The Budget as a Flexible Guide

1. Budget is used as a flexible guide.The budget does not represent business reality-it is merely a map describing where the business is going. A major mistake that often occurs with the budgeting process is thinking that money allocated to certain expenditure actually exists in the bank. Effective business owners constantly check the budget against operational reality and make changes in the budget as needed. Flexible budgeting in response to actual business performance is the mark of a shrewd businessperson. Too rigid adherence to the budget often leads to poor profit performance and even bankruptcy.