Business Finance - Snappy Drinks Plc Assignment

Business Finance

TABLE OF CONTENTS
EXECUTIVE SUMMARY.............................................................................................................1
MAIN BODY ..................................................................................................................................1
PART 1............................................................................................................................................1
1. Purpose and process of preparing a budget.............................................................................1
2. Application of traditional budgeting approaches & incremental budgeting...........................3
3. Analysing traditional budgetary system is appropriate for the company business. ...............4
PART 2............................................................................................................................................5
4. Explaining different planning tool of budgetary control with their benefits and drawbacks..5
5. Application of the planning tool of budgetary control............................................................8
6. Recommendation on the most appropriate budget..................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

EXECUTIVE SUMMARY
Business Finance refers to amount of funds, capital or money which has been employed by the
company in its business operations. Finance is considered as the basic requirement of every
business organisation at the time of beginning & for conducting business operations. The present
report is based on Snappy Drinks Plc, an international manufacturing company producing energy
drinks of different variants. The report will streamline about launching of 15 new products
specialising in health led drinks having low fruit exotic flavours by the company for which
Snappy will need additional plant and manufacturing capacity. Further the report will define the
purpose along with the process of budget preparation. Application of traditional budgeting &
incremental budgeting approaches to plan future cost management will be discussed. At last, the
report will shed light on the concept of alternative budget methods available to Snappy Drinks
Plc and which method is the considered more suitable for company will be disclosed. Zero based
budgeting is considered as the most appropriate method for Snappy Drinks Plc as it facilitates
efficient allocation and optimum use of the resources as per the business requirement.
MAIN BODY
PART 1
1. Purpose and process of preparing a budget.
Budget is a process of preparing a financial plan for making projections of sales and revenue
amount from the set defined business goals and objectives for a specified period of time. It also
helps in estimating or forecasting of cost expenditure amount to be incurred for conducting
business operations. By formulating a good and effective budget, a company can make use of its
limited budgeted resource and amount available effectively and efficiently (Grossi, Reichard and
Ruggiero, 2016). Budgeting practice can help in making business plans and evaluates
performance. Company with proper budgets, can make estimates of income to be earned from
future sales and expenditure to be minimized for specific business task.
Purpose of Preparing budget
Forecasting of Income and Expenditure - Budget helps Snappy Drinks Plc in making
forecast of the level of income and expenditure amount associated with business process. As the
company is about to launch new product range, creating budget will help in making forecast
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about income and expenditure of the launching new product. Also, it will help in making
estimate about how much additional plant and manufacturing units will cost.
Acts as a decision making tool – Budget assists Snappy in making decision regarding the
financial as well as business framework (Morgan and et.al., 2017). It helps company in decision
making process related to procurement and effective utilisation of funds and limited resources.
Monitors and evaluates the business performance – With the help of budget, Snappy
can make assessment of its business performance and profitability associated with its business
operations. Comparison can be made between the actual business outcome and expected one,
which provides company measures for mitigating the variances if any.
Process of preparing budget
The process of preparing budget by Snappy Drinks Plc consist of following steps:
1. Defining of business goals and objectives – The first most important process in budget
formulation is planning and specifying the goals and objectives of business to be
achieved. Budgeting is a practice of making estimation of expenditure and revenue
amount for which company should have a clear and specific goal of its business.
2. Assessing the future business requirements – With the help of budget, company is able
to determine what will be the cost expenditure conducting or expanding of business
operations. It assists in identifying the resources which Snappy will be required for
launching of new product range along with the increase in manufacturing and production
unit capacity.
3. Collection of data and resources – For preparation of budget, Snappy should have all the
data and information of its past, current business operations which will assist in making
projection of future sales and resources required for its completion. This helps company
in making proper use of limited available budgeted resources effectively (Zhao, 2016).
4. Creating budget – After ascertaining the goals and objectives of the Snappy, the next
step in budget preparation includes formulation of new budget plan. The budget is
prepared by keeping into consideration all the business plans, profit margin, business
requirements and available resources with the company.
5. Execution and implementation of budget designed – When the new budget is created or
formulated, the next step is to make implementation or execution of budget designed. It
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will help Snappy in assessing the result of implementation of new budget designed over
business operations.
