Effective Budgeting Methods for Business Success

The assignment provides an in-depth analysis of effective budgeting methods for businesses, particularly for UniDate's international operations in Gulf, North America, and Far East. The report discusses the importance of adopting alternative budgetary systems, such as activity-based budgeting, to gain success and increase profitability. The summary highlights the need for businesses to manage expenditures effectively and achieve short-term and long-term goals.

Business Finance

Contents
Introduction......................................................................................................................................3
Part 1................................................................................................................................................3
1. Benefit of having budget.........................................................................................................3
2. Traditional budgeting approach...............................................................................................4
3.Analysis of effectiveness of traditional budgeting system.......................................................5
Part 2................................................................................................................................................6
4. Alternative budget system and its benefits..............................................................................6
5. Potential application of alternative budgeting method and potential problems associated
with it...........................................................................................................................................7
6. Analysis of one effective budgeting method...........................................................................8
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

Introduction
Finance is the life blood of business. Organization has to spend money for conducting its
operations. Without having adequate money it can not run its business smoothly. Budgt is the
essential part of entity, by allocating sufficient money to each department company becomes able
to meet withs organizational objectives (Shoval and et.al, 2015). Present report is based on
uniDate firm which is an international dating agency. It offers IT facilities and staff to related
corporations. Unidate uses traditional budgeting process due to which many errors takes place in
its financial management. Current assignment will describe benefits of budgeting process in the
organization. Furthermore, it will explain traditional budgeting application. In addition, it will
explain alternative budget system and its advantage to the business unit.
Part 1
1. Benefit of having budget
Budget can be defined as financial planning of entity that helps in effective allocation of
monitory resources. Budgeting plays significant role in the organization (Kelly, 2015). Company
has to spend huge amount for conducting business operations, it is essential for the entity that to
ensure that such spending can be beneficial for the organization and it can generate more money.
Benefits of budgeting system are as following:
 Create financial roadmap: It is the great process through which Unidate can prepare its
roadmap. By looking at this budget firms can identify in the last financial years how
much it has earned profit over its spending. On the bases of last year budget it can make
new budget so that its profitability can be increased (Réka, Ştefan and Daniel, 2014).
 Plan for future growth: Firms generally prepare budget for planning its future activities.
With the help of this tool Unidate can monitor its expenditures and can make effective
control over unnecessary spending. It helps in saving cost of the entity and increasing
profit of Unidate.
 Profitability review: Budgeting system is the great process which supports a firm in
reviewing its profitability. It helps in identifying drawback of the system and making
effective control over unnecessary activities (Andor, Mohanty and Toth, 2015).

 Cash allocation: Financial manager has to allocate resources for each activity. By
preparing budget Unidate can allocate funds to each task easily and can generate
revenues from these activities. It helps managers in identifying which task requires how
much cash.
 Forecasting: Budgetary system is beneficial tool that helps the firm in forecasting future
return. With the help of this tool manager of Unidate can scan business environment and
can identify potential of company of generating revenues in future (Sarrafzadeh, Wang
and Yang, 2013).
 Tracking of progress: Budgeting process helps in continuously tracking progress in
achieving enterprise’s objectives. By this way cited firm can control over risk and can
manage it well.
 Coordinate with other functional units: Budget aids in making effective coordination with
other functional units so that it can meet with its objectives (Roncalli, 2013). It is the tool
through which Unidate can evaluate its policies and can make necessary changes in its
policies so that goal of the firm can be achieved.
 By looking at the budget managers can track its progress and can make profitable
changes in its operations so that its revenues can be increased and cost can be ccontroled.
It supports in the development of business unit to great extent (Klychova, Safiullin and
Zakirova, 2014).
2. Traditional budgeting approach
Traditional budgeting is the simple process in which manager of the company allocate
funds randomly and all records are maintained manually. UniDate always uses traditional
budgeting system, due to which it is facing many challenges. It is the type of budget in which
cited firm takes support of last year budget and prepare budget for future (Franklin, Krane and
Ebdon, 2013). Changes in budget are done on the bases of changing inflation, deflation rate.
Though it is great and many benefits are associated with it such as implementation, stability,
decentralization etc. On other hand traditional budgeting is fixed and rigid. Due to which it is
very difficult for Unidate to make modification in middle of the year. In traditional budgeting
system cited firm do not give priority to allocation of resources. It just focuses on fixed method
so allocate funds as per the given pre defined priorities. It does not look upon factors which can
give high revenues to business unit (Bingtao, 2015).

