Forecasts future earnings and future spending, usually over a 12 month period
Income budget
Forecasts the amount of money that will come into the business as revenue
Creating an income budget
1. Predict how much the business will sell, and at what price
2. Use sales figures from previous years
3. Use market research
Expenditure budget
Predicts what the business's total costs will be for the year, taking into account both fixed and variable costs
Profit budget
Uses the income budget minus the expenditure budget to calculate what the expected profit (or loss) will be for that year
Budgets are a good communication tool- they help everyone interested in the firm (e.g. employees, source of finance) see what needs to be achieved, in terms of sales and expenditure, for the firm to reach its profit target