Final answer:
A well-managed company typically follows a budgeting cycle that involves steps such as setting goals, gathering information, preparing a budget, reviewing and approving it, implementing the budget, monitoring and controlling, and evaluating and revising.
Step-by-step explanation:
A well-managed company typically follows a budgeting cycle to ensure effective financial planning and control. The usual budgeting cycle involves several steps:
- Setting goals and objectives: The company determines its financial targets and establishes specific objectives to guide the budgeting process.
- Gathering information: The company collects data on historical performance, market conditions, sales forecasts, and other relevant factors that will affect its budget.
- Preparing a budget: Based on the gathered information, the company creates a budget that includes estimates of revenues, expenses, and cash flow for a specific time period (usually a year).
- Reviewing and approving the budget: The budget is reviewed by management and other stakeholders to ensure it aligns with the company's goals and objectives. Adjustments may be made during this process.
- Implementing the budget: The company puts the budget into action by allocating resources, monitoring expenses, and tracking performance against the budget.
- Monitoring and controlling: Regular monitoring and analysis of actual financial results are conducted to identify any deviations from the budget. This helps in taking corrective actions, if necessary.
- Evaluating and revising: At the end of the budget period, the company evaluates its performance, compares it to the budget, and identifies areas for improvement. This feedback is used to revise and update the budget for the next period.
By following this budgeting cycle, companies can gain better control over their finances and make informed decisions to achieve their goals.