Budget

What is a business budget?

A budget is a document that translates the company's intentions into numbers: expected revenue, expected costs, expected results. It's built once a year and verified monthly by comparing actual data against projections.

What is it used for?

The budget serves as a reference for decisions:

• If revenue is below budget, the question is "why?" — and the answer guides action
• If costs exceed budget, the problem area is identified immediately
• If the contribution margin is lower than expected, it becomes clear whether the issue is pricing or product mix

Without a budget, every result seems "normal" because there's no benchmark for comparison.

How is it built?

The complete process is described in Business budgeting: how to do it even if you never have. In summary:

1. Estimate revenue (conservatively)
2. Calculate variable costs proportionally
3. List fixed costs item by item
4. Calculate the expected operating result
5. Add the cash flow forecast

The biggest mistake

Not having a budget at all. An imprecise budget is infinitely more useful than no budget — because it provides a reference point for understanding whether the company is heading in the right direction.