Six Principles of Budgeting
- Be Conservative: This means while preparing budget all the
possible scenarios must be forecasted. Don’t be 100% sure that
actual working will be as per budget. Making a conservative budget
keeps the management ready to tackle every possible threat that are
predicted in the budget.
- Group Effort: Its not possible that one person has the
knowledge of everything, that is why a proper budget is prepared by
a group of individuals having expert knowledge in their own fields.
In other words Team work and Consultation is very necessary in
Budget Preparation
- Allow Plenty of Time: A budget is considered an important tool
for management. It helps management to take decisions like whether
to do a job or not. A reasonable amount of time must be given in
order to make Budget precise and correct in all senses since a
wrong budget can cause great financial losses to an
organization.
- Training Personnel: People engaged in the work of Budget
preparation must be trained to do their jobs. The effectiveness of
a Budget lies in the efficiency of person making it. People making
budget should have proper knowledge of various business scenarios
so that they can make a budget which is complete and accurate.
- Proper Documentation and Presentation: A Budget prepared must
be easily understandable by anyone who sees it. Budget must be
presented in a proper format so that various calculations can be
seen in the budget.
- Taking Responsibility: The personnel must state their
involvement in budget preparation. The Budget must be signed by
people who made it so that necessary actions can be taken in
future. It also helps in rewarding employees who made good
efforts.