Report on Understanding Business Finance

   

Added on  2020-06-04

10 Pages2961 Words41 Views
Business Finance
Report on Understanding Business Finance_1
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................11.1 Purpose and process of preparing budget..............................................................................11.2 Cost drivers of business and traditional budgeting approach................................................21.3 Whether traditional Budgetary system is appropriate or not there are basically three majorproblems with traditional budgeting which are as follows:........................................................3PART 2............................................................................................................................................42.1 Alternative Budget methods..................................................................................................42.2 Application of Alternative budget methods with example...................................................52.3 Which method is more efficient ...........................................................................................5CONCLUSION................................................................................................................................6REFERENCES................................................................................................................................7
Report on Understanding Business Finance_2
INTRODUCTIONA plan which outlines the financial or operational goals of the organization is known asbudget. It helps in allocating resources, evaluating the performance and for formulating plans.For successful financial planning budgeting is the first step in this process. In this report there isa brief understanding about the purpose of preparing budget and the process for budgeting whichcompany should follow for developing business model. The important cost drivers has beenidentified and in what areas cost budgeting will be important. Application of traditionalbudgeting approaches has been classified. Various alternative budget methods like Rollingbudgets, zero based budgets and activity based budget has been explained with its application,merits and demerits.1.1 Purpose and process of preparing budgetThere are three aspects for preparing budget i.e. forecasting of income and expenditure, atool for decision making and to monitor the business performance. Budgeting is an importantpart while planning of business process. Managers and owners of the business should be able topredict that it will make profit or not. The main purpose is to create a model that how businessshould be performed or to decide strategies, plans and events which are being carried out. It is atool for decision making as it gives financial framework of the action which is planned or not.Expenditure should be tightly controlled for managing business. It helps in enabling t businessperformance that should be measured against performance of business which is forecasted. Thesteps to be followed while preparing budget are as follows: All the assumptions about company's business environment should be reviewed and onthe basis of last budget, it should be updated as soon as possible.The capacity level of business should be determined and the constraints of the companywhile generating sales should be classified and their impact on company's revenuegrowth. They should be able to determine available fund during the budget period andstep cost which can occur in business activity is also been determined. Budget package should be created from the preceding year and it should be issuedpersonally wherever it is possible(Zeller and Metzger, 2013). Revenue forecast should be obtained from the sales manager for validation with help ofCEO. Budget from all departments should be obtained and tries to rectify the error. 1
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