Business Finance Budget Report: Methods, Analysis, and Application

This report provides a comprehensive overview of business finance, focusing on budgeting methods and their applications. It begins with an introduction to the importance of finance in business operations and the role of budgets in financial activities, specifically for a company called Snappy Drinks. The report then delves into the purposes of preparing a budget, including decision-making, action planning, and performance monitoring. It also explores the process of budget preparation, including obtaining estimates, coordinating estimations, and communicating and implementing the budget. Furthermore, the report discusses the application of traditional budgeting, its advantages, and disadvantages, and its suitability for different business purposes. The report also analyzes various budgeting methods such as rolling, zero-based, and activity-based budgets, and their potential applications. The report concludes by emphasizing the significance of these budgets in enhancing business performance. This report is a student contribution available on Desklib, a platform providing AI-based study tools for students.

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Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1 ...........................................................................................................................................1
(I) Purposes of preparing a budget ..............................................................................................1
(ii) Application of traditional budget approach for future cost management..............................3
(iii) Traditional budget is appropriate to all.................................................................................3
PART 2............................................................................................................................................4
(iv) Explanation of rolling, zero based and activity based budget ..............................................4
(v) The potential application of above mentioned budgets .........................................................5
(c) Analysis budgeting methods ..................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
This report summarise about business finance denotes the funds & credit employed in the
business. As finance is the backbone of the business and without it operations can not be start.
Funds are required to buy the raw material, assets, goods, to make payment to labour, employees,
etc. In the financial activity budgets play a vital role and provide help to make estimation of
income & expenses. Apart from this, report discuss about traditional budgets that is used by the
organisation Snappy Drinks. There are various budgets are also being discusses such as: rolling
budget and zero based budget.
PART 1
(I) Purposes of preparing a budget
Budget is an anticipation of expenditure & income and it prepare for the future purpose.
All business organisations are required to made it so that business activities can be performed in
effective manner. As the management of Snappy Drinks is responsible to make appropriate
budget which fulfil the requirement of company. It prepare budget for the purpose of launching
new drink product & to establish a new manufacturing plant. There are various purposes of
making a budget and these are as describe below:
Decision making tool: As the budget provide help the company to make better decisions
so that business can grow and get success. The management of Snappy Drinks can get detailed
information about each division so that higher authority will know the shortcomings and take
effective steps for the improvement so that business of organisation will achieve its goals
(Laitinen, 2013).
Prepare action plan: Budget provide help the organisation to make action plan for the
future. As management of Snappy Drinks can make future action plan that how much income
they will generate from the selling of its products and how much expenses will occur and to
minimise the expenses company can make proper action plan (Weetman, 2010).
Provide help to monitor business performance: As budget provide help to monitor the
business performance and it is important to know it so that effective decisions can be taken for
the future improvement. With the help of budget Snappy Drinks can evaluate the performance of
its business which is related to the income & expenses during a specific financial year. If net
revenue is higher than budgeted than it shows the good performance and if it is below than the
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standard than organisation have to take effective steps and make better strategies which support
the growth of corporation. As organisation can analyse its financial performance by comparing
actual cost occurred in the manufacturing with the budget cost (Loughran and McDonald, 2016).
So budget is being prepared for various purposes and used by the organisation as per its
requirements. Additionally, it is necessary to follow the steps which are involves to make budget.
As the process of budget preparation are as describe below:
Obtaining estimates: As the first step of budget preparation has emphasis towards
anticipation from distinct divisions such as: sales, manufacturing etc. And this step provide help
the organisation to take better decisions which support the growth of business. So it is important
for Snappy Drinks to prepare new budget and take information and data from other divisions and
preceding year budget.
Coordinating estimation: It is the next step and focuses to make coordination with other
divisions with the organisation. As it is important for Snappy Drinks to make budget for all
departments and does not emphasis only a specific division. So it is require to make equal
coordination with all divisions of the organisation so that effective budget can be prepare which
provide help the corporation to achieve its goals and objectives.
Communicate the budget: The another step is the communicate the budget within the
corporation so that if any alteration is required than it can be done as per the need. As Snappy
Drinks can communicate the information within the company and give instructions to the
employees to provide the feedback regarding the budget and if is beneficial for the business.
Implementation of budget: It is the next step in that budget is being implemented & all
the activities are performed as per the requirement of budget. This is helpful for Snappy Drinks
to prepare and implement budget so that business objectives can be accomplish as per the need.
In the development of business model, budget making process is very beneficial reason
being it provide help the corporation to make future strategies. The strategies provide help the
organisation to develop its business model which involves financial information as well as data.
