to budgeting can help set financial budgeting
ensure core resources metrics for internal techniques is that
are available as needed financial goals and prioritizing projects and
to implement plans and record progress against initiatives is a natural
achieve business goals. them. byproduct of the process.
WHY IS IT IMPORTANT?
Optimize financing Achieve optimal
opportunities flexibility
Documented budgetary Executives must often
information is particularly rework budgets
important for anyone thoughtfully and rapidly
potentially seeking funding to account for safety
or financing, such as a
concerns, major losses,
startup seeking outside
and potential reputation
investors, or an existing
damage.
company needing a loan.
TYPES OF FINANCIAL
BUDGETING
ZERO-BASED BUDGETING
Is a budgeting method that requires all
expenses to be justified and approved
in each new budget period, typically
each year. Zero-based budgeting can
help lower costs by avoiding blanket
increases or decreases to a prior
period’s budget. It is, however, a time-
consuming process that takes much
longer than traditional, cost-based
budgeting.
TYPES OF FINANCIAL
BUDGETING
ACTIVITY-BASED BUDGETING
Works backward from the company’s
goals to determine the cost of
achieving them and can be used to
improve efficiencies and cut costs,
especially in a large business.Using
activity-based budgeting (ABB) can
help companies to reduce the activity
levels required to generate sales.
Eliminating unnecessary costs should
boost profitability.
TYPES OF FINANCIAL
BUDGETING
STATIC BUDGETING/
INCREMENTAL-BASED BUDGETING
Creates the budget for the upcoming
period by adding or subtracting a
percentage from the previous period
using historical data. This model is
usually best for businesses with highly
predictable revenue and expenses
that don’t fluctuate much. Among all
budgeting methods, incremental
budgeting is commonly considered as
the most conservative approach.
TYPES OF FINANCIAL
BUDGETING
PERFORMANCE-BASED
BUDGETING
Performance-based budgeting
focuses on cash flow per unit toward
programmatic results. It is often used
by governments and nonprofits that
need to keep an overall focus on their
mission. The performance-based
budgeting process is a tool that
program administrators use to
manage budget outlays more cost-
efficiently and effectively.
TYPES OF FINANCIAL
BUDGETING
VALUE PROPOSITION
BUDGETING
Assumes only line items that directly
provide value to the organization
should be included in the budget.
Value Proposition Budgeting is a
method of budgeting that focuses
on allocating the ideal amount of
financial resources to the product or
service that provides the highest
value to the customer.
STEPS IN CREATING A BUDGET 6
3 REVIEW YOUR
BUDGET
ADJUST YOUR
2 REGULARLY
SPENDING TO
MAKE A PLAN
1 STAY ON
SET BUDGET
REALISTIC
TRACK YOUR GOALS
CALCULATE SPENDING
YOUR NET
INCOME