Preparation of budget is the essential part of business unit, it is the key component of
accounting. While preparing the budget process UniDate needs to pay attention on several
things, these are as following:
 Involve relevant players: UniDate needs to involve right person in budgeting process so
that skilled people can design an effective budget.
 Set budget for generating income: While preparing the budgeting UniDate needs to
consider the area that projection is realistic so that expected results can be generated.
 Identify revenue sources: Budget is the essential part of accounting and while preparing
the budget cited firm has to understand availability of sources. By this way company will
be able o to prepare budget within its criteria (Ivanov, Barabanova and Lefterova, 2014).
 Relationship of budget with organizational goal: It is another key area which needs to be
into consideration. Managers need to prepare budget in such manner so that short term
and long term goal of the company can be achieved.
 Budget strategic alignment: It is another key area which needs to take into consideration
by UniDate. Individual has to ensure that effective strategy can be taken place so that
goal can be accomplished.
 Inclusion of notes: Manager has to make proper assumptions so that risk can be
minimized.
 Ensuring of presentation of budget: It is essential that budget needs to be presentable so
that other involved persons can be understand (Activity Based Budgeting, 2017).
 Review and revise: After preparing the budget company has to review the entire budget
so that issues can be identified and good budget can be prepared.
3.Analysis of effectiveness of traditional budgeting system
o Traditional budgeting is the commonly used system which was applied by firm in
initial times. The main reason applying this method is to control the framework. It
can also be defined as incremental budgeting process in which firm makes little
changes in its previous budget in order to design new budget. It is quite stable
thus, helps the UniDate in managing activities effectively. In this type of
budgetary process higher authorities give power to managers to run operations as
per convenience (Andor, Mohanty and Toth, 2015). On other hand it is not good

because company fails to make changes in middle of the year if condition of
market gets changed. It is not good because Manager of UniDate needs to give
huge time and resources for preparing this budget. Traditional budgetary system is
quit complicated process and only few people are involved in making a new
budget. Due to this, they fail t implement new ideas and search new aspects to
make a good budget. Traditional budgeting encourages unprofessional attitudes
and also give more encouragement to bureaucracy (Roncalli, 2013). It is not good
for the growth of business unit. Drawback of traditional budgeting system for
UniDate is as following:
 Inefficiency: It is prepared manually which consumers too much time. Apart from this
there are high chances to occurring errors. Companies those which apply this method use
spreadsheet which has many loop falls such as version control issue, inaccurate
information etc.
 Low change responsiveness: It is another major drawback of traditional approach because
managers prepare budget for annually and they do not review it again. In such condition
if market condition gets changed then they feel unable to makes changes in this budget
(Kelly, 2015).
 Disconnect from strategic plan: Traditional Budget is prepared earning high profit but it
is disconnected with strategic plan that is why there are chances that company fail to
meet with its short term or long term goal.
 Due to economic uncertainties and inflexibility traditional budgeting process in to
accomplish goal of the company. Poor monitoring increases unnecessary expenditures
which impact on revenues of entity to great extent. Thus, it is inappropriate budgeting
system for UniDate and by following this budgetary process cited firm cannot plane
future forms significantly (Andor, Mohanty and Toth, 2015).
Part 2
4. Alternative budget system and its benefits
There are various types of alternative budgeting process that are far effective then
traditional budgetary methods. These are as following:

Zero based budgeting
It is the modern budgeting system which concentrates more on operations and requires
low cost to prepare this budget. It pays more attention of thinking of manager and its experience
about market. It does not look upon last year budget. In this type of budget, manager of the
organization look at environment and decide budget by considering all operating expenditures
(Sarrafzadeh, Wang and Yang, 2013). In this, all spending are calculated by managers on the
bases of actual expenses occurred in the business. Advantage of zero based budgeting are as
following:
Zero based budgeting is more accurate as compare to any other budgeting process. In this,
manager relook each task and capture operational cost of each department. According to this
assumption individual prepare budget which is very accurate (Ivanov, Barabanova and
Lefterova, 2014).
 Allocation of resources is more efficient as compare to other tool.
 Reduction in redundant activities is another positive aspect of zero based budgeting.
As it relook each department thus, it develops coordination and communication in each
department which help the manger in making sound decisions for the growth of entity.
Activity based budgeting
It is another alternative approach in which manager of company allocate more resource to
such activity which has capability generate high revenues. It is prepared after analysis of cost and
justifying each spending (Activity Based Budgeting, 2017). Advantage of this alternative
budgeting method is as following:
 It pays more attention on overhead activities which impact on operating cost to great
extent.
 It helps in providing essential information about total quality management.
 It helps in promotion of team working because manager has to coordinate in each
department so it enhances team spirit among employees (Franklin, Krane and Ebdon,
2013).
 It supports in increasing traceability and transparency in the organization.

