Business Finance Report

This report examines the role of budgeting in business finance, focusing on Snappy Drinks, a company planning to launch new drinks and establish a new manufacturing venture. It analyzes traditional budgeting approaches, their limitations, and alternative methods like rolling, zero-based, and activity-based budgeting. The report concludes by recommending suitable budgeting methods for Snappy Drinks based on its specific needs and goals.

Business Finance

Table of Contents
EXECUTIVE SUMMARY ............................................................................................................3
PART 1 ...........................................................................................................................................3
(i) Purpose of budgets in context to the development of business model....................................3
(ii) Traditional budgeting approaches .......................................................................................5
(iii) Traditional budget is appropriate to all or some part of business in future form..................5
PART 2 ........................................................................................................................................6
(iv) Rolling, zero based and activity based budget......................................................................6
(v) Application of above mentioned budgets..............................................................................7
(vi) Analysis budgeting methods in context to the corporation...................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

EXECUTIVE SUMMARY
This report summarise about business finance & purposes of preparing a budget for the
corporation. As the finance is the essential need of business and without it business operations
can not perform. In the financial activities budgets plays an important role and it required for the
company to make budgets so that it can estimate income and expenses related to the future.
There are various topics are covered in this report such as: application of traditional budgeting
approaches and systems, alternative budget methods like rolling budgets, zero budget and
activity based budgets and the budgeting methods which are suitable for the company.
PART 1
(i) Purpose of budgets in context to the development of business model
Budget is an estimation of future income & expenses and it is related to a specific period
of time. In the financial planning it is very important and finance manager of an organisation is
responsible to prepare budget in order to achieve the goals of company. As Snappy Drinks makes
budgets in order to launch new drinks & to establish a new manufacturing venture. There are
various purposes of making budgets which are as mention below:
To forecast income and expenses: Budgets are helpful to estimate future income &
expenses. As Snappy Drinks is planning to set up a new manufacturing plant and for that purpose
it is required to analyse the income and expenditures which are arises in the future so that
company can measure the of its business after completion of one year (Vasant, 2012).
Tool of decision making: For the growth of busienss it is important to take better
decisions other wise company can not sustain for a long term and it have to suffer form the
financial losses. As the manager of Snappy Drinks can take effective decisions which are based
on budgeted income & expenditure so that business of organisation will grow and get success.
Monitor the business performance: To monitor the business performance is important
for the organization so that it can know how the work is going and what are the required actions
can be taken for the further improvement. As Snappy Drinks can measure its performance
through budgets because it helpful to estimates income and expenditure and on the basis of it
company can make comparison with previous year and analyse the growth and performance
improvement. Corporation can determines its financial performance by comparing actual cost
accrued in manufacturing with the budget cost (Ziemba and Vickson, 2014).

Prepare an action plan: To prepare an action plan is important for an organisation so
that predetermined goals and objectives can be accomplish as per the requirement. As Snappy
Drinks can make budget and on the basis of it company can make better plans which are helpful
for the growth and success of busienss (Storey, 2016).
Process of preparing budget:
To prepare a budget it is require to follow a systematic process and it is depend upon the
size of corporation. There are following steps which are followed by Snappy Drinks and these
are as mention below:
Set realistic goals: For an organisation it is important to set specific goals in order to
achieve the targets and without it objectives can not be fulfil. As Snappy Drinks can set realistic
goals in context to the business growth while make budget and it should be for specific time
period. (Scholes, 2015).
To determine income and expenses: To analyse income and expenses is important for
the organisation and for that purpose income & expenditures of previous year is require to be
determine. As a result it will be easy for Snappy Drinks to analyse the gain and expenses for
future and it also provide help in comparison with previous year and current year.
Availability funding: To know the sources of funds are important in order to carry
busienss activities for a long term. While making budget, it is important for Snappy Drinks to
mention the sources of funds which are helpful for the growth of business.
Set savings & debts pay off goals: As Snappy Drinks can determine savings and income
and also pay off debt so that it can know the performance of business.
Create budget package: It is require to copy forward the basic budgeting instructions
form previous year and it is necessary to update information of actual expenditures of current
year & analysis these after after create package of budgets in context to Snappy Drinks.
Review the budget: After making budget it is important to review the budget so that
shortcomings can be analyse and corrective actions can be taken for further improvements
(Rogers and Makonnen, 2014).
As budget making process is helpful to develop the busienss model and it is needed for
the future planning and strategies. On the basis of plans and strategies organisation can develop
its business model reason being it comprise of all financial information. The company Snappy
Drinks wants to take two important decisions such as: to launch new drinks and to set up new

