Types of Budgets | Financial for Non-Finance Managers

The best way to make profit is to stick to a pre-planned budget. Finance Guru Vishal Thakkar is explaining the types of budgets for finance for non-managers. Plan & stick to your budget.

Ladies and gentlemen boys and girls your friend vishal tucker back with a new topic of discussion well friends it is very important to make budget in life whether we as individuals or families or as companies budgets are very very critical so in a company we were discussing that let’s make budgets so somebody said hey let’s start you know we have so much money

Into the bank so with that money what we do is we will buy so much material and we will need so much money for other expenses so first budget that they made was cash budget and then from that cash budget they derived what you called as purchase budget from the purchase budget they made manufacturing budget stating that if this much raw material i can purchase with

Whatever cash i have then from that much raw material i can only make that many finished products so based on the manufacturing budget then they prepared sales budget they said that hey if i can purchase so much raw material there’s so much raw material will in turn produce so much of finished goods and only these many finished goods is something which i can sell

In the market and then based on that sales budget each salesman was given a target and they went out to sell in the market when they evaluated they found that people did not get enough of finished goods during the year and they lost so many customers to the competitor on review they found out that they had only manufactured enough material which would last them to

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Sell for 11 months one full month of the entire enterprise went waste so budgets can tell you so many things but tell me ladies and gentlemen is this the most appropriate way of budgeting well certainly not where these guys went wrong well they went wrong 180 degrees the first budget that any company must prepare is the sales budget based on the projected demand

They need to first find out how many products or units would they be able to sell in the next year from there they will have to evaluate what is their current opening stock what would they desire to have as their closing stock so to reduce from your total sales budget reduce the opening stock add the closing stock to arrive at manufacturing budget or production

Budget so you will come to know how many units you will have to make once you know how many units you have to make again you subtract your opening stock of raw material and your closing stock of raw material to arrive at your purchase budget once you have your purchase budget you would know how many corresponding other expenses you will require to be done for factory

For admin for sales for distribution and that will give you your expense budget also now since you know how many units of raw material you have to purchase and what are your other expenses we’ll tell you what is the net cash requirement for the next year and once you have the net cash requirement for the next year from that you subtract your opening cash balance

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You add your closing cash balance to arrive at what we called as cash budget so once you have the cash budget you will know where to get the money from should we borrow further should we ask the owners to chip in more money will the vendors give us that much raw material on credit so this is exactly how budgeting exercise is carried out you start from sales budget

To finally reach at cash budget and not the other way around and once you have this kind of budget it gives you a benchmark or a yardstick to compare as to what is your actual performance versus your budgeted performance in the coming year i hope you understood what was eating is and keep watching our videos don’t forget to subscribe financed you we all know that

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Types of Budgets | Financial for Non-Finance Managers By Finance Tube

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