Accounting and Finance Foundations

Unit 12

Accounting and Finance Foundations Unit 12: Budgeting and Business Plans 938

Budgeting and Business Plans Student Guide

Lesson 28.3 Business Budgeting

Budgets are essential to business success. That’s because they help businesses develop wise spending

habits and reach financial goals. By developing a spending plan for your business, you can make smarter

economic decisions, too.

Most business budgets include two types of expenses: fixed and variable. A fixed expense is an expense

that isn’t affected by changes in sales volume, level of production, and/or resource usage. A variable

expense, on the other hand, changes when sales, production levels, and/or resource usage go up or down.

To maintain its budget, a business must keep accurate, complete financial records. At the end of each

month or budget period, the business should compare the actual amount it spent on different expenses to

the amount budgeted. If there is a difference between the two amounts, managers should examine the dif-

ference closely. If the business spent more than what it budgeted, a deficit exists. But, if the business spent

less than the budgeted amount, it enjoys a surplus.

Most successful business budgets have similar characteristics. They are:

• Realistic


• Well-planned


• Clearly communicated


• Flexible


• Evaluated regularly

Chapter 28