6. Monitoring and evaluating business performance – After implementation of budget
formulated, this can help Snappy Drinks Plc in making comparison of the actual business
outcome with the expected business performance (Bogsnes, 2016). The performance
level of the company can be assessed by making comparison and improvement can be
made as per the requirements. It also helps company in making sales and revenues
projection of the future business operations as well as estimates future cost expenditure
incur in carrying own business. It can provide framework to the company related to the
financial and business plans and strategies.
7. Redefining business goals - On evaluating the business performance, if company is
having variances which is impacting the business goals and objectives then it is essential
for company to make either changes in the business goals or focus on formulation of new
the budgetary plan.
With the help of budget formulation, Snappy can make sales and revenu
projections related to the set defined goals and business objectives. Also, budgeting will
help company in estimating the cost expenditure which is going to incur for achieving the
set business goals. Budget can assist Snappy in eradicating cost associated with all the
unnecessary and unproductive business operations thereby helps company in increasing
its profits and reducing wastage of business resources as well as human efforts.
2. Application of traditional budgeting approaches & incremental budgeting.
Traditional Budgeting approach is defined as a process in which budget is formulated for
the current year by considering the previous year budget as a base. Changes are made in the
previous year budget by making all the adjustments related to the expenses of business
operations such as rate of inflation, customer taste and preferences, market demands and
situation etc. These factors are considered essential for framing new period budget under the
traditional budgeting approach.
The application of traditional budgeting is that it helps in decision making process to
Snappy by focusing on the issues & bringing necessary changes to them (Popesko and et.al.,
2015). This budgeting approach helps company in making sales projections, amount of revenue
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to be earned from future business operations. Also, it supports company by forecasting cost
expenses for the future.
In Incremental Budgeting approach, the budget for company is prepared on the basis of
the achievement of actual business performance. Incremental addition is done for formulation of
new budget plan for the period.
Snappy Drinks Plc is planning to expand its business operations by with launch of new
product which can be done by using of appropriate budgeting method. The application of
Incremental Budgeting approach is as follows:
1. It provides funding and operational stability for working of Snappy Drinks Plc
departments without making detailed analysis of funds requirement (de Campos and
Rodrigues, 2016). This helps company in completion of its business task in a cost
effective manner.
2. It ensures that no large deviations remain in new budget plan throughout the year by
making significant changes in the budget as per the requirement. This method focus on
the system of proper cost allocation which results in minimizing of the cost expenses of
unproductive areas.
Example - Snappy Drinks Plc by using Incremental budgeting approach can plan for
introducing new product in the market as per the market and customer demand and also for
expanding its business operations. It helps company in projection of sales & revenue
amount, cost of producing such product. It also assists company in evaluating and
understanding of business strategies adopted by competitor, current market situation which
are important factors in formulation of new budget.
3. Analysing traditional budgetary system is appropriate for the company business.
For Snappy Drinks Plc, the traditional budgetary system is not appropriate method of
budgeting as the company is having significant changes in its business operations. The
company's business operations have been divided into three areas viz. existing products, new
products range and expansion of the international business with proper planning.
Traditional Budgeting is a method of budget formulation for the new period by taking
into consideration the previous year budget as a base (Lorain, García Domonte and Sastre Peláez,
2015). Snappy Drinks Plc can prepare current year budget by making changes in the last year
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budget as per the adjustments of expenditure amount related to the rate of inflation, market and
consumer demand etc.
This budgeting approach is not considered appropriate because of its inefficiency feature
in conducting business operations smoothly. Traditional budgeting makes use of Spreadsheets
tool which contains a drawback of possibility of mistakes or errors. In case of this budgeting
approach it is really high because it involves considering of spreadsheets data at large which can
lead to making of wrong estimation related to cost expense and results in maximization of cost
for the business. Also, the approach of traditional budgeting is time consuming as well as
complex. It emphasizes more on considering data of previous year which can result in inaccurate
budget predictions for next year making business trouble for the company.
PART 2
4. Explaining different planning tool of budgetary control with their benefits and drawbacks
Zero-based budgeting- It is the method of budgeting which allows the Snappy drinks to
start with the scratch or zero-base for every single item in their list of budgeting. When the
budget is build by the managers from the ground-up then it is called as the zero based budgeting.
It is not created from the past allocations.
Advantages Disadvantages
 Zero based budgeting provides for a
systematic evaluation of the
programmes and the activities of the for
the Snappy drinks (Pellerin and Perrier,
2018). It allows the management of the
company in allocating the resources in
accordance to the priority.
 It ensures the examination of each and
every function of the organization as
compared to traditional approaches
where past allocations are taken into
account and changes are not adjusted.