As Snappy Drinks wants to introduce new drink and establish new venture and for it is required
to prepare budget which is based on business model. It provide help the corporation to evaluate
the expenses which arises in this whole procedure (Mitchelmore and Rowley, 2013).
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(ii) Application of traditional budget approach for future cost management
As the traditional budget is being prepared on the basis of preceding year data and
information. While making this budget it is important to analyse the previous year data so that
new budget can prepare on the basis of it and consider the factors which are associated with it
and it is very old method to prepare a budget. As Snappy Drinks is using traditional budget from
the last 15 years and all the decisions and strategies are being made on the basis of it. The
management of company wants to establish new venture in different nations. So this budget will
provide help the organisation to anticipate the income and expenses. As traditional budget
approach involves distinct budgets which are as describe below:
Incremental budget: This type of budgets are being prepared according to the preceding
year budget & incremental funds are being added to new budget. As incremental budget is very
useful for Snappy Drinks because it wants to establish new venture and also new drink products.
It is helpful for the company for the future planning of business (Drury, 2016).
As the traditional budget is used by the company and it has earned £550 in the previous
year. It reflects that traditional budget approach is very useful for Snappy Drinks. With the help
of this budget company will able to manage the cost so that unnecessary expenses can be
minimise and profits can be maximise. This budget is being prepared on the basis of previous
year information and data and on the basis of it new budget has been prepared for the future and
it provide help the organisation to analyse the source of revenue and on the basis of it plans and
strategies are being made for the expansion of business. As an instance, if a corporation wants to
introduce new drinks and for that it is require to use traditional budget approach so that cost will
be managed. As the management can analyse the previous projects and the budget related to it so
that it can make new budget for the new business project (Kennickell and Pogach, 2015).
(iii) Traditional budget is appropriate to all
As the traditional budget is the old method of making a budget and in recent time it is not
using by most of the companies. There are various new budget techniques which are better than
traditional budget and being more effective and less time taking. As the management of Snappy
Drinks is using it from very long time but it does not sure that in future this budget will be
helpful for the company. As the corporation is planning to start a new venture in the other nation
so it is not necessary that this method will beneficial in the future. There are various advantage &
disadvantage of budget approach which are being discussed as below:
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Advantage:
 To understand traditional budget is easy because it is based on previous year data and
information.
 With the help of this budget management can take decisions for the future growth of
business.
 As the income and expenditure can be analysed which provide help to know the
performance of organisation in upcoming years (Jordà and Taylor, 2016).
Disadvantage:
 If the previous year data and information is not relevant than new budget does not
prepare properly.
 It is more time taking procedure.
 For the expansion and growth of new business project, traditional budget is not suitable.
So it has been analysed that there are certain advantage & disadvantage of traditional budgetary
approach and it is suitable for some specific business purposes and not for all. If Snappy Drinks
use this budget than it can be beneficial for future strategies but not fulfil all aspects which
contribute to the growth of company.
PART 2
(iv) Explanation of rolling, zero based and activity based budget
There are various types of budgets which are discussed as below and used by the
organisation as per its suitability.
Rolling budget: In this type of budget, management makes new plans and strategies for
upcoming year & replace previous budget for the purpose of continuous budgeting system. So
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this type of budget is helpful for the organisation which are try to make expansion for the growth
of business. This budget can prepare quarterly or yearly basis as per the requirement of
organisation (David and Halbert, 2014).
The main advantage of this budget is that it is more useful for the organisation because it
is flexible and can alter as per the requirement. So as compare to the traditional budget this
rolling budget is more beneficial for the growth and future planning of the business. If Snappy
Drinks use rolling budget than it can make changes as per the requirement and can increase the
budget if it want to expand the business (Cowling and Ledger, 2012).
As this type of budget is more expensive reason being organisation have to spend more
time while alteration or making changes in the current budget. So it consume more time and to
prepare this budget there is an experience person is required who analyse the situations and on
the basis of it make changes in the budget.
Zero based budgeting: This type of budget has emphasis to prepare budget from scratch
and previous year data and information of previous year budget does not useful while making
zero based budget because it starts from zero level. In this type of budget all expenditures are
judged & it require to be evaluated in order to make budget (Covas and Den Haan, 2012).
It is attempt to improve traditional budget reason being it can be use in place of
incremental budget. In incremental budget, increment has done in the preceding year budget and
on the basis of it upcoming budget has been prepared.
As the main disadvantage of this type of budget is that it is more time taking and require
an expert person who know the business related activities very well.
Activity based budgeting: In this type of budget, cost is related to the activities &
budgeted expenses are compiled based on expected activity. As preceding year information does
not use in this budget and it focuses on the cost which is related to each activity of business.
