What is a budget?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A budget is a plan of the income a business expects to earn and the spending it expects to make over a set period, usually the financial year ahead. It turns business goals into figures, and once the period starts it becomes the yardstick that actual income and costs are compared against.
A budget puts a figure against each line of income and spending before the year starts, from sales to rent, insurance, wages, supplies and marketing. Writing it forces decisions about where money will go and what the business needs to earn to pay for it.
Once the year is under way, its value is in the comparison. Setting actual income and costs beside the budgeted figures, line by line, shows where the business is over or under plan while there is still time to respond. That comparison depends on up-to-date books, because a budget checked against incomplete records gives a false picture.
In Australia
business.gov.au describes a budget as your financial plan for the year ahead, and its glossary defines it as a listing of planned revenue and expenditure for a given period. It separates a budget, a plan for what you want to earn and spend in the financial year, from a forecast, which uses current financial data and recent trends to estimate what is likely to happen next.
To build one, it suggests starting with clear business goals, details of fixed costs such as insurance and rent, estimates of variable costs such as utilities and supplies, and an estimate of expected income. Historical financial data helps with the estimates; a new business can use market research or industry benchmarking instead.
It suggests writing the budget once a year and considering a mid-year review, and setting aside time each month to compare actual income and costs with the budget, using the figures in your profit and loss statement.
Worked example
| Item | Budget (AUD) | Actual (AUD) | Over or under (AUD) |
|---|---|---|---|
| Sales | 30,000.00 | 27,400.00 | Under by 2,600.00 |
| Stock purchases | 12,000.00 | 11,250.00 | Under by 750.00 |
| Rent | 3,500.00 | 3,500.00 | On budget |
| Repairs and maintenance | 400.00 | 1,040.00 | Over by 640.00 |
| Utilities | 600.00 | 710.00 | Over by 110.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Writing a budget at the start of the year and not looking at it again.
- Leaving out occasional costs, such as licence renewals or equipment repairs, because they do not appear every month.
- Comparing actual figures with the budget while the books are weeks behind.
Related terms
Related service
Management and cash-flow reports
Monthly reports that show where the business stands.
Sources
- Create a budget
business.gov.au, Australian Government. Current at 16 October 2026, released 14 November 2025. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.