Budget is the first step to cover all the business activities which include financial planning, business planning, resource planning, human resource planning of the organization for a particular period. and Master Budget is the head of the budget which is made up of all the small budgets with a big budget and then the company runs according to the same budget.
The Master Budget is made by taking all the department plans of the company because by mixing the activities of every department, the master budget is obtained and each department needs a master budget to execute the firm’s plan.
When we start a business, we need to make a business startup budget to run the business operating activities but after setting up the business, we need to make a low-level budget for each activity such as sales, marketing, expenses, income, cash flow, capital structure, production, purchasing, etc. and these activities budget are included in the master budget.
What things are needed to make a Master Budget?
We think plans and strategies are the key aspects to make a master budget.
Planning: Starting an activity in an organization without planning also means taking a risk. Planning is the priority in all organizations because it is made on a budget or master Budget.
The Master Budget has been called the biggest budget because it consists of the plans of all the budgets. Without planning, we can’t make any single budget because the budget is created with planning, and planning is created with a budget.
Every company section has a plan for each activity with its valuable budget because the budget is the first step that makes planning successful.
Strategies: The Budget needs a strategy to make because strategies give the direction to the employees for their first startup activity to achieve the first project.
Strategies are created according to the market condition, situation, environment, scope. Strategies and Master Budget are also interlinking because the strategy is dependent on budget and budget is also dependent on planning and strategy.
Who is responsible for the Master Budget?
The Organization’s board of directors, analysts, and the committee is always responsible for the master budget and plans because they set a budget according to the previous year’s performance.
They are usually holders of the company that makes financial plans by keeping in mind the operating activities, financial activities, physical activities, and other business activities because the master budget contains more cost, rather it is an expensive process.
And the company executing these budgets has employees and employers, who are always accompanied by supervisors, managers, and other seniors to guide them.
Motive of Master Budget
The motive of master budget is to achieve its commercial projects by using these budgets because these budgets help company to fulfill their requirements, goals, reduce risk and less involvement of expenses with great net income from revenue. These budgets cannot fulfill company’s requirement but also meet their advanced goals that reach the organization far.
What does the Master Budget involve?
The master Budget is made on the organizational structure because every firm runs with their available resources so that their budget does not go wrong. Now these are some low-level budgets without the master budget is of no importance and the master budget is made for all budgets after analyzing all the budget plans.
Sales are the first analyzing step to make a budget from last year’s sales. Every business fixes a budget for sales according to available goods or services. Organizations always measure the last year’s sales and then they prepare a budget for the current year. This helps them to generate their revenue by doing more sales with a well-developed sales budget.
Every company has its product, there are many products for which they do the production. You know Production depends on sales because companies always look at the last year’s sales performance and do production according to the last year’s sales. This helps to reduce their extra expenses because they think production should always be done for the previous year’s sales. After all, if the sale was less so they also do less production for the upcoming year.
Companies have more expenses when they do such types of activities like production, purchasing, sales, employees expense, labor expense, etc. but still, they suffer these expenses because these expenses are incurred in every company every on a monthly, quarterly, or annual basis and no one can ignore it but can reduce as much as possible. So if a company can make a budget for expenses, they can reduce some extra costs which are fixed (payments, salaries, insurance, property taxes, depreciation, interest expenditure) and variable cost(direct labor cost, cost of raw materials, utility cost, commissions on sales.
Purchasing goods or services
If we start a company we also have a purchasing department that is held by the purchase manager. The Purchasing manager also purchases goods or services according to the master budget because this budget company cannot go in the wrong direction.
If we prepare a true and valuable budget, at the end of the year, we get a proper balance sheet with the right amount of accounting transaction such as assets, liabilities-. It clears all the accounting process such as bookkeeping.
Capital structure budget
We have to make a master budget according to the capital structure of an organization because if we already have a proper investment structure so we can easily earn a good income.
The capital arrangement also depends on this budget because this capital can be arranged from any lenders, banks, or financial institutions which are used for purchasing fixed assets for the firm.
We can make this Budget only when we have enough cash so that we can manage all the cash inflow and outflow activities of the business.
The motive of the company to prepare a this budget is to generate income from revenue by doing more sales. Proper income budget came out from master budget plans which helps to get high net income.