Budgeting

Planning and Control: Budgeting 📊

The Story of Your Money Map

Imagine you’re planning a birthday party. You have $100 to spend. Before you rush to buy everything, you sit down and think:

• How much for cake? 🎂
• How much for decorations? 🎈
• How much for games? 🎮
• What if something costs more than expected?

That’s budgeting! It’s your money map. It shows where your money should go before you spend it.

What is Budgeting? (Overview)

A budget is a plan for your money. It tells you:

1. How much money you expect to get (income)
2. How much you plan to spend (expenses)
3. What’s left over (savings or deficit)

Why Do We Budget?

Think of budgeting like a GPS for driving:

• Without GPS → You might get lost, waste gas, arrive late
• With GPS → You know the route, save fuel, arrive on time

Without a budget → Money disappears, bills surprise you, stress increases With a budget → You control spending, prepare for bills, feel confident

Simple Example

Sarah’s Lemonade Stand Budget

Expected Sales: $50

• Lemons: $10
• Sugar: $5
• Cups: $5
• Signs: $5

Planned Profit: $25 ✨

The Master Budget: Your Complete Money Picture

The Master Budget is like the main storybook that contains all the smaller stories. It combines everything:

graph TD
    A["Master Budget"] --> B["Operating Budgets"]
    A --> C["Financial Budgets"]
    B --> D["Sales Budget"]
    B --> E["Production Budget"]
    B --> F["Expense Budgets"]
    C --> G["Cash Budget"]
    C --> H["Capital Budget"]
    C --> I["Balance Sheet"]

Master Budget Components

Think of building a house:

Example: Pizza Shop Master Budget

Mario’s Pizza - Monthly Master Budget

Operating Side:

• Expected pizza sales: $10,000
• Ingredients needed: $3,000
• Employee wages: $2,000

Financial Side:

• Cash available: $5,000
• Loan payment: $500
• Equipment fund: $300

Operating Budgets: The Daily Action Plan

Operating budgets cover your everyday activities. These are things you do regularly to run your business.

The Three Main Operating Budgets

1. Sales Budget (The Starting Point)

Everything begins here! How much do you expect to sell?

Example: Toy Store Sales Budget

Month	Toys Expected to Sell	Price Each	Total Sales
January	100 toys	$20	$2,000
February	80 toys	$20	$1,600
March	120 toys	$20	$2,400

2. Production Budget (Making Things)

Once you know sales, you plan how much to make:

Formula: What to Make = What to Sell + Ending Stock - Beginning Stock

Example: Cookie Baker

• Expect to sell: 1,000 cookies
• Want 100 extra in stock: +100
• Already have 50: -50
• Need to bake: 1,050 cookies

3. Expense Budgets

These track costs like:

• Materials (flour, sugar for cookies)
• Labor (paying the baker)
• Overhead (electricity, rent)

Financial Budgets: The Money Management Plan

While operating budgets cover what you do, financial budgets cover your money position.

Types of Financial Budgets

graph TD
    A["Financial Budgets"] --> B["Cash Budget"]
    A --> C["Capital Expenditure Budget"]
    A --> D["Budgeted Balance Sheet"]
    B --> E["When money comes in"]
    B --> F["When money goes out"]
    C --> G["Big purchases planned"]
    D --> H["Overall financial health"]

Why Financial Budgets Matter

Imagine having a piggy bank with different compartments:

• 🐷 One section for rent
• 🐷 One section for food
• 🐷 One section for savings
• 🐷 One section for emergencies

Financial budgets help you see if each “compartment” has enough!

Example: Small Bookstore

Cozy Reads - Financial Budget Summary

Cash Expected: $8,000 Bills to Pay: $6,000 New Shelves (Capital): $1,000 Safety Buffer: $1,000 ✓

Cash Budget: Tracking Every Dollar

The Cash Budget is your daily money diary. It tracks:

• When money arrives (cash in)
• When money leaves (cash out)
• What’s left at the end

Cash Budget Structure

graph TD
    A["Beginning Cash"] --> B{+ Cash Receipts}
    B --> C["Total Available"]
    C --> D{- Cash Payments}
    D --> E["Ending Cash"]
    E --> F{Enough?}
    F -->|Yes| G["Save Extra"]
    F -->|No| H["Borrow Money"]

The Three Parts

Detailed Example: Ice Cream Truck

Sunny Scoops - July Cash Budget

Starting Cash: $500

Cash Coming In:

• Week 1 Sales: $800
• Week 2 Sales: $900
• Week 3 Sales: $750
• Week 4 Sales: $850
• Total In: $3,300

Cash Going Out:

• Ice cream supplies: $1,200
• Gas for truck: $200
• Helper’s pay: $600
• Truck repair: $150
• Total Out: $2,150

Ending Cash: $500 + $3,300 - $2,150 = $1,650 🎉

Why Cash Budget is Special

You might sell $1,000 worth of stuff, but if customers pay you next month, you have no cash NOW.

Profit ≠ Cash

The cash budget shows you the real money in your hands.

Flexible Budgets: Budgets That Bend

A flexible budget is like a rubber band. It stretches and adjusts based on what actually happens.

Fixed vs. Flexible Budgets

Why We Need Flexible Budgets

Imagine you planned for 100 customers but got 150!

With a fixed budget, you can’t compare fairly:

• “We spent more than planned!” (But we also sold more!)

With a flexible budget, you adjust:

• “For 150 customers, we should spend X. Did we?”

The Magic Formula

Flexible Budget = Fixed Costs + (Variable Cost per Unit × Actual Units)

Visual Example

graph LR
    A["Plan: 100 units"] --> B["Fixed Budget: $1,000"]
    C["Actual: 150 units"] --> D["Flexible Budget: $1,500"]
    B --> E{Compare?}
    D --> E
    E --> F["Fair comparison!"]

Real Example: Sandwich Shop

Quick Bites - Flexible Budget Analysis

Fixed Costs (same no matter what):

• Rent: $500
• Manager salary: $800

Variable Costs (change with sales):

• Ingredients: $2 per sandwich
• Packaging: $0.50 per sandwich

Scenario Comparison:

Item	100 Sandwiches	200 Sandwiches
Rent	$500	$500
Manager	$800	$800
Ingredients	$200	$400
Packaging	$50	$100
TOTAL	$1,550	$1,800

If they sold 200 sandwiches but used the 100-sandwich budget to compare, they’d think they overspent by $250. But the flexible budget shows they actually did great!

Putting It All Together

The Budget Flow Story

Imagine you’re opening a pet grooming business:

1. Sales Budget → You expect to groom 50 dogs/month at $40 each = $2,000

2. Operating Budgets →

   • Shampoo & supplies: $300
   • Helper: $500
   • Utilities: $100

3. Cash Budget →

   • Money in: $2,000
   • Money out: $900 (supplies + wages + utilities) + $400 (rent)
   • Left over: $700

4. Master Budget → All above combined into one picture

5. Flexible Budget → If you groom 75 dogs instead:

   • Revenue: $3,000
   • Adjusted costs: ~$1,150
   • New leftover: $1,050

Your Budget Checklist

✅ Start with sales expectations ✅ Plan what you need to produce ✅ List all operating expenses ✅ Track cash timing (in vs. out) ✅ Combine into master budget ✅ Use flexible budgets to compare fairly

Key Takeaways 🌟

Final Thought: A budget doesn’t restrict you—it frees you! When you know where your money goes, you stop worrying and start achieving. 💪

Remember: The best budget is one you actually use. Start simple, adjust as you learn, and watch your financial confidence grow!