 This method of budgeting involves
implementation problem as it requires
full support of the top executives. It
might not be available readily all the
times and it consumes lot of time and
the resources in providing training to
the managers.
 Snappy drinks may face problems while
preparing the decision packages in the
zero base budgeting. Problems
regarding fixing the minimum effort
level and performance evaluation.
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 It helps the departments of the snappy
drinks in preparing their departmental
budget with cost effectiveness. It does
not result in arbitrary cuts or any
increase in the estimates of the budget
that are present in traditional budgeting.
 Company can plan its annual budget in
terms of the long range goals which
leads growing success of the enterprise
in the future. Thus, zero base budgeting
is more useful and better from
traditional approach of budgeting.
 It is very complex method as compared
to the traditional form of budgeting
which is very simple and easy to
understand as well as implement.
 Zero based budgeting creates problems
in relation to the ranking of the decision
packages.

Activity-based budgeting- It is the system that analyzes, records and researches the
activities that results in cost for the Snappy drinks. Each and every activity in the organization
are been assessed that incurs the cost for developing the efficiencies in the budget.
Advantages Disadvantages
 Activity based budget is considered as
more rigorous than the traditional
budgeting which leads to adjustment in
the prior budget that accounts for the
inflation.
 It enables the Snappy drinks in
ascertaining the cost so that measures
on controlling the cost can be taken
which leads to increase in profitability.
 Activity based budgeting consumes the
organizational resources in context of
the time and the money (Maher, Fakhar
and Karimi, 2018). A huge time is
devoted by the managers towards the
determination of the activities and
estimation of the demanded output.
This leads to a complex procedure for
Snappy drinks.
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 This method of budgeting only provides
for supplement information and not
counted as the control budget. It does
not help the firm in eliminating or
substituting any of the processes that
are unproductive.
 This budgeting approach focuses on the
short term objectives of the firm and
ignores the long term aspects. This
leads difficulty for an enterprise in
achieving their long term goals.
Rolling budget- It is the budget where continuous changes are made for formulating the
budget for the new period. It is also known as the revised budget. Under this revised set of the
plans are included for the coming accounting period. Prior budget is replaced with the new
budget in this tool of budgeting.
Advantages Disadvantages
 Snappy drinks adopt this approach as it
facilitates more accurate and reliable
results. Realistic budgets can be framed
as it provides for regular reassessment.
 Uncertainty is reduced to a large extent
by using this approach as the budget is
revised on a frequent basis.
 Effective planning can be made by the
Snappy drinks as the budget is based on
the recent updated plans (Zanin,
Comuzzi and Costantini, 2019).
Controlling function also gets effective
with this budgeting method as it
 Rolling budget becomes expensive for
Snappy drinks as it includes complex
task for which highly skilled staff is
required.
 It the time consuming method as it
involves revision of the budget with
revised standards and the stock
valuation.
 The volume of the work needed for
each of the reassessment of budget
could result in off-putting for the
managers of the Snappy drinks.
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identifies the deviations.
5. Application of the planning tool of budgetary control
Zero based budgeting- It needs the complete justification of each and every single item
rather than carrying the items of the previous budget. It helps in re-evaluating and re-examining
the activities within the Snappy drinks. It is applied by the firm to determine the opportunity loss
and the loss of the benefit associated to that activity. For example- Snappy drinks for
determining its spending and funding needs in its expansion projects can apply the Zero based
budgeting. The application of this budgeting are as follows:
1. This helps in making reduction in the cost expense by determining where any business
operation or activity is working towards business goals or is unproductive one.
2. It helps in proper allocation of business & financial resources. Also, supports
accomplishment of business goal in a cost effective manner by making identifying &
reducing wastage and removes out dated business processes.
Activity based budgeting- This tool is applied by the firm for identifying the relevant
activities. It acts as the cost drivers which tells about the expenses and the revenues incurred in
each of the activity. For instance- Snappy drinks assumes that 80000 sales orders will be
received in the coming year with every order costing of $3 to the process. Therefore, the
expenses incurred for processing the sales orders will be of amount $240000 in the next
upcoming year. For Snappy Drinks Plc, this budgeting methods provides:
1. This method also emphasizes on minimizing of the unproductive and infeasible business
activities and cost associated in carrying on by making identification of the financial
impact on the business operations.
2. It also ensures providing of better quality product & services to its customers. Also,
focus on conducting its business operations efficiently, better allocation of resource as
per the requirements of business priorities by making balance between the operational
requirements of the business.
