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Comparing Business Budgeting with Government Budgeting

Business and government budgeting are more different than alike. Budgeting within a business entity is more flexible and less restrictive than budgets used in governments. Here are some of the ways in which government and business budgets differ:

  • Government budgeting is preoccupied with allocating scarce resources among many competing demands. From federal agencies down to local school districts, government entities have only so much revenue available. They have to make very difficult choices regarding how to spend their limited tax revenue.

    Formal budgeting is legally required for almost all government entities. First, a budget request is submitted. After money is appropriated, the budget document becomes legally binding on the government agency.

    Government budgets are legal straitjackets; the government entity has to stay within the amounts appropriated for each expenditure category. Any changes from the established budgets need formal approval and are difficult to get through the system.

  • Business budgeting is not legally required. A business can implement and use its budget as it pleases, and it can even abandon its budget in midstream. Unlike the government, the revenue of a business is not constrained; a business can do many things to increase sales revenue.

    A business can pass its costs to its customers in the sales prices it charges. In contrast, government has to raise taxes to spend more (except for federal deficit spending, of course).

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