Understanding Business Finance and Budgeting Techniques

This document provides an overview of business finance and budgeting techniques. It discusses the purpose of budgeting, the budgeting process, and the application of traditional budgeting approach. It also explores alternative budgeting methods like activity-based budgeting, zero-based budgeting, and rolling budgets. The document is relevant for students studying business finance and management.

Running head: BUSINESS FINANCE
Business finance
Name of the student
Name of the university
Author’s note

1
BUSINESS FINANCE
Executive summary:
The topic describes the business decisions which have been implemented by the
company through the implementation of the auditing techniques and the whether the new
techniques will be implemented by the company in order to sustain the progress of the
business. Hence the company could be helpful in making the proper business decisions in the
company.

2
BUSINESS FINANCE
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Part A.....................................................................................................................................3
Purpose of budgeting:........................................................................................................3
Budgeting process..................................................................................................................4
Application of traditional budget approach:..........................................................................5
Appropriateness of the traditional budget technique:............................................................7
Part B......................................................................................................................................8
Understanding the different budget methods:........................................................................8
Applications of the method in the business;..........................................................................9
Which of the process company could implement:...............................................................10
Conclusion................................................................................................................................11
References:...............................................................................................................................12

3
BUSINESS FINANCE
Introduction
The study deals with the understanding of preparing the budgeting concept and the
budgetary policy which Snappy Drinks Plc. Company will be following in the business.
Apart from this the topic also deals with the budgeting policy which the company follows
regarding to improve the business model. Apart from this the topic also discusses about the
traditional budgetary business models which will be helpful for the company to plan the
future cost management for the specific business and the products and procedures which the
company would like to follows in the future. Lastly study deals with the alternative budgeting
systems like zero based budgeting, activity based budgeting and rolling based budgeting and
the implication of those methods in real time with a suitable conclusion at the end.
Discussion
Part A
Purpose of budgeting:
The overall purpose for the budgeting is to plan the different phrases if the business
operations, coordinate the activities of the business departments of the firm and to ensure the
effective control of the business. Hence in order to accomplish the objectives the budget aims
at attaining the following objectives –
1. To prognosticate the firms future sales of the business, production cost and other
expenses in order to earn the desired amount if income and minimize the possibility if
the business losses (Weetman 2010).
2. The forms future financial condition and future need of the firms are to be funded and
to be employed in the business with a view to keep the firm solvent.
3. To coordinate the composition of capitalization in order t ensure availability of funds
at the common objectives.

4
BUSINESS FINANCE
4. To accelerate the efficiency of operation in the business departments, division and
costs centres in the firm.
5. The company needs to fix the responsibilities of the departmental heads.
6. To ensure effective control over the firms cash, inventory and sales.
7. To facilitate the centralised control over the firm through the budgetary system.
Budgeting process:
The budgeting process has to be administrated efficiently in terms of the initial
planning and, final approval and subsequent monitoring of the business. Hence a budget
committee is usually formed to manage each stage of the budgetary process (McLaney and
Atrill 2015). The accounting staff will have a cash involvement. The budgeting process will
need to be set out on the manual which s available on all the aspects. Hence a continuing
cycle is evolved when the initial budget is prepared .negotiations take place with the manages
and initial budgeting are revised, the final budget is revised and accepted for the business.
Later on the review of the tactics is made of the actual budgeting performance. Thus the
budgeting cycle continuous to roll on.
The budget committee: This committee is important in implementing the budgeting
decisions. When the budgeting committee is formed comprising of the senior managers
who are responsible for the decisions making and strategy designing. However the budget
committee receives the initial budget for the functioning manager. Thus there is a
motivational factor for the budget preparation and it is important that the functional
manager understands the budgeting aspects properly and implement negotiations.
Sequence of the budgeting process: There are various budgeting process which helps
the company in implementing the budgeting decisions. Hence the Snappy Drinks Plc.
Company could follow the below budgeting sequences like-

