Financial Guide for SMEs - SME Corporation Malaysia

BudgetingBudgeting is the tool that develops thestrategic plans of the business into afinancial statement by setting out forecastedincome, expenses and investments for agiven period. The budget will enable you toevaluate and monitor the effectiveness ofthe strategic plans as they are implementedand to adjust the plan wherever necessary.Most SMEs operate without large cashreserves to draw on; therefore, budgetingwill provide the financial informationrequired to assess if the strategic planswill support the ongoing operations.In short, budgeting is the processFinancial Guide for SMEsof planning your fi nances over a period. Budgeting can also provide anopportunity to plan for several years ahead in an effort to identify changingconditions that may affect the business operations and lead to fi nancialdiffi culties.Good practice budgeting requires the following:A budget is the futurefi nancial plan of thebusiness. It is wherethe strategic plansare translated intofi nancial numbersto ensure that theseplans are fi nanciallyviable• Preparation of strategic goals;• Budgeted timeline that is aligned to the preparation of financial statements;• Regular comparison of budgets against actual financial results as disclosedin the financial statements; and• Scope for amending activities and targets.In short, budgets are one of the most important fi nancial statements, asthey provide information on the future fi nancial performance of the business.If the budgets are planned and managed well, they will be the centralfi nancial statement that allows you to monitor the fi nancial outcome of theimplementation of your strategic plans.31Chapter 2-5 p22-65 Eng.indd 318/15/11 5:01:52 PM