You could think of a budget as a "record in advance," projecting future inflows and outflows for your business.

A budget is usually prepared for a single year, generally to correspond with the accounting year. It is then broken down into quarterly and monthly projections.

There are different kinds of budgets, including cash, production and sales.  A cash budget, for example, forces the firm to think ahead by estimating sales and expenses for a particular period of time. Once reasonable projections are made for every important product line or department, the owner-manager sets sales and expense targets for employees.  You must plan to assure a profit. And you must prepare a budget in order to plan.  A sample cash budget is shown below.

Sample Cash Budget

Expected Cash Receipts:

1. Cash sales
2. Collections on accounts receivable
3. Other income
4. Total cash receipts

Expected Cash Payments:

5. Raw materials
6. Payroll
7. Other factory expenses (including maintenance)
8. Advertising
9. Selling expense
10. Administrative expense (including salary of owner-manager)
11. New plant and equipment
12. Other payments (taxes, including estimated income tax; repayment of loans;
and interest)
13. Total cash payments
14. Expected cash balance at beginning of month
15. Cash increase or decrease (item 4 minus item 13)
16. Expected cash balance at end of month (item 14 plus item 15)
17. Desired working cash balance
18. Short-term loans needed (item 17 minus item 16, if item 17 is larger)
19. Cash available for dividends, capital cash expenditures, and/or short
investments (item 16 minus item 17, if item 16 is larger than item 17)

Capital Cash:

20. Cash available (item 19 after deducting dividends, etc.)
21. Desired capital cash (item 11)
22. Long-term loans needed (item 21 minus item 20, if item 21 is larger than item 20)

Excerpted with permission from Small Business Success Magazine, produced by Pacific Bell Directory in partnership with the U.S. Small Business Administration.