venture. With the help of budget process organisation can know how much income and expenses
will occur while developing business model. So with the help of budget process business model
can be develop which support the growth of busienss (Oakshott, 2012).
(ii) Traditional budgeting approaches
As traditional budget approach is that approach in current year budget is prepare on the
basis of previous year budget information and data. It is very old techniques and there are
various companies which are using this tool. From last 15 years Snappy Drinks is using budget
making approach and it provide help in the business. As corporation is planing to establish new
manufacturing unit outside United Kingdom so traditional budget approach is beneficial in
context to proper cost management and to earn estimated income. There are various approaches
includes in it which are as describe below:
Incremental budget: These type of budgets are prepare on the basis of previous year
budget & incremental amount is added in current budget. As Snappy Drinks is try to launch new
venture so it is important for it to use this budget. Where as company is traditional budget for the
future planning and growth.
From the last 15 years Snappy Drinks is using traditional budget and it is beneficial for
the organisation to generate the revenue of £550 last year. This traditional budgeting approach is
helpful for the growth of company as well as proper cost management reason being it is based on
past year information. Last year corporation earn sufficient profits by following this approach
and it will helpful for the future also. As an instance, corporation wants to launch new flavour of
drinks and if firm use this budget approach than cost can be manage and profits will be
maximize. As this specific approach is based on previous year data so it is beneficial for the
organisation to use it to anticipate future income and expenses.
(iii) Traditional budget is appropriate to all or some part of business in future form
Now a days traditional budget does not used by the organisations because it is older
technique and based on previous year data and information. But it is simple to use and less time
consuming process. As Snappy Drinks is using this approach from last many years but it does
not mean that in future it will be successful (Morris, 2012). Company wants to launch new
flavoured drink and wants to establish new manufacturing unit so it is not guaranteed that
traditional budget approach will be beneficial for future. As there are different advantage &
disadvantage of this approach which are as describe below:

Advantages:
 It provides help in decision making process for the growth and success of company.
 Traditional budget is helpful to provide framework to control the unnecessary expenses.
 Traditional budget approach is easy to understand and implement and cost effective also.
Disadvantage:
 As traditional budget approach is not flexible because it is based on past year data. As
Snappy Drinks want to establish new manufacturing unit so past year information does
not available related to the business.
 Traditional budget is based on previous year information and if past year data are not
available or provide insufficient information than new budget can not be prepare for the
current year.
 It is more time consuming process because in this approach it is require to analyse and
understand past year data and information.
As from the above analysis, it has concluded that there are various advantage and
disadvantage of traditional budget approach and it does not appropriate for all type of business
and it is not beneficial for all corporations. So, if Snappy Drinks use this budgetary approach for
the future growth then it will be beneficial in some aspects but not completely (McLean and
Zhao, 2014).
PART 2
(iv) Rolling, zero based and activity based budget
From last 15 years traditional budget is used by the Snappy Drinks and from that its
profits are increasing. But is not necessary in future this budget will be helpful for the company
and its growth. In upcoming years organisation can change the budget process and can use
alternative methods.

Rolling budget: It is known as continuous budget because in this type of budget newly
updated financial plan takes place when previous budget expires. It requires more time as well
cost which is not beneficial for new venture. Rolling budget is updated quarterly of yearly as per
the requirement. This budget is more flexible as compare to the traditional budget. This type of
budget is beneficial for large companies which can afford more expenses and require to update
budget as per the need. But Snappy Drinks has emphasis towards traditional budget approach. As
the main drawback of this type of budget is that most of times it does not advisable reason being
circumstances are not constantly change & they remain same (Laitinen, 2013).
Zero based budget: It is that type of budget which start from zero level and does not use
previous year information and data. It comprises revaluation of each item of cash flow & after
that justify all expenses. This budget is helpful to minimize the errors so that better plans can be
prepare. As zero base budgeting emphasis towards optimum utilisation of resources where as
traditional budget does not focuses towards proper allocation of resources. But it consume more
time and require experience person which is a drawback of it.
Activity based budget: This budget is based on activity based costing because it
emphasis towards the cost which is associated with each activity. While making this budget
previous year information does not use and it is helpful to control the cost and if Snappy Drinks
will use this than cost and expenses will minimize. It is better than traditional budget because it
focuses on cost minimisation. But it has certain drawbacks like it is useful for short term and for
long time it does not much beneficial for the corporation.
So these are the various types of budgets which are used as per the desire of an
organisation.
(v) Application of above mentioned budgets
As the above mention budgets have some advantage and disadvantage and these can be
used by the organisation as per its requirement. As budgets are helpful to estimates income and
the expenditures which can occur in future and emphasis to minimise the cost so that profits can
be maximize. If Snappy Drinks use rolling budget than it can update the information as per the
requirement and it is more flexible budget as coma pre to the traditional budget. Where as in
fixed budget data and information remain fix for a certain period of time. Apart from this rolling
budget is helpful to update the information as per the suitability.

