Master Budget: Definition, Components, and Examples

How do finance professionals translate business goals into a comprehensive financial plan? It starts with the master budget.

Written by CFI Team

Reviewed by Jeff Schmidt

Read Time 4 minutes

What is a Master Budget?

The master budget plays a central role in financial planning and analysis (FP&A). It brings structure to the budgeting process by combining operating, capital expenditure (CapEx), and cash budgets into one coordinated plan.

A company’s budget committee develops and approves a master budget for the organization. This committee typically includes senior management, the CFO and FP&A team members, and other department heads. Once finalized, the master budget produces a complete set of forecasted financial statements, including the income statement, balance sheet, and cash flow statement.

Understanding the master budget and its components is a critical step in building a budgeting process that aligns strategy with planning and resource allocation.

Key Highlights

A master budget combines a company’s operating, capital expenditure (CapEx), and cash budgets into one coordinated plan.

Once approved, the master budget is used to produce a complete set of forecasted financial statements for income, cash flow, and the balance sheet.

As a vital tool for FP&A professionals, the master budget provides an ongoing reference point for financial results and decision-making throughout a fiscal year.

What Goes Into the Master Budget?

The operating budget, capital expenditure (CapEx) budget, and cash budget combine to form the master budget. Each one plays a specific role in helping a company plan for revenue and expenses, long-term investments, and cash needs across the budgeting period.

Here is what each component brings to the master budget:

Operating Budget

The operating budget forecasts revenues and expenses associated with the company’s core activities. It typically includes detailed projections for sales, cost of goods sold, salaries, benefits, and non-salary operating expenses. In many cases, companies also incorporate supporting details like headcount or departmental breakdowns to ensure accuracy and accountability.

Capital Expenditure Budget

The CapEx budget is a plan for significant investments in long-term assets, such as new equipment, property upgrades, or technology systems. It helps prioritize investments that support growth, while making sure the timing and cost of those projects fit within the company’s overall financial plan.

Cash Budget

The cash budget estimates the timing and amount of cash inflows and outflows over the budgeting period. FP&A professionals use the cash budget to plan for the cash needed to cover operating costs and other payments. They also use it to estimate how much cash the company expects to receive during the period.

FP&A professionals carefully build each of these component budgets, then combine them to form the master budget.

Example: Master Budgets for Different Businesses

The master budget framework can be applied across all types of businesses, but the inputs vary based on how each company generates revenue and manages costs.

Here’s how it looks in practice across different business models:

Business Type	Revenue Driver	Key Budgeting Focus Areas	Example Capital Needs	Cash Budget
Manufacturing	Product volume × unit price	Sales forecasts, materials, labor, overhead	Equipment purchases or facility upgrades	Production and equipment
Retail	Number of units sold	Sales forecasts, inventory purchases, store operating costs	Store renovations or online platform development	Inventory and store operations
Service	Billable hours × hourly rate	Billable hours, staffing plans, support costs	Office expansion or new tech tools	Headcount and overhead

Although the business models are different, the purpose remains the same: to connect strategy, operations, and financial resources in one complete budgeting framework.

Master Budget for a Retailer — Source: CFI’s **Budgeting Processes** course

Why the Master Budget is Important for FP&A and Strategy

Once the master budget is complete, it becomes a vital tool for FP&A teams. It serves as an ongoing reference point for managing performance and supporting decision making throughout the year.

Here’s how FP&A teams use the master budget day-to-day:

Align operations with strategic goals: The master budget provides clear financial targets for each department, helping different teams stay focused on strategic priorities and manage costs effectively.
Monitor and manage performance: FP&A teams compare revenues and expenses to the budget to track and compare actual results to the budget. They perform variance analysis and investigate the causes of performance issues.
Support resource planning and capital allocation: With all budgets rolled into a single master budget, FP&A teams can assess whether spending plans are feasible given projected cash flow and funding needs.
Drive company-wide accountability: Department leaders are responsible for staying within their budgets, which encourages better planning and coordination with other teams.

The master budget helps FP&A teams track how actual revenues and expenses compare to the plan. It also supports decision making, such as spending adjustments or forecast updates.

Master Budget - Variance Analysis — Source: CFI’s **Budgeting Processes** course

Master Budget: Take the Next Step to Build Your Skills

The master budget is just one part of a larger budgeting process. Its real value comes from connecting an organization’s strategy, operations, performance monitoring, resource planning, and financial accountability.

If you’re looking to understand how budgeting works from start to finish, CFI’s Budgeting Processes course covers the full picture.

Ready to take your FP&A skills to the next level? Explore CFI’s courses tailored for FP&A professionals and start building the expertise you need to excel in strategic financial planning.

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