Income budget: Difference between revisions

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{{infobox4
|list1=
<ul>
<li>[[LIFO Reserve]]</li>
<li>[[Inventory on hand]]</li>
<li>[[Fee structure]]</li>
<li>[[Burn Rate]]</li>
<li>[[Economic Value Added - EVA]]</li>
<li>[[Quality of earnings]]</li>
<li>[[Profit factor]]</li>
<li>[[Capture rate]]</li>
<li>[[Net income margin]]</li>
</ul>
}}
'''Income budget''' is a part of budgetting and a [[planning]] within an [[enterprise]]. It is a first step in a whole budget preparing. The aim is to evaluate with the best possible accuracy<ref>Donnes C. T. (2016), ''Practical Law Office [[Management]] '', p.322</ref>:
'''Income budget''' is a part of budgetting and a [[planning]] within an [[enterprise]]. It is a first step in a whole budget preparing. The aim is to evaluate with the best possible accuracy<ref>Donnes C. T. (2016), ''Practical Law Office [[Management]] '', p.322</ref>:
* number of partners, paralegals, assiociates and others,
* number of partners, paralegals, assiociates and others,
Line 29: Line 12:
From a perspective of a [[marketing]] management an income budget and an expense budget is tranferred into a profit and loss account. Sub-budgets coming from the budget are visible in enterprise's responsibility centres and at the end might be allocated to [[product]] or [[market]] groups<ref>Parmar J. (2013), ''Marketing Management'', p.31 </ref>.
From a perspective of a [[marketing]] management an income budget and an expense budget is tranferred into a profit and loss account. Sub-budgets coming from the budget are visible in enterprise's responsibility centres and at the end might be allocated to [[product]] or [[market]] groups<ref>Parmar J. (2013), ''Marketing Management'', p.31 </ref>.


== Consequences of overestimating and underestimating the income budget ==
==Consequences of overestimating and underestimating the income budget==
'''Overestimated''' income budget causes overestimation in an expense budget as well. Consequently, the enterprise might have '''net loss''' - the income is lower than estimated and is not covering expenses. '''Underestimated''' income budget causes underestimation in expenses. Consequently, the income is higher than expenses which gives positive financial output for the [[company]]. A conclusion is that it is better to conservatively approach the income budgetting. C. T. Dones suggests to use a ''time-to-billing percentage'' which means calculating actual amount of [[money]] needed but taking ratios depending on how much time upfront is needed<ref>Donnes C. T. (2016), ''Practical Law Office Management'', p.322</ref>.
'''Overestimated''' income budget causes overestimation in an expense budget as well. Consequently, the enterprise might have '''net loss''' - the income is lower than estimated and is not covering expenses. '''Underestimated''' income budget causes underestimation in expenses. Consequently, the income is higher than expenses which gives positive financial output for the [[company]]. A conclusion is that it is better to conservatively approach the income budgetting. C. T. Dones suggests to use a ''time-to-billing percentage'' which means calculating actual amount of [[money]] needed but taking ratios depending on how much time upfront is needed<ref>Donnes C. T. (2016), ''Practical Law Office Management'', p.322</ref>.


== Time-to-billing ==
==Time-to-billing==
The time-to-billing approach adjust actual amount of bills based on assumption that a timekeeper is not always able to bill at optimal level. It comes from sickness, vacations or unpredictable events of the timekeeper. Most of companies are using ratio from 85% to 100% billings. For example, using 95% ratio means 5% bills reduction. A very long medical leave or too few customers might be reasons behind not billing required number of hours<ref>Ruper B. (2007), ''Practical Law Office Management'', p.374</ref>.
The time-to-billing approach adjust actual amount of bills based on assumption that a timekeeper is not always able to bill at optimal level. It comes from sickness, vacations or unpredictable events of the timekeeper. Most of companies are using ratio from 85% to 100% billings. For example, using 95% ratio means 5% bills reduction. A very long medical leave or too few customers might be reasons behind not billing required number of hours<ref>Ruper B. (2007), ''Practical Law Office Management'', p.374</ref>.
{{a|Dominika Zaich}}
{{a|Dominika Zaich}}
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==Footnotes==
==Footnotes==
<references />
<references />
{{infobox5|list1={{i5link|a=[[Indifference point]]}} &mdash; {{i5link|a=[[Financial break even point]]}} &mdash; {{i5link|a=[[Committed cost]]}} &mdash; {{i5link|a=[[Net cost]]}} &mdash; {{i5link|a=[[Fixed cost]]}} &mdash; {{i5link|a=[[Net income margin]]}} &mdash; {{i5link|a=[[Doubtful account]]}} &mdash; {{i5link|a=[[Actuarial valuation]]}} &mdash; {{i5link|a=[[Cost oriented pricing]]}} }}


