The Parts of a Budget
Time Periods
Budgets are typically broken down into more granular time periods. A ten-year plan will be broken into years, a five-year plan into quarters, and a one-year plan into months. In some instances, greater granularity (weeks or even days) may be required.
A long-term budget is generally used for planning only - to predict future income and expenses. Long-term budgets are generally revised periodically to keep them up to date with current trends.
A short-term budget (one year or less) is used for both planning and control - with "control" being the comparison of actual expenses to amounts budgeted as time progresses.
One important tip: do not use the assumption of a "typical month" when setting an annual budget. Many businesses are seasonal, and even those that aren't experience growth, so the amount of business (and activity, and expense) in November will not be the same as that in February. Instead, start with the smaller unit and roll the totals up.
The same is true in long-term budgets: future costs will be affected by inflation (at the very least), so assuming static amounts over a 20-year budget will not be very realistic. Also, a long-term budget should consider the lifespan of capital expenses (e.g., desktop computers need to be replaced every five years at least).
Types of Costs
The author lists and explains several different types of costs.
One fundamental distinction is between a fixed cost (does not vary with volume) and a variable cost (directly proportional to increase in throughput). In some instances, there are blended costs that reflect a base fixed price and a variable volume cost (such as commercial printing - a set-up fee for the press even if you print one company - or a cell phone contract that includes a number of minutes for a price and per-minute charges over that amount).
Fixed costs are not necessarily fixed amounts. The amount of a fixed cost can change, but generally according to factors other than production. For example, the amount of rent a store pays to a shopping center is fixed for the period of the lease, but it may increase when the lease is renewed. This does not have anything to do with the amount of goods sold.
In terms of recurrence, there are ongoing costs of running a business that arise from "normal" business operations. There are periodic costs of items that need to be done once in a while (taking inventory twice a year, for example). There are also start-up costs that are incurred to get a business up and running, but are not needed afterward. There may also be interim costs that are necessary for a time, but not before or after
EN: This is a very abbreviated list, not well explained or categorized. It gives a person the sense there are different kinds of costs involved, but it's very basic.
Forecasting Income
Forecasting income is a less common task for most managers: if you run a retail operation or work in the sales/marketing department, it will be necessary, but most managers work in cost centers.
The author suggests that two approaches an be used as a basis for predicting income number of customers served or number of units sold. In each case, you need to dig deeper.
New customers spend differently than established ones, and the numbers will vary based on marketing efforts. The addition of new customers and loss of old ones may change the profile of the "average" customer.
When it comes to items, their purchase may be cyclical as well. There may be a blended product line and each product may have a different cycle. There may be decline in sales of some products and growth in others.
The more granular you can be in forecasting, the more reliable your estimate will ultimately be (or at least the more reliable it will seem to be).
Accounting Codes and Concepts
The author provides some information about accounting for anyone who slept through the primer course (or never took it). Suffice to say that every penny spent in a corporation is meticulously tracked against budgets. I think he means to explain why a budget must be as specific as possible, and imply that a manager can't play it fast-and-loose with corporate resources.