What is the purpose of a budget in business?

The purpose of a budget in business is primarily to plan and control financial resources. A budget serves as a financial plan that outlines expected revenues and expenditures over a specific period. It helps businesses forecast their financial performance and allocate resources effectively to meet operational goals.

By planning their finances, businesses can ensure they have sufficient funds to cover expenses, invest in growth opportunities, and maintain cash flow. Additionally, a budget creates a benchmark against which actual financial performance can be measured, allowing businesses to adjust operations and strategies as needed. This process of oversight helps in identifying variances from the budget and taking corrective actions to align actual performance with financial goals.

While determining employee salaries, attracting investors, and setting sales goals are important aspects of business management, they are not the primary function of a budget. Rather, these activities can be informed by the budget, as effective financial planning influences how much can be allocated to salaries, how attractive the company might be to potential investors, and what sales goals are realistically achievable given the available resources.