Business Finance Budgeting : Assignment
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Added on 2021-01-02
Business Finance Budgeting : Assignment
Added on 2021-01-02
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Business Finance Budgeting
Table of Contents..........................................................................................................................................................2INTRODUCTION...........................................................................................................................3PART 1............................................................................................................................................31 The purpose of preparing a budget and the process that company needs to follow as well asthe use of budget in development of a business model...............................................................32 Traditional Budgeting approaches to plan the future cost management for the business........53 Analysing whether traditional budgetary system is appropriate to all or any parts of thebusiness in its planned future. ...................................................................................................7PART 2............................................................................................................................................84 Understanding of the alternative budget methods and their drawbacks..................................85 Examples of different Budgeting methods mentioned ............................................................96 Analysis of the appropriateness of the budgeting method for the company..........................11CONCLUSION .............................................................................................................................12REFERENCES..............................................................................................................................13
INTRODUCTIONBudgeting is a planning of a specific budget that outlines the financial and operationalgoals of the business. Budget is made to estimate the future expenditure of the business of theupcoming financial year. The basic process of budgeting involves analysis of the fixed andvariable costs of the business and then deciding to allocate the funds in order to reflect theorganizational goals. This report will highlight the purpose and process of preparing the budgetfor business and the contribution of budget in preparing a business model. The report will alsohighlight the traditional budgeting approaches and its use in estimating the future cost as well asthe use of traditional budgetary system in different parts of the business. Further the report willfocus on the alternative budget methods to improve on traditional approach along with thedrawbacks. PART 11 The purpose of preparing a budget and the process that company needs to follow as well as theuse of budget in development of a business model.Purpose- The purpose of preparing a budget serves to three main components-Forecast of income and expenditure- Budgeting is important in the planning process ofthe business. The company need to predict its profitability in the business beforeimplementing any strategy (Kavussanos and Visvikis, 2016). The budget helps inforecasting the future incomes and expenditure on the basis of past activities and henceable to forecast the profitability of the business.Tool for decision making- The purpose of the budget is to provide a financial frameworkthat helps in the decision making process for the company in various activities. Forexample the budget predicts the outcomes of the advertising cost and returns and hencehelp the company to decide whether to invest the money in advertising activity ornot(Brigham and et.al., 2016).Monitor business performance- The main purpose of the budgeting is to monitor andmeasure the actual business performance with the estimated performance so as to lowerdown the variance (difference between the actual and the expected) in the business(Purpose of Budgeting, 2018).
Process of preparing a budget by organization- The following are the steps involved in thebudget preparation of an organization-11Strategic Plan- The first step in the budget preparation involves having a writtenstrategic plan. This thing ensures the use of organizational resources in supporting aparticular strategy of the organization. In simple terms it means budgeting towards thevision of the company(Antony, Rodgers and Gijo, 2016).11Business Goals- The business goals are the steps that the organization takes toimplement its strategic plan and these goals are to be funded by the budget beingprepared. Hence, this step involves implementing the business goals so that the budgetwill able to estimate the financial requirements for achieving these goals. 11Revenue projections- Revenue projections are the estimates of the revenue by thecompany in the upcoming year. These projections are based on the historical financialperformance of the company (Webb, 2015). These projections should link with theorganizational goal in order to initiate the business growth.11Fixed cost projections- This step involves estimating fixed costs for the company on thebasis of current and past fixed expenses by the company such as salary of the employees,rent, electricity and other fixed costs of the company.11Variable cost projections – It involves the fluctuating costs of the company that needs tobe controlled in order to gain more revenue. For example- supply costs, overtime costsetc (Gibb, 2016).11Annual Goal expenses- This steps involves budgeting the goal oriented costs of thecompany. For example- if the sales department of the company has a goal of increasingthe sales by 10% then the cost incurred I achieving this goal such as marketing andpromotional costs, travelling costs etc., should also be estimated by the budget(Doss andet.al., 2017).11Target profit margin- This step involves setting up targets for profits of the companywhich is the primary objective of business. Here the estimates of profit are being made asthe targets to be achieved by the company(Fairclough, 2016).11Board approval- This step involves the approval of the budget by the board president orthe owner of the company. This involves review of the owner in relation to the expectedperformance and the actual performance of the business.
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