Budget - in brief

The budget denotes the company's accounts for a future period. In other words, the budget is identical to the company's accounts in structure and structure, except that the budget describes the expectations the company has for the coming period(s), whereas the accounts describe the results that have come out of the company's decisions and actions so far.

The expectations that are incorporated into the company's budget are, in other words, the company's action plans for the coming period(s). A budget, like the accounts, is part of the company's overall financial management. An analysis of the accounts explains the development and thus creates the basis for describing realistic expectations for the future, which are manifested in a budget.

For the same reason, the budget is an integral part of the company's financial management model. The figure below shows a model for the company's financial management. The model includes the following phases:

1. Preparation of accounts and statistics for the company's past.
2. Budget control with subsequent causal explanations.
3. Planning and budgeting for the company's future.

Source: Business economics, higher education at Jørgen Waarst and Knud Erik Bang

The purpose of a budget

The real purpose of creating a budget is to create a proposal for the company's development during the budget period. The budget thus acts as a forecast.

In addition, it is also possible to create a fixed working framework for the individual company. The budget and the prerequisites contained therein should ensure that the company as a unified organization works according to the same framework and in the same direction. This means that the budget ensures that the organization does not work against itself, because the budget precisely ensures a coordinated and controlled use of the company's resources.

We have put together a toolbox so you can get started using the company's budget as a management tool.

Budget process:

• Performance budget
• Balance budget
• Liquidity budget
• Budget periods and control / budget follow-up
• Budget types, this is how you break down the budget

Budget as:

• Communication method
• Motivational agent
• Goal setting tool
• Planning tool

This material contains a processing of the Audit of Finance for Managers developed for the Ministry of Education by the Continuing Education Committee for Trade, Administration, Communication and Management in collaboration with Britta Slot Johnsen, Søren Peder Lauridsen, Bjarne Wølch Rasmussen and Henrik Strømkjær.