Concept of Business Finance
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Added on 2020-10-22
Concept of Business Finance
Added on 2020-10-22
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BUSINESS FINANCE 2
Table of ContentsINTRODUCTION......................................................................................................................1MAIN BODY.............................................................................................................................1PART – A...................................................................................................................................31. Understanding the concept of preparing the budget and its purpose. ...............................32. Use of traditional and incremental budgeting approach. .................................................43. Making analysis of the use of traditional budget system in the company.........................5PART – B...................................................................................................................................61.Defining the concept of alternative budget methods..........................................................62.Uses of alternative methods of budgeting..........................................................................73. Analysing the appropriate method of budgeting for the company....................................8CONCLUSION..........................................................................................11REFERENCES.............................................................................................................................12
INTRODUCTIONBusiness Finance basically means employment of funds, money and capital resources inthe business organisation. Finance is considered as life blood of every business organisation.A company should make sound business policies as well as strategies related to the financialaspects. Financial manager assists company in making sound decision related to theinvestment to be made. Procurement of fund resources and its effective allocation andutilisation can help company in making more profits. The present report is based on SnappyDrinks Plc, which is an international energy drink manufacturer. The report will discussabout Budget preparation purpose as well as its process. Further, report will streamline aboutthe meaning of traditional and incremental budgeting approach. Also, alternative budgetmethods will be defined along with their drawbacks and applications. At last, the report willshed light on making suggestion regarding which budgeting method is appropriate forcompany.MAIN BODYPART – A1. Understanding the concept of preparing the budget and its purpose. Budget is defined as a financial plan which is designed or developed by the company formaking estimation of revenue and expenditure amount for a specified period of time.Budgeting tools helps in forecasting of revenue and expenditure amount about all thefinancial transaction. With the help of budget, a company is able to make use of limitedbudgeted resource and amount available effectively and efficiently. Budgeting helps inmaking business plans and evaluates performance. Company with proper budgets, can makeestimates of income to be earned from future sales and expenditure to be minimized forspecific business task. The purposes of preparing budget are as follows:1.Monitors and measures the performance of business – Budgethelps the companyin making projections of sales, revenue and expenditure amount. With budget,company can measure the performance by making comparison of actual outcome withthe expected one.
2.Allocation of resources – Effective and proper allocation of limited funds and otherbusiness resources as per the budget designed helps company in attaining maximumprofit with minimum cost factor (Bogsnes, 2016). 3.Forecast income and expenditure – Budget helps the company in making forecast orstatements related to the amount of income and expenditure to be made in the nearfuture.4.Predict cash flows – It helps in making prediction of cash flows for the definite timeperiod. Company is able to ascertain the amount of cash inflow and outflow madewith the help of budget.5.Tool for decision making – Budget is considered as one of the most important toolfor making sound business decision. It helps in formulation of effective and accuratestrategies and plans related to allocation of fund resources, business operations ormethod to be followed etc. which helps in successful accomplishment of businessgoals and objectives. This company needs to follow budgeting processes which can help them in predicting mostaccurate future aspects. Process of preparing budget which should be followed by snappydrinks is mentioned below:1.Defining business goals and objectives – The first most important process inpreparing a budget is defining the goals and objectives which the business is willingto achieve or for which it is working. Company should always have specific goal andobjective.2.Collection of data – After the goal of business is defined, the next step is to gather orcollect all the relevant data, information or statistics. Proper interpretation should bemadeof data gathered.3.Framing expectations and reconciling of goals and data – Every company shouldframe some expectations with the goal decided. This leads to motivation to worktowards attainment of these business goals.4.Creating the budget – After the goals and objectives of business are framed, nextstep is creation of budget plan. Budget is designed with in line of business goals andto forecast the amount of income and expenditure (Gachoka and et.al., 2018).5.Execution of budget designed – Budget created is then implemented for makingprojections of sales revenue for a definite time period. It helps company indetermining the variances or loopholes in the budget designed by making comparisonbetween the actual one and the expected one.
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