==References==
==References==
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* Herbst M. (2004), [https://wissenschaftsrat.ch/images/stories/archiv/CEST_2004_Governing_Managing_Research_Universities.pdf ''Governance and Management of Research Universities: Funding and Budgeting as Instruments of Change''], Center for Science and [[Technology]] Studies (CEST), Switzerland
* Herbst M. (2004), [https://wissenschaftsrat.ch/images/stories/archiv/CEST_2004_Governing_Managing_Research_Universities.pdf ''Governance and Management of Research Universities: Funding and Budgeting as Instruments of Change''], Center for Science and [[Technology]] Studies (CEST), Switzerland
* Kockelman K. M. (1998), [http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.43.5504&rep=rep1&type=pdf ''A model for time-and budget-constrained activity demand analyses''] in ''Transportation Research'', The University of Texas, USA
* Kockelman K. M. (1998), [http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.43.5504&rep=rep1&type=pdf ''A model for time-and budget-constrained activity demand analyses''] in ''Transportation Research'', The University of Texas, USA
* Lawless J., Vote H. (2018), [http://www.budget.gov.ie/Budgets/2019/Documents/Hospital%20Income%20-%202013-2017.pdf ''Budget 2019. Hospital Income – 2013-2017''], Department of Public Expenditure & Reform, Irland
* Lawless J., Vote H. (2018), [http://www.budget.gov.ie/Budgets/2019/Documents/Hospital%20Income%20-%202013-2017.pdf ''Budget 2019. Hospital Income - 2013-2017''], Department of Public Expenditure & Reform, Irland
* Parmar J. (2013), ''Marketing Management'', Amazon International
* Parmar J. (2013), ''Marketing Management'', Amazon International
* Ruper B. (2007), ''Practical Law Office Management'', Cengage learning, Boston
* Ruper B. (2007), ''Practical Law Office Management'', Cengage learning, Boston
* Thornton Ch. (2013), ''Stop Scrambling, Start Bringing Home the Bacon!'', MAOM, USA
* Thornton Ch. (2013), ''Stop Scrambling, Start Bringing Home the Bacon!'', MAOM, USA

Latest revision as of 23:41, 17 November 2023

Income budget is a part of budgetting and a planning within an enterprise. It is a first step in a whole budget preparing. The aim is to evaluate with the best possible accuracy[1]:

  • number of partners, paralegals, assiociates and others,
  • number of expected bills,
  • hourly charge rates,
  • number of billable hours.

Most of organisations have three types of budgets: an income budget, an expense budget and an annual budget. The goals of them are to:

  • provide finance' predictions,
  • give clarity on organisation's needs,
  • inform all stakeholders,
  • evaluate level of an accountability.

The income budget might consist of an income from: investments, a profit from sales, net incomes from a special event and in case of non-profit organisations (but not only): donations, tuitions, membership dues, gifts-in-kind[2]. From a perspective of a marketing management an income budget and an expense budget is tranferred into a profit and loss account. Sub-budgets coming from the budget are visible in enterprise's responsibility centres and at the end might be allocated to product or market groups[3].

Consequences of overestimating and underestimating the income budget

Overestimated income budget causes overestimation in an expense budget as well. Consequently, the enterprise might have net loss - the income is lower than estimated and is not covering expenses. Underestimated income budget causes underestimation in expenses. Consequently, the income is higher than expenses which gives positive financial output for the company. A conclusion is that it is better to conservatively approach the income budgetting. C. T. Dones suggests to use a time-to-billing percentage which means calculating actual amount of money needed but taking ratios depending on how much time upfront is needed[4].

Time-to-billing

The time-to-billing approach adjust actual amount of bills based on assumption that a timekeeper is not always able to bill at optimal level. It comes from sickness, vacations or unpredictable events of the timekeeper. Most of companies are using ratio from 85% to 100% billings. For example, using 95% ratio means 5% bills reduction. A very long medical leave or too few customers might be reasons behind not billing required number of hours[5].

Author: Dominika Zaich

Footnotes

  1. ↑ Donnes C. T. (2016), Practical Law Office Management , p.322
  2. ↑ Thornton Ch. (2013), Stop Scrambling, Start Bringing Home the Bacon!
  3. ↑ Parmar J. (2013), Marketing Management, p.31
  4. ↑ Donnes C. T. (2016), Practical Law Office Management, p.322
  5. ↑ Ruper B. (2007), Practical Law Office Management, p.374


Income budget — recommended articles
Indifference point — Financial break even point — Committed cost — Net cost — Fixed cost — Net income margin — Doubtful account — Actuarial valuation — Cost oriented pricing

References

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