As this budget is finer as compare to the traditional budget and it focuses to minimise
cost of production so that profits can be maximize.
The main disadvantage of this this budget is that it is beneficial for only for short term
and does not provide complete information (Cho and Doblas-Madrid, 2013).
(v) The potential application of above mentioned budgets
For the organisation above mentions budgets are decisive and by using this budget
performance of business can be improved. As rolling budget can be used by the organisation so
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that it can update the information as per the requirement and emphasis to maximize the revenue
of Snappy Drinks. It is beneficial for the corporation to make effective strategies and make better
decisions which support the growth of firm. As fixed budget does not change over a particular
period of time so that required information and data can not updated.
As this budget is helpful for the company to make plans and strategies so that business of
organisation can grow and get success. This budget does not prepare on the basis of previous
year information and data and Snippy Drinks is try to launch new venture and for that purpose
rolling budget is helpful for the organisation (Cheng and Serafeim, 2014).
(c) Analysis budgeting methods
There are various budgeting methods which have different purposes and objectives and
can be use as per the requirement of business. Zero based budgeting is beneficial for the
corporation reason being it starts from zero and Snappy Drinks is trying to establish new venture
so it is beneficial for the company to use this budget and all things will start from initial level. As
the organisation is using traditional budget which is not useful for long term and can hamper the
performance. As there are various reason which shows that zero base budgeting will be helpful
for the corporation (Stroll, 2015).
Efficient allocation of resources: This budget provide help Snappy Drinks to effectively
allocate the resources because it want to establish new venture so it is important to effectively
manage the resources as per the requirement.
Identifying wasteful material: With the help of this budget wasteful elements can be
minimise will provide help the organisation to work efficiently and improve the performance of
business so that business can grow and get success. If Snappy Drinks will apply this method than
those activities can be identified which support the growth of business and neglect those things
which can hamper the performance of organisation.
So, for Snappy Drinks this budgeting method will be more useful and fulfil the requisite
of firm and its business (Burns and Dewhurst, 2016).
CONCLUSION
As from the above report, it has been concluded that for the business financial is very
essential and without it business can not grow and get success. Business finance is the need of
every business whether it is small, medium or large. As company is using traditional budget and
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in this budget previous year data and information has being used and there various types of other
budgets which are also useful for to make estimation of revenue and expenditure. There are
different types of budgets such as: zero base budgeting, incremental budget and activity based
budget. The application of these budgets are depend upon the nature and type of business which
is performed by the corporation. While making budget finance is the main factor which is require
to be analysed so that chances of growth and success can be enhanced.
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REFERENCES
Books and Journals
Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan
International Higher Education.
Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to
finance. Strategic management journal.35(1). pp.1-23.
Cho, D. and Doblas-Madrid, A., 2013. Business cycle accounting east and west: Asian finance
and the investment wedge. Review of Economic Dynamics.16(4). pp.724-744.
Covas, F. and Den Haan, W. J., 2012. The role of debt and equity finance over the business
cycle. The Economic Journal.122(565). pp.1262-1286.
Cowling, M., Liu, W. and Ledger, A., 2012. Small business financing in the UK before and
during the current financial crisis. International Small Business Journal.30(7). pp.778-
800.
David, L. and Halbert, L., 2014. Finance capital, actor-network theory and the struggle over
calculative agencies in the business property markets of Mexico City Metropolitan
Region. Regional Studies.48(3). pp.516-529.
Jordà, Ò., Schularick, M. and Taylor, A. M., 2016. The great mortgaging: housing finance, crises
and business cycles. Economic Policy.31(85). pp.107-152.
Kennickell, A. B., Kwast, M. L. and Pogach, J., 2015. Small businesses and small business
finance during the financial crisis and the great recession: New evidence from the
survey of consumer finances. Available at SSRN 2620748.
Laitinen, E. K., 2013. Financial and non-financial variables in predicting failure of small
business reorganisation. International Journal of Accounting and Finance.4(1). pp.1-
34.
Loughran, T. and McDonald, B., 2016. Textual analysis in accounting and finance: A survey.
Journal of Accounting Research.54(4). pp.1187-1230.
Mitchelmore, S. and Rowley, J., 2013. Entrepreneurial competencies of women entrepreneurs
pursuing business growth. Journal of small business and enterprise development.20(1).
pp.125-142
Stroll, 2015. Management Accounting for Decision Makers 8th Ed. London Pearson. Chapter 6
budgeting
Drury, 2016. Management Accounting for Business. 6th ed. London Cengage 9 The budgeting
Process
Weetman, 2010. Management Accounting. 2nd ed. London FT Prentice Hall . Chapter 13
Preparing budget
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