5
BUSINESS FINANCE
1. Communicating the budgeting details of objective and strategies to implement to
those responsible for budget preparation and coordinate the overall linkages of
objectives and strategy.
2. Communicating the details of the budget preparation procedures which are
responsible for preparation of the budget ad response to the question or concerns.
3. Determining the factors which restricts overall budgets flexibility and forms the focus
of the business and implements the budget cascade to evaluate the limiting factor.
4. Preparation of initial budget sets.
5. Negotiable budgets with the line managers.
6. Co-ordinateand review budgets.
7. Accept budge in the final form.
8. Carry out the ongoing review of the budgets as they were readily implemented.
Application of traditional budget approach:
It is a method of preparation of the budget in which the last year’s budget is taken
care of as a base. Current year budget is prepared by making the positive changes in the
previous year budget by adjusting the expenses based on the inflation rate, consumer
demand , market situation etc. however the past years budget is adjusted by adjusting the
expenses along with the cost and revenues of the business. Hence only one items are to be
justified in the business which are over and above the last year’s budget. However thus
budget is very much different from zero based budgeting and activity based budgeting. Hence
thus kind of budgeting techniques will be helpful in implementing the future cost of snappy
drinks PLC Company in maintaining the future cost of the business and to see how the
traditional based budgeting system will be helpful. Hence there are various advantges and
disadvantages of the traditional budgeting. The advantages of the traditional advantages are
as follows-

6
BUSINESS FINANCE
1. Implementation: This process is easy to implement and could be prepared faster as
not many changes are required in changing the previous year budget. This saves a lot
of time and effort to implement the business decisions.
2. Stability: this is an important old budget preparation method and most of the
organizations are used to it. Hence it can bring the stability in functioning the
organization, as the financial changes are done with the coordination’s and the changes
which are need to be done.
3. Decentralization: Traditional approach helps in promoting the decentralization in the
organization like in the case of the banks. Hence any branches situated from the
headquarters can prepare a budget on its own and can make a changes in the process
within the allocated time .
4. Disadvantages of the traditional budgeting:
The main disadvantages of the traditional budgets are as follows-
1. Fixed and rigid: the traditional budgets are prepared by the top management by
making few important changes in the last year’s budget. Hence it promotes
bureaucracy .Soother people in the company feel ignored or unimportant. Hence the
other people te=he organizations could feel unimportant or demotivated.
2. Excess reliance: The traditional budgets could put excess amount of reliance in the
past few years, hence the past few budgets are prepared by the business and with
inaccuracy. Hence the same could be used in the case of the company to carry forward
the current year’s budgets of the company. Hence it would lead the preparation of the
current budget which can harm the business of the company. For example the capital
budgeting technique would be an important example of traditional budgeting system.
This is a system which all the company uses to make business. Similarly the Snappy
Drinks Plc. Company could implement the same technique I order do the

7
BUSINESS FINANCE
budgeting(Drury b2016). Since the main focus of the company is to do produce and sell
soft drinks , thus the budgeting technique they could apply in the company is the daily
book keeping of raw materials for making the soft drinks manufacturing cost, bottling
cost, export cost of the raw materials and the daily profit and losses made by the
company on a monthly basis, part from that if the company wants to expand their
business, increase the set up a new plant in any place or increase the number if
distributor of the soft drinks , thus could also be implemented by the company in their
daily budget. Hence the traditional budgeting technique could also be helpful for the
company in implementing the business decisions .
Appropriateness of the traditional budget technique:
The traditional budgeting technique is very common to all business enterprise due to
its roles in achieving the corporate objectives. Hence budgeting is the key to the survival of
the business from the point of formulationto the point of implementation. Accounting system
relies heavily on the cost of standard, performance and target information of the business to
enable the decision making and the management to prioritize the activity within resource
limit. However the budget keeps track of the organizational performance, goal
communication and also enables the planning and control mechanisms to be effectively
pursued in the organization. Hence the responsibility centres is guided by the budgetary
allocations which spells out the visions and the expectations of every unit .it ensures that sets
target are achieved within performance a reasonable time frame .Hence the budget is
instrumental to the performance evaluation, formulation, and implementation of strategies,
optional monitoring and control mechanism and so on. Hence the budgets fundamentally
provide the linkages between organizational goals and performance towards the goals and
espouses any limitation in form of evaluation . Hence it communicates both targets and
performance to the management and predisposes any favourable performance and punishes

