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Almost every business manages a budget. That is, a prediction of expected costs against actual costs. It’s a way that a business stops spending too much or too little, and is, in essence, a plan of expenditure.
Knowing how businesses manage expense is a powerful way of understanding how businesses work. Do you know your accruals from your ammortization? If not, read on.
I’m not going to give you a full-blown description of budgets and how they’re managed, but I do hope to encourage you to find out. In doing so, you’ll become more familiar with how your organization makes decisions on what to invest in and what creates value. When I was first charged with a multi-million budget, I knew that decisions I make can seriously affect the outcome of the business.
So what would one do to learn about budgeting? Well one way is to pick up a textbook (such as this one) and read all about it. This way you will understand the terminology and basics. Another complementary way is to get involved. You could ask your department manager to show you the process as it’s happening. Some of the detail may be confidential, but ask to see what can be shared. It’s also true that most organizations have developed their own style and process, which can’t be learnt from a text book. Don’t be afraid to ask, as your department manager may find you have a valuable contribution to make. You could also start with an idea on how to save costs, and see how your thoughts can be worked through the process – that way you can see how your idea might be quantified in hard monetary terms.
To summarise, to understand how a business ticks is to understand how it makes profit by earning revenue and budgeting. Most of the important decisions are part of the budget. Giving yourself the knowledge of the process will give you opportunities to influence these decisions, or at the very least accept them!
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