What is the definition of Budget?

Budgets are an estimate of future revenue and expenses. They are usually prepared and re-evaluated periodically. A budget can be created for an individual, a group, a company, a government or any other entity that spends or makes money.

budget

 

How does a Budget Work?

A budget is a microeconomic concept which shows the trade-off that is made when one product is traded for another. A surplus budget is a plan that demonstrates the expected profits. A balanced budget indicates revenues will equal expenses. Conversely, a deficit budget signifies expenses will exceed revenues.

 

What Types of Budget are there?

  1. Incremental budgeting

Incremental budgeting uses last year’s actual numbers and subtracts or adds a percentage to get the budget for next year. Because it is easy to understand, it is the most popular type of budget. If the primary cost drivers are not changing from year to year, incremental budgeting can be used.

  1. Budgeting based on activity

Activity-based budgeting, which is a top-down budget type, determines the inputs needed to support the outputs or targets set by the company. A company might set a $100 million revenue output target. First, the company must determine what activities are required to reach the sales target. Next, the company will have to calculate the cost of these activities.

  1. Budgeting with value propositions

Budgeting value propositions involves asking the following questions:

This amount is included in the budget for a reason.

Is the item of value to customers, employees, and other stakeholders?

Is the item’s value greater than its cost? Is there another reason the item is worth more than its cost?

Value proposition budgeting refers to a way of thinking that ensures that every item in the budget is delivering value for the company. Although it does not aim at the same goal as zero-based budgeting, value proposition budgeting is designed to reduce unnecessary spending.

  1. Budgeting on a zero-based basis

Zero-based budgeting is one of the most popular budgeting methods. It assumes that all department budgets have zero and must therefore be rebuilt from scratch. Managers need to be able justify each expense. All expenditures must be justified. Zero-based budgeting is extremely strict. It aims to eliminate any expenditures not essential to the company’s success (or profitability). This type of bottom-up budgeting is a great way to “shake things up”.

When there is an immediate need to contain costs, the zero-based approach can be used. This could be in situations such as a situation when a company is going through financial restructuring, or is experiencing a significant economic or market downturn, which may require it to drastically reduce its budget.

Budgeting that is zero-based is better suited to addressing discretionary expenses than essential operating costs. It can also be time-consuming, so companies use it only occasionally.

 

How is Budget and Church Financing related?

A budget is a roadmap to maintain organization and consistency for your Church Financing programs. There are two ways to start creating a budget. The zero-based budgeting method, or budgeting that is based on past church budget trends. The zero-based approach is to start at zero and then evaluate and justify each expense according to your church’s vision and needs. When creating your annual budget, be as specific as you can. Pay attention to each month. No matter which method you choose.

Here is a list of items to consider when establishing your budget to get Church Financing:

  • Income
  • Cash Flow
  • Staff Salaries
  • Office Fees
  • Building Expenses. 
  • Maintenance
  • Future Development
  • Donations

For more information on our financing services please contact Hub City Lending and we will get you on the path to financial success.

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