8
BUSINESS FINANCE
slack. Hence it clarifies that the traditional business have had an immense importance on the
business and it is very much implacable for the soft drink company also.
Part B
Understanding the different budget methods:
Apart from the traditional budgeting techniques technique the company could
implement different alternative budgeting technique which can improve the company
business in a log way, hence it is important that there other budgeting techniques could be
well implemented by the soft drinks company. One such technique is Activity Based
Budgeting method (ABB). The main focus for this budgeting technique is to authorize the
supply of only those resources which are needed to perform the activities require to meet the
budgeting decisions and the sales volume. Hence the ABB process involves the following
aspects which are as follows-
1. Production estimation and sales volume by individual products and services.
2. Estimate the demand for the organizational activities.
3. Determine the resource to perform organizational activities.
4. Estimation of every resources which quantify that the resources must be supplied to
meet the demand .
5. Actions are require to adjust the resource capacity of the company to meet the
projected supply. Hence this method is similar to the traditional budget technique but
it is more updated than the old approach as well as the outcome of it is authentic .
Drawbacks: the possible drawbacks of this method is follows-
1. This budgeting technique requires understanding .
2. It is very much complex.
3. It requires complex consumption .

9
BUSINESS FINANCE
Zero based budgeting: This technique is emerged as of an important an important area to
overcome the limitations of incremental budgets. This approaches requires that the projected
expenditure of the existing activities which should be started from zero base rather than the
activity based costing policy. Apart from the managers are required to justify all budgeted
expenditure of the busies rather than the changes implemented in the previous year. Hence
the main focus of this technique is the programming of the activities instead of the functional
departments undertaken by the municipals and governments. The focus of this process is
1. A description of each organizational approach in decision making package.
2. The evaluation and ranking of the decision making packages in order to improve the
priority.
Disadvantages:
1. It requires more time.
2. It might be expensive.
3. Requires much manpower.
4. Lacks expertise.
Rolling budgets: It is continuously updated and added a new budget period as the most
recent budget technique when it is completed. Thus the rolling technique budget involves the
incremental decisions for making the budget models. Hence by doing to a business decision
is always been extended in the future. However many companies do not use this process as
they move away from the traditional techniques .
Applications of the method in the business;
The implementation of the Snappy Drinks Plc has some benefits to certain facilities to
be made available. The activity based costing is a system which could be useful in managing
the soft drinks and beverages by the departments by providing the capacity utilization and

10
BUSINESS FINANCE
resource allocation than the traditional budget system. Thus paper studies the differences,
benefits which maybe faced by the companies in the implementation of ABB system which
enables that thee lacks are to be sophisticated into the soft drinks making system. This is a
business technique which could help the company in one of the business ideas which the soft
drink company could introduce into the conversion when they want to impress certain
companies and the investors. But the concept does not need to use the frighten event. Hence
it’s important for the company to apply certain business management techniques and the
company could also imply the same within the business. Thus it could help the company to
grow the suitability in the business. Therefore the zero based budgeting could be an important
aspect for the business. Apart from that the rolling based budgeting is also an important factor
for the business. Hence the company fixed assets covers a fixed period of time usually one
year, the companies create such budgets at the end of the preceding year and it follows it
without the adaptation of the business and regardless of the business activity, thus the sales
could be deviate from the estimated rate and budgeted figures are changed. Thus the
company could also allow the firms to be flexible and adapt the new changes
Which of the process company could implement:
1. The zero based budgeting is a method where all he expenses are to justified for every
new period. However in the zero based budgeting technique all the functions in the
organizations are analysed and the budget would be centred for the needs of the
budgeting period (Kelly and Rivenbark 2014. ).
2. ZBB can be termed as the re-evaluation of the business and expenditure of an
organization. When approaching the budget from the zero and the managers of an
organization have into account of two types of alternatives like various way of
carrying out the same activities and various levels of effort for carrying out the

11
BUSINESS FINANCE
objective. Thus it can be depicted that the both of the activities could be implemented
in the soft drinks business.
Conclusion
This it can be concluded that the company’s budget policy can be implemented well
in the business and the traditional business approach will be also useful for the company to
generate business. Apart from this there are many business approaches like zero bed
budgeting, activity based budgeting and rolling budgeting technique which could be easily
implemented by the company if they want to improve themselves. Thus it can be said that the
traditional budgeting system could be well implemented by the company in order to manage
sustainability.
\

12
BUSINESS FINANCE
References:
Weetman, P. (2010). Management Accounting. Harlow: Pearson Education UK.
McLaney, E. and Atrill, P. (2015). Accounting and Finance. Pearson Education UK.
Drury, C. (2016). Management accounting for business decisions. London: Cengage
Learning.