Flexible budgeting
It is another alternative budgetary system which is completely depended upon changes in
assumptions. Static budget always remain same if any significant changes occur in market them
also. But flexible budgeting looks upon the market situation and if any changes require in middle
of the year then it can be made easily (Réka, Ştefan and Daniel, 2014). Advantage of flexible
budgeting process is as following:
 It helps in measuring performance of company and if any changes require in the system
then company can make modification easily.
 Budgeting efficiency is another main benefit of this tool because it helps in making
updating so that revenues of organization can be increased.
5. Potential application of alternative budgeting method and potential problems associated with it
Flexible budgetary system
It is the type of system which is flexible in nature; any changes can be made in system
anytime at the time of any changes in market conditions. It is generally used o make effective
control over business activities (Shoval and et.al, 2015). But this can create issues in firm as well
which are as following:
 Manager is required to monitor the process on continuous bases because if individual
fails to identify changes then it may badly affect operations and revenues of UniDate.
 Time consuming: In flexible budgeting process authorities have to keep eye of market
situation which is time consuming process. It is not always for the person to have an eye
of market condition all the time (Réka, Ştefan and Daniel, 2014).
 Lack of information is another issue that may create due to implementation of flexible
budgeting process. If manager does not have clear information then it may be difficult for
the person to forecast the things and prepare an effective budget at that time.
 It is a complex process; manager has to categorize each spending. In the absence of issue
in categorization can create complex situation for the firm (Ivanov, Barabanova and
Lefterova, 2014).
Activity based budgeting

Activity based costing is the main element of this tool. In this process company has
measure each activity deeply and has to allocate resources accordingly. But this alternative
budgeting approach can also create challenge for the firm (Activity Based Budgeting, 2017).
Issues related to activity based budgeting is as following:
 In this budgeting process, detail of the company can easily be misinterpreted. Thus, it is
essential for owner that to manage records well. For implementing this budgeting process
UniDtae will require huge resources.
 It is not able prepare monthly profit statement of the organization.
Zero based budgeting
It is the tool of management accounting which is prepared from zero bases. Before
preparing budget manager re-evaluate all activities and related cost. On the bases of this,
manager prepare new budget (Sarrafzadeh, Wang and Yang, 2013). But this can create difficulty
for business as well such as:
 For preparing zero based budget manager requires high manpower those who has
necessary skills and knowledge. But in the absence of huge team individual cannot
prepare a good budget.
 It is lengthy and time consuming process.
 It does not pay attention on achieving short term goal of the organization.
6. Analysis of one effective budgeting method
Unidate is the international dating agency which has to deal with many foreign clients. It
is essential for the company that to manage its expenditures and income well so that it can
generate good income and can make effective control over its expenditures. It is planning to
setup its business in Gulf, North America and Far East (Réka, Ştefan and Daniel, 2014). For that
it is very important that cited firm use effective alternative budgetary system rather than
traditional method. This can helps in gaining success and increasing its profitability. Situation of
each country where UniDate operates its business is differed from others. Thus, it has to adopt
activity based budgetary process. It would be better for the organization, with the help of this
tool entity will be able to generate high revenues and fulfill its long term goal. This would help
in evaluating each aspect in effective manner before allocating resources to any task. In this

method manager conduct research and analysis situation. So it eliminates bottlenecks and
minimizes risk as well (Activity Based Budgeting, 2017). It supports in improving relationship
between differed department by this way unnecessary expenditures can be reduced and company
can generate high revenues.
Conclusion
From the above report it can be concluded that budgeting is the essential process, it
supports in making effective control over expenditures and increasing revenues of business unit.
It supports in managing cash well and accomplishing short term and long term goal of
organization. Traditional budgetary method are inappropriate to manage monitory resources thus,
use of alternative approaches are good enough.

References
Books and Journals
Andor, G., Mohanty, S.K. and Toth, T., 2015. Capital budgeting practices: A survey of Central
and Eastern European firms. Emerging Markets Review. 23. pp.148-172.
Bingtao, S., 2015. Institution and change of the public economy: A new interpretation of early
modern civilization evolution. Social Sciences in China. 36(1). pp.172-199.
Franklin, A., Krane, D. and Ebdon, C., 2013. Multilevel Governance Processes–Citizens & Local
Budgeting: Comparing Brazil, China, & The United States. International Review of
Public Administration. 18(1). pp.121-144.
Ivanov, V.G., Barabanova, S.V. and Lefterova, O.I., 2014, December. On the role of public
policy in engineering education: Russian tendencies. In Interactive Collaborative
Learning (ICL), 2014 International Conference on (pp. 601-604). IEEE.
Kelly, J.M., 2015. Performance budgeting for state and local government. Me sharpe.
Klychova, G.S., Safiullin, L.N. and Zakirova, A.R., 2014. Information-analitical support of cost
management in horse breeding. Mediterranean Journal of Social Sciences. 5(18). pp.193.
Réka, C.I., Ştefan, P. and Daniel, C.V., 2014. TRADITIONAL BUDGETING VERSUS
BEYOND BUDGETING: A LITERATURE REVIEW. Annals of the University of
Oradea, Economic Science Series. 23(1).
Roncalli, T., 2013. Introduction to risk parity and budgeting. CRC Press.
Sarrafzadeh, M., Wang, M. and Yang, X., 2013. Modern placement techniques. Springer Science
& Business Media.
Shoval, N. and et.al.,2015. The application of a sequence alignment method to the creation of
typologies of tourist activity in time and space. Environment and Planning B: Planning
and Design. 42(1). pp.76-94.

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Activity Based Budgeting, 2017. [Online] Available through<
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