The budget sets a tone for the organization. It helps in forecasting the approach to the management for the coming years. It helps in determining whether the management planning is going to be aggressive or cut down on costs or it would maintain a steady pace.
It is important to keep a check on expenses. Organizations generally prepare the Profit & Loss budget which a management wants to track. Similarly, a working capital budget is also important to plan funds on a timely basis.
On the basis of the P&L budget and the working capital budget, a Balance Sheet is prepared. In the nutshell, budget helps in effective business planning and prepares a business for any upcoming challenges.
