Budget Preparation and Control
Budget preparation and control are essential components of sound financial management. This means preparing a detailed budget and having it approved by management in advance, before the end of the current year and in preparation for the following year. Once the budget is approved, ongoing budget control is required—monitoring the budget and its execution, preventing and/or identifying deviations in real time, and obtaining approval for any deviations imposed on the business by management and the board of directors.
The budget serves as a predefined financial framework of expenses (“uses”) based on expected revenues (“sources”), aimed at preventing unexpected losses or deficits through planned resource allocation. The budget is usually prepared for a one-year period, but in cases of specific needs, it may be set for a different period, such as a budget for a long-term project.
The budget holds value only when accompanied by strict budget control. In other words, planning the budget alone is insufficient—what is more important is monitoring its implementation in practice. The budget functions as a managerial tool that allows business leaders to act accordingly and make immediate decisions while tracking their performance against the financial targets they set for themselves, as expressed in the budget. Budget control enables real-time handling of deviations in a specific budget category, reflected by adjusting the general budget—either by increasing the allocation for the over-budgeted category and reducing the budget of another category from which resources can be cut.
In practice, there are two main methods for budget planning and control. The first is zero-based budgeting, in which all budget items are reviewed annually as if being evaluated for the first time, independently of previous results. The second method is incremental budgeting, where the budget for the upcoming year is based on the previous year’s performance. In this method, the amount allocated to each category is usually similar to its actual expense in the previous year, with adjustments made according to management’s strategic or tactical considerations, whether through increases or cuts.
Our firm, Michael Weizman & Co. – Certified Public Accountants, is happy to assist you with budget consulting and preparation, providing tools for budget control, including adapting your bookkeeping to a computerized budget system that enables the immediate generation of budget vs. actual performance reports.
An expert from our firm will be happy to assist you with this service. Contact us today for a no-obligation consultation.
