The Cost Of The Sales Revenues For The Coming Year

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. Make a judgement of the likely sales revenues for the coming year.

2. Set a cost ceiling that allows for an acceptable level of profit.

3. This budget for the whole company 's cost is then broken down by division, department or by cost centre.

4. The budget may then be broken down further so that each manager has a budget and therefore some spending power.

In a business start-up, the budget should provide enough spending power to finance vital needs such as building work, decoration, recruiting and paying staff, and marketing. If a manager overspends in one area, s/he knows that it is essential to cut back elsewhere. A good manager gets the best possible value from the budgeted sum.

The main reasons for budgeting are to ensure that
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The expenditure budget sets a maximum target for costs. Spending beyond an expenditure budget occasionally will be tolerated, but a manager who persistently overspends is likely to get a stern talking-to. An intelligent boss will also question expenditure underspending (e.g. not spending the budget for safety training) as this may cause major problems later on.

The profit budget is a function of the previous two budgets. The higher the income budget and the lower the expenditure, the higher the profit. Senior managers should look with care at how a profit achievement may have been a result of cost-cutting that threatens health and safety. Of course, managers are supposed to meet their profit targets, but there is more to running a business successfully than simply getting the numbers right. Dave’s cars need to budget profit because they need to make an outline of what money they are going to make throughout the year. Also they need to estimate their profit because that will help them know how much they have to spend yearly.

At Dave’s Car’s, they will be paying out for a lot of different kinds of expenditure. These include electricity, advertising, wages and transport. They would be paying out for a lot of electricity because they need to be able to pay for office computers, lighting and heat in the office. Paying for electricity would stay about even throughout the years unless bills go up. This is because the offices should be open the same days yearly.
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