Business Finance

This study provides an overview of the benefits of budgeting and the alternative budgeting methods that can be applied to UniDate, an international dating agency. The study recommends a combination of priority based budgeting and activity based budgeting for accurate financial forecasts.

Running head: BUSINESS FINANCE
Business Finance
Name of the Student:
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Author Note

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Executive Summary
The issue presented in the case study is that UniDate a dating agency has been
considering the expansion of business both in terms of location and in terms of the customer
base to which it provides service. The finance director, Anna reckons that the preparation of
the financial budget on the basis of traditional approach to budgeting may not be
advantageous as the business is undergoing huge change or the business is being restructured.
Therefore, she tries to convince Alasdair, the managing director of the company about the
usefulness of the budgets that are prepared on the basis of the alternative methods of
budgeting.
This study aims to provide an overview into the general purpose of budgets and the
particular method of budgeting that is apt for the situation presented in the case study.

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Table of Contents
Benefits of having a budget and the ways in which it helps business........................................3
Traditional budgeting approaches to business...........................................................................4
Analysis whether the traditional budgeting system is appropriate to the business in its planned
future form.................................................................................................................................6
Understanding of the alternative budget systems and the benefits offered by it.......................7
Application of the alternative budget system to the company and the potential problems they
may give rise to..........................................................................................................................8
Determination of a particular or a combination of the budgeting methods applicable to
business......................................................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

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Benefits of having a budget and the ways in which it helps business
The primary purpose of preparing a budget by an organization is that the management
of the company needs to measure the effectiveness of the implemented strategies and plans
and the exact or accurate margin by which the strategies are helping the company to extract
revenue from business. The primary motive behind every corporate organization is that the
entity strives for increased profitability through the economical uses of labor and resources
available in the organization. The execution of such a rigorous task requires a financial
structure or road map in order to enable the management of the company to allocate the
resources for the proper achievement of the organizational goals. Therefore, the significance
of budgets is imperative in the successful fulfillment of the company objectives. The benefits
of having a budget are that, the estimation of the probable income and expenditures of
business for a particular financial period, can be proposed and the required strategies or
planning can be constructed in the most effective and efficient way. Budgeting enables the
companies to restrict the flow of cash in and out of business by controlling the expenditures
and by allocating the resources in order to maximize the profits (Sekaran and Bougie 2016).
This also helps the companies to reflect the financial statements in such a way that the
stakeholders such as the investors, banks and shareholders get a clear direction in terms of
business proceedings. Intelligent budgeting helps the business to incorporate improved
decisions that increase the quality of business. A budget essentially deals in the review and
judgment of the past analyses and trends aims to prepare a report by estimating the future
values that the company is expected to deliver by optimally utilizing the resources. The
preparation of an efficient budget helps the management as well as the employees of an
organization to understand what results are expected out of them thus, plan and schedule their
work plan accordingly.

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The ways in which a budget helps business is that it creates an effective financial
forecast. It projects the estimated financial position of business in the future financial years to
come. The major contribution by a budget is that the management of an organization gets the
idea in both worst and best possible scenario. This means that an efficient budget indicates
the possible revenue in case the applied strategy works and also the probable loss that the
company will suffer in case of the failure of the implemented plan or strategy. This enables
the management of a company to mitigate the impending risk that may come over business in
case of a financial disaster (Koochakpour and Tarokh 2017).
Traditional budgeting approaches to business
A traditional budget refers to the quantitative statement that acts as a efficient tool for
measuring the effectiveness of the business operations. The traditional budgeting approach
lays its foundation upon the different financial statements that have been prepared for a
particular financial year. The budgeting approach tries to provide an overview of business by
utilizing the cash flows, revenue assets and financial liabilities that are incurred by business
during that financial year. The traditional budget approach usually follows the hierarchy of
authority in the organization. This means that the top-level management prepares a budget,
which is distributed among the different sub departments, who further adopt their own
working schedules and actions in accordance to the requirements and needs of the devised
budget. To be more precise, the budget formulated by the top-level management is done
according to the inputs collected by the group preparing the budget. The advantage of opting
for a traditional budget is that it leads to a better financial forecast, which, in all probabilities
is accurate. The top-level management preparing the final structure of the budget lead to
better formulation of strategies and execution as the inputs that have been utilized in the
preparation of the budgets has been collected from the entire organization especially from the

