Report on Purpose of Budget and Business Finance

BUSINESS FINANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
Study of the purpose of budget and relevancy of traditional budgetary system in context of
contemporary and dynamic environment in which the business operates...................................1
Study of alternative budgetary system which is useful in the changing nature of business
environment.................................................................................................................................4
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................1

INTRODUCTION
Today, businesses are expanding at a greater speed to make proper allocation of resources
with the help of different approaches and tools. In order to expand the business entity, proper
sources are required that will help in proper estimation of the income and expenses. Budgeting is
the planning tool which helps to maintain proper balance between short term and long term
expenses that are incurred while carrying out several operations. It is an important component for
the financial success of business as it makes easier for people to make decisions to allocate the
resources. The present report will discuss about the purpose of budget and its relevancy in the
context of contemporary and dynamic environment in which the business operates. Further, this
report properly discusses about the alternative budgetary system which is useful in the present
environment to carry out the respective functions of business.
TASK
Study of the purpose of budget and relevancy of traditional budgetary system in context of
contemporary and dynamic environment in which the business operates
Purpose of budget in context of planning and control
In order to make proper balance between functioning of various operations of business, it
is necessary to maintain the proper balance and to manage the resources which are essential to
carry out the business (Meltzer and Moon, 2005). There are different purposes which help
business to predict the outcomes in order to implement the change in future. The planning and
control is determined over the accuracy of information which is obtained to coordinate the
different activities related to resource allocation, production and expenditure. The main purpose
of budget is discussed as below:
 Forecasting income and expenditure: Budgeting is an effective tool which helps to
forecast the income and expenditure that is incurred while carrying out the various
business operations. This helps the business entities to make prediction so that they
would be able to make profit by performing the activities and various operations. This
tool helps to forecast the strategies and plan to execute the operations in order to attain
profitability.
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 Wealth building: It is an elementary aspect that helps to manage the different operations.
This will determine an effective allocation of assets and resources for business in an
appropriate manner. It is necessary to plan the operations in a proper manner so that
investment would be made appropriately. This helps to determine the return and risk
associated with the business and to save the portion of income for wealth building.
 Tools for the decision-making: It is the tool which helps to take decision regarding
income and expenses that are related to the business (Kelly and Rivenbark, 2014). It
helps to design proper financial framework in order to carry out decision making process
to plan and control business activities to attain profit. This tools help in effective
management of different aspects that ensure proper control over the expenses related to
business operations.
 Monitoring the performance of the business: Main purpose is to monitor the performance
of business that can be measured with the help of evaluating actual outcomes. This will
enable the business to meet expectations and to identify the variance in expenditure that
is incurred over the business operations. This determines the successful functioning of
business as per the set performance standards.
 Managing the stress: The budgeting tool helps to manage the stress which is associated
with the income and expenditure over the business in order to attain maximum profits.
This tool helps to effectively allocate different resources that are to be maintained in
order to control the respective operations of business (Hagel, 2014). Besides this, it also
helps to effectively plan the operations in an appropriate manner so that the focus is laid
upon the operations to meet the business objectives.
Traditional budgetary system
This system indicates different aspects which are related to the amount of money that is
allotted during specific time period in order to carry out the various operations (Gallani,
Krishnan, Marinichand Shields, 2015). It is designed with the specification that is required to
perform the task and activities in an effective manner. The system starts with the allocation of
income which is incurred by performing the activities that are assigned to generate profit. It
requires proper analysis of traditional methods that are adopted in order to allocate the resources
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