Budgets are about money. They use very real terms—dollars—to define and quantify a company’s goals for a specific period of time. In fact, a budget is essentially a business plan expressed in monetary terms. It’s one thing for a business owner to want to double sales in the next year, and quite another to plan exactly how to do it. How much should be spent on advertising? Should more people be hired? How much inventory should be kept? By using a budget, a company can review how money has been earned and spent in the past—and can also plan how money will be earned and spent in the future to reach the company’s goals.

The money involved in doing business falls into two broad categories: income and expense. When a business earns money by selling goods and services, it receives income. Businesses may also acquire income from investments such as stocks and bonds. When a business spends money, it incurs expense. Some of its expenses are utility bills, salaries, advertising, equipment, taxes, and loans.