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lower level employees who are in direct contact with the operational proceedings. A
traditional budgeting approach also involves minimum cost as the traditional approach
involves the utilization of the already prepared by the financial statements by the accountant
of the organization.
The key areas of the business that the budget needs to approach in case of the agency
mentioned in the case study are related to the nature of business conducted by the agency, its
branches and other associated resources. It has been mentioned in the case study that UniDate
is an international dating agency targeting the academic and administrative staff in the
education sector. This indicates that the budget in relation to the customer base in different
parts of the world where the business operates should be prepared. The cost incurred in
obtaining a stable network as the business is completely based on the availability of internet
has to be acquired and on the basis of the collected inputs, the current budget has to be
prepared. This budget will effectively reveal the scopes for reducing the cost of operations,
which will in turn enable the management of UniDate to develop strategies that aim to reduce
the cost in acquiring a stable network. The facility that is located in Watford accommodates
management, finance, administration and HR. The accommodation of so many departments
in the same facility calls for the determination of the fact whether the available resources is
optimally utilized or not. This calls for the preparation of the budget that is aimed towards
finding out the utilization of the resources by the different departments. The utilization of the
available organizational resources by the 75 full and part time staff and other employees of
the organization should be budgeted in order to strategize and develop plans that involve cost
reduction techniques. Budgets in relation to the marketing and advertising operations of the
business can also be prepared in order to carry out the tasks more efficiently (Pinheiro 2014).

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Analysis whether the traditional budgeting system is appropriate to the business in its
planned future form
The fundamental processes that the traditional approach to the budgeting system
requires the preparation of the budget by the executives belonging to the top-level
management. The budget is usually dependent on the financial statements and other related
financial components. This means that the top-level management executives that are
responsible in preparing the budget carry out the task on the basis of the financial forecasts
and other inputs collected by them. They do not consider the opinions and inputs from the
staff or employees who are in direct contact with the area of operation and is dealing with the
organizational resources in the day to day execution of operations. This creates a major rift
between the management and the employees of the organization. This is because the low-
level employees and their supervisors, better understand the needs and requirements of
business as they get more clarity on the daily proceedings of the operations. However, the
preparation of the budget by the top-level management on the basis of the inputs collected by
them, mandate an employee to adhere to such a requirement and develop their strategies on
the basis of the prepared budget. This intends to create resentment and grievances among the
employees, as they feel neglected. Moreover, the inclusion of the inputs from the employees
tends to strengthen the quality of the budget (Ghabri and Mauskopf 2017).
UniDate being an international agency may plan to expand business. Moreover, it
being an online business and hosting the courtship process between its clients will require
extensive crucial monitoring of the business proceedings. This will involve preparation of the
budget by collecting the inputs from the executive or the other low-level employees who are
directly involved in the operational framework. Thus, a traditional budget does not fit into the
requirements of UniDate. Moreover, the proposed changes in business that are expected to be
implemented will require extensive feedback and suggestions especially from the employees

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who will face the changes. This estimates that have been long used in the budgeting system
will change due to the restructuring of the organization. This will require references from
other genuine sources along with the financial statements. Thus, the traditional budgetary
system is not appropriate to the business in its planned future form.
Understanding of the alternative budget systems and the benefits offered by it
The alternative budget systems other than the traditional approach to budgeting can
be listed down as zero-based budgeting, priority based budgeting and activity based
budgeting.
A zero-based budgeting refers to the method of budgeting that justifies the incurring
of every expenditure by business for each new period. This means that under zero-based
budgeting each expense is allocated with a zero base. Each function in an organization is
analyzed for its needs and costs and then the budgets are built for the upcoming periods
irrespective of the fact whether the currently prepared budget is lower or higher than the
previous one. The effectiveness of a zero based budgeting lies in the fact that this particular
method of budgeting enables the implementation of the organizational objectives into the
budgeting process by linking them to specific areas of function in the organization. This
results in grouping the costs, which will be measured against previous results and current
expectations (Moore 2014).
Priority based budgeting refers to that method of budgeting that re-evaluates all the
activities involved in the business operations and rates them on the basis of a scale of high to
low priorities which are known as decision packages. This kind of budget is utilized in order
to find out any discrepancy, occurring in a particular sector of business or related to a certain
process or product. This budget in unidirectional in nature and provides accurate forecasts in
relation to the financial component regarding which the budget has been prepared. A priority

