Budgeting Basics and Beyond

2.5. Time Period

The budget period depends on the objective of the budget and the reliability of the data. Most companies budget yearly, month by month. For example, a seasonal business should use the natural business year beginning when accounts receivable and inventory are at their lowest level.

The time period for a plan should be as far as is useful. The period chosen depends on many factors: the time to develop a market; production period; the time to develop raw material sources and to construct capital facilities; product development; and product life cycle. The time period also should take into account the type of industry, reliability of financial data and use to which the data will be put, seasonality, and inventory turnover. Shorter budgeting cycles may be called for when unpredictable and unstable events occur during the year. Short-term budgets have considerably more detail than long-term budgets.