Plain definition
A master budget is the integrated plan for a whole business. It links the operating plans that create revenue and costs with the cash, investment, and financing plans that show whether the business can carry them out. Its purpose is to make the consequences of one department’s assumptions visible to the others.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A manufacturer plans to sell 12,000 units in the quarter at each, giving revenue. To meet that demand, production plans 12,500 units after allowing for inventory, purchasing orders materials, and HR schedules three temporary operators. The purchasing plan requires a supplier payment in May, while customers are expected to pay 60 days after sale.
The master budget puts of expected customer collections, of payroll and other operating payments, and the supplier payment into May. Opening cash of therefore falls to : 300,000 + 520,000 − 320,000 − 420,000. The approved minimum cash balance is , so this plan falls below it. The quarter may be profitable, but management needs a collection change, a supplier-term agreement, or financing to protect that minimum.
| Units to sell | |
|---|---|
| Price per unit | |
| Revenue |
| Opening cash | |
|---|---|
| Customer collections | |
| Payroll and other operating payments | |
| Supplier payment | |
| Projected closing cash |
A master budget is a linked model, not a folder containing separate departmental spreadsheets. The same sales volume and timing must flow through every relevant schedule.
Why it matters
A sales plan can look attractive while its inventory build and credit terms create a cash strain. Separate budgets often conceal this contradiction because each owner can be right within a different set of assumptions. The integrated view prevents approval of a plan the business cannot fund on its own timetable.
Practical consequence
Start with the agreed demand, price, and service assumptions. Connect them to production or delivery capacity, procurement, payroll, capital spending, collections, payments, and financing. Have each owner validate the inputs they control, then let finance test the consolidated profit, cash low point, and funding need. Change the linked assumptions together; a master budget is unreliable when one schedule is updated and its downstream schedules are left unchanged.