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based budgeting helps business by grouping the processes on the basis of their priorities, thus,
helping the management to determine the importance of a particular business process and the
variance obtained in it.
Activity based budgeting refers to the method of budgeting that records each
operational activity carried out in an organization on the basis of cost incurred in execution of
such an activity. The effectiveness of the activity based budgets lie in the fact that they search
for effectiveness and efficiency in the business operations and tend to prepare the budgets
based on these activities. Activity based budgeting is best suited for those companies that are
undergoing or planning material changes, major shift in the customer base, new products or
business locations (Jahn 2017).
The benefits offered by the alternative budget systems to business are that these
budgets are not merely based upon the variances that are produced by the traditional
budgeting approach. The alternative budgeting system aims to provide a more constructive
and accurate and apt financial forecasts. Moreover, these budgeting systems are specially
developed in order to mitigate or find out the costs related to a particular operational process
or improvisation in an organization.
Application of the alternative budget system to the company and the potential problems
they may give rise to
The application of the alternative budget system may prove to be efficient depending
on the requirements of business. This means that utilizing that a zero based budgeting in case
of a company (UniDate) that provides services which is valued on the basis of the recent
trends and choices that is taking place in the society or the changes in the culture may prove
to be damaging. This is because the valuation of the expenses in such an industry depends on
the nature and the type of service provided which in turn depend on the ongoing changes in

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the environment in which the business operates. Thus, assigning the value of the expenditures
and the cost of services to be zero in order to mitigate any discrepancies or unnecessary costs
may disrupt the entire costing structure and the basis on which the budget is prepared may not
result in the accurate financial forecasts that are expected from business.
Secondly, the whole purpose of the priority based budgeting depends on the
requirement of segmenting a particular business on the basis of the processes that are
executed as a part of the business operations. UniDate, being a dating agency does have the
requirement of the priority based budgeting as the nature of business that UniDate carries out,
requires the preparation of a budget that separates the different processes on the basis of their
importance. However, the major aspect of such a business are its customers and due
importance should be given to them (Dudin 2015).
Lastly, the activity based budgeting refers to the budgeting that is prepared by
allocating costs to the different activities undertaken business. However, such a budget may
prove to be damaging for business in case of activities that cannot be accurately measured or
allocated costs. For instance, the activity of improving the service provided by the agency if
not measured properly, may lead to inaccurate forecasts, thus hampering the flow of business.
Determination of a particular or a combination of the budgeting methods applicable to
business
The nature of business conducted by UniDate might have been apt for the traditional
budgeting approach but the planning by Alasdair in relation to the restructuring of business
will only be effective when the appropriate budgeting method is chosen and applied. As
discussed in this study, out of the three budgeting methods, the combination of both the
activity based budgeting and the priority based budgeting might be applied to this particular
company.

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This is because the activity based budgeting method is best suited for businesses
undergoing major changes like expansion, change in location and shift in the customer base.
As UniDate is scheduled to go through a major restructuring process, activity based
budgeting would be the best possible budgeting method utilized by the company. However,
the different operational processes involved in business also call for the preparation of
budgets on the basis of priority based budgeting. Therefore, the best possible solution would
be a combination of the priority based and activity based budgeting.
Conclusion
Thus, it can be concluded that the preparation of budgets are imperative part of
business especially when the management of an organization are in need of measuring the
profitability of the implemented plans or strategies. It can be further drawn from the analysis
that budgets prepared on the basis of the alternative budget system tend to be more
advantageous than the traditional approach towards the preparation of budgets.

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References
Dudin, M.N., Prokofev, M.N., Fedorova, I.J.E., Frygin, A.V. and Kucuri, G.N., 2015.
International Practice of Generation of the National Budget Income on the Basis of the
Generally Accepted Financial Reporting Standards (IFRS).
Ghabri, S. and Mauskopf, J., 2017. The use of budget impact analysis in the economic
evaluation of new medicines in Australia, England, France and the United States: relationship
to cost-effectiveness analysis and methodological challenges.
Jahn, B., Todorovic, J., Bundo, M., Sroczynski, G., Conrads-Frank, A., Rochau, U.,
Chhatwal, J., Mauskopf, J. and Siebert, U., 2017. Do Budget Impact Analyses For Screening
Of Cancers Follow International Guidelines? A Systematic Review. Value in Health, 20(9),
p.A577.
Koochakpour, K. and Tarokh, M.J., 2017. Designing sales budget forecasting and revision
system by using optimisation methods. International Journal of Knowledge Engineering and
Data Mining, 4(2), pp.93-113.
Moore, A.Y., Thomas, M.R., Diggdon, A., Maher, J., Moore, K.L., Lee, Y.W. and
McMahon, B.P., Wells Fargo Bank and NA, 2014. Budget management system and method.
U.S. Patent 8,639,622.
Pinheiro, J.D.O.G., 2014. Cash budget versus financial budget: advantages and
disadvantages: a case study (Doctoral dissertation).
Sekaran, U. and Bougie, R., 2016. Research methods for business: A skill building approach.
John Wiley & Sons.