Rolling budget- It is applied by the Snappy drinks for adjusting the changes occurred in
the level of activity in every month. For example- Snappy drinks has adopted the 12 month
period planning horizon. The initial budget begins from the January to the December. As the one
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period passes a new budget will be prepared for the next period. Rolling budget provides
following use to the company:
1. Rolling budgets are more up-to-date as it involves an incremental extension of the current
budget plan and makes changes or adjustments in its business operations as per the
requirements of business.
2. It responds to all the unexpected changes by making proper adjustments on time.
6. Recommendation on the most appropriate budget
Zero based budgeting is considered as the most appropriate method for framing the budget
as it facilitates efficient allocation and optimum use of the resources because it applies on the
basis of the needs and the benefits. It helps the mangers in driving the most cost effective way
for improving their activities. It enables the Snappy drinks in detecting the inflated budgets. Zero
based budgeting increases the motivation of the staff because it provides them with more
initiative and the responsibility in the process of decision making. This approach assists the firm
in developing better communication and the coordination within the work environment in
relation to specific decisions (Zero Based Budgeting (ZBB), 2019). It determines and eliminates
the wastage so that outdated operations can be removed from the enterprise. This approach helps
the Snappy drinks in identifying the opportunities in terms of the outsourcing so that it can
efficiently diversify its business in each of its areas. Zero based budgeting forces the cost centres
in linking their mission relating to the objectives of the organization.
CONCLUSION
From the above report it can be summarized that business finance is very essential for the
snappy drinks in making efficient financial decisions for attaining the growing success in the
long run. It involves the management of the financial activities and the resources of the Snappy
drinks. Business finance helps the organization in saving, raising and managing the money so
that sufficient funds are available in the future to meet any uncertainties. Budgeting plays a
crucial role in the firm as it facilitates planning for the future and in keeping control over the
spending plans so that higher earning can be reached. It helps in maintaining the records of the
income and the expenses that will be needed for the smooth functioning of the operations of
Snappy drinks. Thus, various planning tools used by the Snappy drinks for expanding its
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business will benefit the company in proper planning and controlling so that goal can be
achieved as per the set strategies.
REFERENCES
Books and Journals
Bogsnes, B., 2016. Implementing beyond budgeting: Unlocking the performance potential. John
Wiley & Sons.
de Campos, C. M. P. and Rodrigues, L. L., 2016. Budgeting Techniques: Incremental Based,
Performance Based, Activity Based, Zero Based, and Priority Based. Global Encyclopedia
of Public Administration, Public Policy, and Governance. pp.1-10.
Grossi, G., Reichard, C. and Ruggiero, P., 2016. Appropriateness and use of performance
information in the budgeting process: Some experiences from German and Italian
municipalities. Public Performance & Management Review. 39(3). pp.581-606.
Lorain, M. A., García Domonte, A. and Sastre Peláez, F., 2015. Traditional budgeting during
financial crisis.
Maher, M.H., Fakhar, M.S. and Karimi, Z., 2018. The relationship between budget emphasis,
budget planning models and performance. Journal of Health Management and
Informatics. 5(1). pp.16-20.
Morgan, D. and et.al., 2017. The Multiple Purposes of Public Budgeting. In Budgeting for Local
Governments and Communities (pp. 99-110). Routledge.
Pellerin, R. and Perrier, N., 2018. A review of methods, techniques and tools for project
planning and control. International Journal of Production Research. pp.1-19.
Popesko, B. and et.al., 2015. ARE THE TRADITIONAL BUDGETS STILL PREVALENT:
THE SURVEY OF THE CZECH FIRMS BUDGETING PRACTICES. Transformations in
Business & Economics. 14.
Zanin, F., Comuzzi, E. and Costantini, A., 2019. Management Control Systems: Concepts and
Approaches. In Human Performance Technology: Concepts, Methodologies, Tools, and
Applications (pp. 455-473). IGI Global.
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Zhao, Z., 2016. Why local governments need performance evaluation: intermediary institutions
in the performance-based budgeting process in China. Journal of Chinese Governance. 1(4).
pp.564-573.
Online
Purpose of Budgeting. 2019. [Online]. Available through:
<http://www.leoisaac.com/budget/bud031.htm>.
Zero Based Budgeting (ZBB). 2019. Online. Available through:
<https://www.toolshero.com/financial-management/zero-based-budgeting-zzb/>
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