Budget planning is an important component of financial planning, which is subject to the requirements of financial public policy. Its essence from an economic point of view consists in the redistribution of GDP between the elements of the financial system in the preparation and approval of budgets of various levels.
Budget planning represents the budget process in terms of the preparation, approval and execution of the budget. Its meaning is determined by the functions that are displayed on the state budget policy , the choice of directions of budget financing, based on the need for rational financing of economic and social programs of the country, the establishment of rational forms of mobilizing budget revenues and their optimal structure.
When developing the budget for the next year, only reliable indicators of income and expenses of taxpayers, as well as consumers of budget funds, should be used. Since the development of various industries, regions and enterprises is interconnected, it is necessary to take this relationship into account when forecasting the tax potential and other budgetary needs of the state.
Budget planning and forecasting are two economic tools that allow you to formulate a financial plan of the state for the future, taking into account certain indicators.
The most important condition for conducting business with the goal of making profit at any level is the continuous improvement of managerial methods. There is a kind of doctrine among business representatives: "To manage is to foresee." In connection with this worldview, planning and budgeting based on forecasting for the future are increasingly taking their positions. If financial planning is carried out for a long period, then the budget is calculated for one year (budget) and must be approved by a special legislative act.
Budget planning is carried out in the form of development and justification of the optimal path of development of the state with the help of the approved budget (it is a kind of balance at the state level between revenues and expenses). At the same time, the budget balance can be either positive (surplus) or negative (deficit).
In budget forecasting, various mathematical methods are used: extrapolation, when using which the results of previous periods are taken into account; and expert assessments, which is based on evaluations of specialists in individual branches of science.
If budget planning (mainly) is applied at the state level, then budgeting creates an integrated and effective management system and a separate business entity. At the same time, with a well-designed budgeting system, an enterprise has the opportunity to achieve those strategic goals that are determined by the company's management.
The term "budgeting" in translation from English means "planning".
In medium-sized companies, it usually comes down only to the creation of estimates of income and expenses. With an increase in turnover, it becomes necessary to conduct a more detailed analysis of their economic indicators, using all the same mathematical methods. Thanks to the efforts made and the additional funds spent, the manager will always have information about the state of his business both in the enterprise as a whole and in its individual structural divisions.
Budgeting should be used when the company attracts foreign investment. After all, any investor will want to have truthful and reliable information about his future business.