Budget Budget is the major financial and economic statement. The role of the budget is to keep track of the money coming in and the money going out. It is essential part of running any business effectively. It can help make a short and long term projections about financial situation, avert a financial crisis and plan for major financial changes. The company has to be able judge its spending performance. Does not matter what type of company it is, the ability to measure performance using budgets is an important process in any business organisation.
Planning helps to understand where business is at present and where it is going to be in the future. Company’s planning process has to involve different developing objectives and prepare various budgets to achieve these objectives. There are four main stages in the business planning process, such as clarifying the strategy, marketing, drawing up an operational plan setting, and translating all of this into the financial forecast. It will help to understand if company’s plans will be profitable. Financial forecast is essential management tool, especially profit and loss and cash flow.
Company has to be sure that their forecasts are updated regularly. When forecasts are completed, company can start planning. Company can find their own effective way to prepare their budgets. There are two choices of setting a budget. First choice is top down imposition which is prepared by top management, and the second choice is bottom up participation which is prepared by supervisors and middle managers. In management view, participation in decision making often bring advantages to organisations by allowing information to be gathered in any sources.
Companies should use spreadsheet or similar software to create their budgets, such as such as Quicken and Microsoft Money. They also can use monthly intervals, which will allow them to view the company’s progress against their targets. Budget should also include results from 12 months previously for comparison purposes. There are many advantages of budgeting. For instance, by doing reality checks, company can see straight away whether or not they are spending more than making. Another advantage is control and evaluation.
It helps to think about how to correct company’s problems, if they have them. Motivation is another important advantage. Budget can motivate to reach the goals. It also can force managers to think and plan for the future. Budgeting helps to ensure that everyone in the organisation is pulling in the same direction. The budgeting process provides a means of allocating resources to those parts of the organisation where they can be used most effectively. A budget can be disadvantageous also. There is judgment and subjectivity in the budgeting process.
It does not consider quality and customer service. Budgets can be seen as pressure devices imposed by management, thus resulting in: bad labour relations. Budget could results departmental conflict arises due to disputes over resource allocation, and departments blaming each other if targets are not attained. It is difficult to reconcile personal and corporate goals In conclusion, every major company in the world uses budgeting and there is a good reason for that. It is an important component of financial success.
Budgeting makes easier to achieve financial goals. It keeps track of all expenses and help to avoid crisis. It also helps companies to control their growth and provide them with realistic idea where business is going. http://www. investopedia. com/articles/07/budgetingforcompanies. asp http://ezinearticles. com/? Role-of-Budgeting-in-Planning,-Control,-and-Resource-Allocation-Process-in-UAE-Companies&id=4472289 http://www. ehow. co. uk/info_7889568_role-budget. html http://www. investopedia. com/university/budgeting/basics1. asp