Golden Rules: Making Balanced Budgets a Constitutional Obligation

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For managers and CEOs, there are some golden rules which assist in compliance with best practices. Making balanced budgets a constitutional obligation is one of the golden rules of best practice.

Balanced Budget means being in a state in which the total revenues of an organization are either equal to or greater than the total expenses. Balanced budget is commonly used to refer to official government budgets. Using balanced budget in financial organizations has a lot of benefits. It is a promising best practice for increased revenue. Having excess revenues means there is extra capital for more investments and hence more business.

For example, the government may issue a press release mentioning a balanced budget for the next fiscal year. Similarly, politicians sometimes campaign on promises of balanced budgets, when they are in office. If the government succeeds in incurring a balanced budget through best practices, it has a good impact on the economy of the country. Subsequently, this is a good achievement for businesses and leads to the promotion of more trade. This is why a balanced budget is a constitutional obligation.

Therefore, a balanced budget can refer to either of two situations resulting from best practices in a business organization. It could be when the revenues are equal to the expenses or when the revenues exceed the expenses. However, this should not be confused with a situation where expenses exceed revenues. When revenues exceed expenses it means that there are profits coming in and there is compliance with policies.

Making balanced budget a constitutional obligation requires certain best practices. It requires compliance with the recommendations of the Government Finance Officers Association (GFOA). There are certain policies which must be introduced as best practice. These policies are:

i)        Policies on Financial Planning

ii)       Policies on Expenditure

iii)     Policies on Revenue

Businesses which adopt balanced budget as a best practice have a secure future. It serves as a promise of financial success and stability. This is a major achievement and increases the chances of international trading. Therefore, including a balanced budget as a constitutional obligation is a recommendable best practice.

Further reading: Corporate Governance | Audit | Performance Improvement

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