If Snappy Drinks will use rolling budget than it can perform their business takes more
effectively and make alteration as per the requirement and it does not require to collect
information from previous year budget (Burns and Dewhurst, 2016).
(vi) Analysis budgeting methods in context to the corporation
There are various budgeting methods which are used by the organisations as per its desire
and size of busienss. In the reference of company selected methods are zero base budgeting and
rolling budget. In rolling budget it is require to update the information as per the desire and it is
more flexible. As Snappy Drinks wants to launch a new flavoured drinks product so it is require
to use zero base budgeting because company does not have previous year information and data.
These are appropriate for the corporation reason being these budgets are helpful to improve
performance and beneficial to fulfil the targets as well as goals which are set by the management
of company. As rolling budgets are generally prepared for short term like monthly, quarterly or
yearly basis and it is beneficial to accomplish short term objectives.
Zero based budgeting is starts from zero level and in this previous year information and
data does not used. To resolve the financial issues it will be beneficial for Snappy Drinks but it is
more time taking process because all activities which are associated with it, have to start from
initial level. It is required to analyse interim reviews but it is desire of company to chose it or
not. It is helpful to minimize errors and emphasis to make better budget which is useful for the
organisational growth and planning. So these are the budgeting methods in context to
organisation (Anandarajan and Srinivasan, 2012).
CONCLUSION
As from the above report, it has been concluded that for an organisation it is important to
manage the finance so that busienss can grow and get success. To run the business finance its
essential and it help the firm to expand its business and generate higher returns. For a company it
is important to make budget which provide help in development of busienss model. As
incremental budgeting is helpful to plan future cost management for the busienss. There are
various alternative budget methods such as: zero base and rolling budgets and these are used by
the corporation as per its requirement and size of busienss. To analyse appropriate methods of
budgeting are beneficial for the firm to estimate income and expenditures.

REFERENCES
Books and Journals
Anandarajan, M., Anandarajan, A. and Srinivasan, C. A. Eds., 2012. Business intelligence
techniques: a perspective from accounting and finance. Springer Science & Business
Media.
Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan
International Higher Education.
Laitinen, E .K., 2013. Financial and non-financial variables in predicting failure of small
business reorganisation.International Journal of Accounting and Finance. 4(1) pp.1-34.
McLean, R. D. and Zhao, M., 2014. The business cycle, investor sentiment, and costly external
finance. The Journal of Finance.69(3). pp.1377-1409.
Morris, T., 2012. Innovations in Banking (RLE: Banking & Finance): Business Strategies and
Employee Relations. Routledge.
Oakshott, L., 2012. Essential quantitative methods: For business, management and finance.
Macmillan International Higher Education.
Rogers, S. and Makonnen, R., 2014. Entrepreneurial finance: Finance and business strategies
for the serious entrepreneur. New York: McGraw-Hill Education.
Scholes, M. S., 2015. Taxes and business strategy. Prentice Hall.
Storey, D. J., 2016. Understanding the small business sector. Routledge.
Vasant, P. M. ed., 2012. Meta-heuristics optimization algorithms in engineering, business,
economics, and finance. IGI Global.
Ziemba, W. T. and Vickson, R. G. Eds., 2014. Stochastic optimization models in finance.
Academic Press.
Online
Zero based budget. 2019. [Online]. Available Through:
<https://www.investopedia.com/terms/z/zbb.asp>

1