What is the role of budgeting?
Answer:
It's for planning. You set a spending goal and then you are held accountable for it when the actual is compared to budget.
It's an interesting process. Basically, in business, we try to come as close to the budget without exceeding it as possible. If we're way too low, then our budget might get reduced next year and it would very hard to justify asking for an increased budget again. If we're way too high, we get a spankin' for overspending.
Budgeting gives you structure and helps you plan.
You build a budget off of some assumptions and that allows you (and companies) to plan what to spend on what in order to reach certain goals.
It is NOT meant to be a cast in stone thing (in business), but rather, a guidelines in which to plan and execute.
Does that mean you can overspend your budget? No. If circumstances change and you get an opportunity to expand, you might spend more to take advantage of the opportunity. Likewise if business conditions change for the worse, then you'd probably cut back spending to help compensate.
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