EXPENSE BUDGET: WHAT IS IT FOR, HOW IS IT DONE, EXAMPLE - DUDAS - 2025

The expense budget is the calculation that helps companies keep track of purchases and keep operating costs as low as possible. Budgeting is an essential business activity, which involves estimating income and expenses over a specified period of time.

An expense budget is the part of the general budget of the company that deals with the costs necessary to operate the business. It shows the income and money disbursements of the different departments, thus presenting the estimates for each.

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It provides a detailed analysis of the different types of expenses and the general reasons for variations in estimates. The demand for government grants is also part of the spending budget.

The main purpose of the expense budget is to define an economic policy, with respect to the financial expenses incurred. In fact, all possible expenses are listed and recorded in the expense budget.

What is the expense budget for?

Once an expense budget is established, the company has an idea of ​​the total revenue that is needed to maintain or grow the business. This information is essential for formulating effective business objectives and operating plans.

Through careful planning and analysis, managers can coordinate expenses with tax strategies and cash flows. Without spending budgets, you run the risk of overspending, reducing or eliminating profit margins.

The budget should be periodically evaluated relative to the actual finances of the business to ensure alignment exists and to help identify potential spending issues, cash flow gaps, savings opportunities, or future profit scenarios.

Budget planning and tracking will help you identify unnecessary expenses, adapt quickly to changes in your financial situation, and also achieve financial goals.

When you really look at the breakdown of expenses, there could be surprises with what you find. This process is essential to fully understand how things may be going.

Projects

Expense budgets are widely used throughout the life cycle of a project:

Project planning

The expense budget is a basic document for planning a project, which identifies the project's resource requirements, preliminary costs and also its financing.

All budget lines are coded using the organization's chart of accounts.

Project implementation

Once the project is approved, the budget and its associated codes are used to ensure that costs are accurately recorded in the ledgers.

The budget provides an overview of income targets and spending limits, so the task force is clear about how much money is available for each part of the project implementation.

Project monitoring

It is essential to have information on the financial situation of the project in order to manage it effectively.

Budget monitoring reports help to evaluate the actual performance of the project against the budgeted plan.

How do you budget for expenses?

Define goals

The first step in creating a budget is setting goals. What are the financial goals? Do you have debts that must be paid? Are you trying to save costs?

Identify income and expenses

Before you can create a spending plan, you must understand your current income sources and expenses.

Put everything in the spending budget

The spending budget will include current expenses plus any savings needed to meet financial goals.

If expenses plus savings are greater than income, ways will have to be found to reduce expenses.

Capital goods

Cash outlays for production machinery and other equipment used to generate income, called capital assets, are significant expenses for businesses.

Direct labor

In a production plant, one of the largest operating expenses is direct labor. Workers receive wages and benefits, which affect the total cost of doing business.

Raw Materials

Changes in the global supply chain make it necessary to recalculate potential cash outflows.

Taxes

Failure to pay the government can result in fines and other penalties, making an adequate fiscal budget critical.

Put the budget into action

Budgeting apps make it easy to monitor your spending plan. They can be used to keep track of account balances and track expenses to help you stay on budget.

Evaluate the budget periodically

Are financial goals on track? If not, you should examine your spending budget and determine why it is not working.

Example

Experience, a little research, and common sense are used to estimate expenses based on sales, costs, and planned activities.

The following illustration shows a sample spending budget for a soup delivery subscription plan.

The rows are made to match as much as possible with the accounting. Time frames are established and what the expenses will be for each of the next 12 months are estimated. Then it can be done for the following years as estimated annual totals.

In the example, the owners know their business. As they develop the budget, they have a good idea of ​​what they pay for kitchen time, Facebook ads, commissions, office supplies, etc.

And if these numbers are not known for the business, they must be investigated. If you don't know the rents, you talk to an agent, you see some locations, and that's how you calculate what you will end up paying.

The same is done with utilities, insurance and leased equipment: a list is made, people are called and thus a good estimate is made.

Payroll expenses

Expenses also include payroll, wages and salaries, and compensation. In the case of the soup business, a separate list is made for payroll for tracking purposes. Payroll is a fixed cost and a debt.

The personnel plan totals appear in the expense budget. You can also view the estimated benefit expense in addition to gross pay.

Employee-related expenses include payroll taxes, along with what is budgeted for health insurance and other benefits.

References

1. Joseph DeBenedetti (2019). What Is an Expenditure Budget? Small Business - Chron.com. Taken from: smallbusiness.chron.com.
2. The Economic Times (2019). Definition of 'Expenditure Budget'. Taken from: economictimes.indiatimes.com.
3. Shari Parsons Miller (2017). What Is an Expenditure Budget? Bizfluent. Taken from: bizfluent.com.
4. Fmd Pro Starter (2017). Income And Expenditure Budget. Taken from: fmdprostarter.org.
5. Personal Finance (2019). Budgeting. Taken from: personalfinance.duke.edu.
6. Tim Berry (2019). How to Create an Expense Budget. Bplans. Taken from: articles.bplans.com.