Financial status, income and expense data can change on a daily basis for a company. Financial data is documented and recorded in a budget report, often referred to as a financial report. While a budget report can be a detailed documentation, the business owner can also choose to make it brief and simple. This decision is often affected by the overall use and readership of the report.
A budget report is an estimate of a company's costs and revenues over an operating period.
What a Budget Is, and Does
In business terms, a budget's definition is an estimate of the firm's costs and revenues for an operating period, and its current resources. A budget serves as a road map to the company's objectives, and provides a baseline for measuring how well its projections match its reality. A budget can also set out the company's plans for coping with adverse circumstances, and explain how resources will be allocated to deal with them.
A Budget Report's Content and Sections
A company’s budget report will have different sections depending on its financial needs and the data available for the business. Common sections include:
- general income and sales information,
- the fixed and flexible expenses that are necessary for the business to operate to full potential, and
- the net worth of the entire company, including assets and liabilities.
More extensive budget reports might also include a letter from the company owner about any major financial changes in the company during the reporting period, and predictions for the future.
It's important to recognize that there's a difference between financial reporting and financial statements. A budget and similar financial reports are useful tools, but that's all they are. Financial statements make more formal representations of a company's value, and must meet specific legal and regulatory standards.
Types of Budget Reports
Budget reports or financial reports are written and created based on the needs of the business. A smaller business with a modest level of annual sales may only require a single financial year budget. However, a larger business with several hundred sales per day may need a budget report several times a year, also called quarterly reports. Keeping track of the finances and budgets makes it easier to compose the annual report for the business.
Readers and Usage of Budget Reports
The business owner and company executives are the common readers of the budget report. They use the information internally to create financial plans and projects that suit the limits of the budget in hopes of creating a larger annual profit. Growth and expansion are often the general goal with a budget report, though the opposite can be true in hard times. For example managers in departments with projected growth might hire additional staff, while others who face cuts to their operating budget might need to freeze hiring or even let staff go.
Budget reports are also read by outsiders, such as stockholders and investors. Investors and stockholders are interested in how a business is operating and doing financially before making any large decisions. It's also a useful tool for evaluating the company's management: If the company's real-world results are consistently different from the budget's projections, it reflects poorly on their decision-making and analytical skills.
A Picture Is Worth a Thousand Words
Larger budget reports with many pages of numbers and figures are often more effective if they are presented in the form of charts or graphs. Some reports also provide paragraphs of text that explain the numbers and figures and what they mean to the financial status of the business. If the budget report has a future predictions section, additional graphs and charts are provided to show the expected growth and plans of the business.