Forecasts and Budgets

The object of going into business is to make a profit. But how do we ensure that we achieve that objective? The answer is that we must plan what we are going to do. If we plan what we are going to do, we can set out that plan in figures. The profit and loss accounts prepared in the examples so far have told us historically how much profit or loss we have made. In planning we prepare profit and loss accounts and balance sheets for future periods of time. If we then examine our plans or forecasts we can take any of the following actions: (i)Accept the plan as giving us a satisfactory profit and make business decisions based upon that plan.(ii)Amend the plan because we consider the profit inadequate.(iii)Scrap the plan completely and start on fresh plans.