Types of Budgets
1. Operational Budget: An operational budget states the expected income and losses of a business over a specific period, generally a fiscal year. Its purpose is to focus on the core business activities. Operational budgets are used to predict the revenue and expenses of the business. A business can plan the strategy accordingly based on the operational budget.
2. Financial Budget: It is a budget that outlines the detailed plan on the income and expenses of a business or an individual and their financial goal over a specific period. It helps to provide a proper strategy for the utilisation of resources and to maintain financial stability. A financial budget focuses on the monetary aspect of an entity and helps in identifying various sources of income and ways to reduce expenses.
3. Master Budget: A master budget is a comprehensive financial plan that serves as a strategic roadmap by consolidating all smaller budgets within an organization to provide a comprehensive overview of the organization’s financial performance. It is an essential tool for planning, coordinating, and controlling the financial activities of an entity.
4. Static Budget: Static budgets are those budgets that remain intact or unchanged during a fiscal year regardless of the actual performance of the business. These budgets serve as a benchmark against which actual financial results can be compared.
5. Flexible Budget: Unlike the static budget, a flexible budget is a budget that changes according to the level of activity or business condition. It helps a business to change financial plans depending on the fluctuations in production, sales, or other elements.
6. Sales Budget: A sales budget provides a detailed estimation of the sales revenue for a specific period. The budget is maintained by analyzing the historical sales data, market trends and other essential factors. It is one of the most important budgets as it affects inventory, production and operational decisions.