Business Finance: Budgeting, Planning and Financial Strategies

This report provides an overview of business finance, focusing on budgeting methods and their practical application within a multinational company, Snappy Drinks. The report begins by outlining the purpose and process of preparing a budget, emphasizing its role in forecasting income, monitoring performance, making decisions, and assigning control. It then explores the traditional budgeting approach, including incremental budgeting, and assesses its suitability. Furthermore, the report delves into alternative budgeting methods such as zero-based, rolling, and activity-based budgeting, analyzing their merits and demerits. The analysis includes how Snappy Drinks can apply these methods effectively. The report concludes with a comparative analysis, offering recommendations on the most appropriate budgeting methods for the company. This report offers a comprehensive understanding of finance and budgeting techniques, suitable for students of business and finance.

BUSINESS
FINANCE

Table of Contents
Executive Summary ........................................................................................................................1
PART 1............................................................................................................................................1
(i) Purpose of preparing budget and process that need to follow................................................1
(ii) Application of traditional budget approach ..........................................................................3
(iii) Traditional budgetary system is appropriate to all................................................................4
PART 2............................................................................................................................................4
(iv) Alternative budget methods such as rolling, zero base and activity based budget ..............4
(v) Potential application of these method and statement how it can perform effectively............6
(vi) Analysing of selected method that may be more appropriate to company...........................6
CONCLUSION................................................................................................................................7
REFERENCE...................................................................................................................................8

Executive Summary
This report summarises that the Snappy Drinks is an multinational company who
manufactures different types of energy drinks that helps to attract the customers. This
organisation want to expand its business, for this it need to arrange business finance. As finance
is required to buy the variety of assets, raw material and fill the basic needs to perform business
activities. The business concern arranges the funds from different sources that helps to make
planning for future business activities (Alyousef and Alnasser, 2015).
PART 1
(i) Purpose of preparing budget and process that need to follow
Every business requires finance to run a business efficiently that fulfil the basic needs and
wants by purchasing and selling the goods and services. The organisation prepares different
types of budget that gives an estimation of future income and expenses and give ideas what
should do to expand the business activities. Budgets are helpful to get future revenues and
expenditures. Budget plays a crucial role in all organisation such as it helps to helps make
planning that how much should to invest in order to run a business and from where should
purchase the raw material that helps to run a profit. Moreover, it helps to control the business
activities and excess expenditure which are arising during business activities.
Purpose of preparing a budget
To forecast the income and expenditure: The main purpose of budget is to forecast the
future income and expenses that helps to run a business effectively. By preparing budget a
business concern and managers can predict whether a business will give profit or not. It provide
a business model that shows how a business make efforts in order to forecast income and
expenditure. The manager of Snippy Drinks prepares a budget that helps to predict the future
income and expenditure and make efforts in order to increase the profitability.
To monitor the business performance: Another purpose of budget is to monitor the
business performance by measuring actual and budget information. Such as business is living up
on expectation that may be correct or not. For reducing the cost and increasing profitability an
organisation should prepare budget and need to monitor the performance. The manager of
Snippy Drinks prepares a budget by recording all transaction which relates to business activities
1

and monitor the business performance that helps to increase profitability (Audretsch and et.al.,
2016).
Tools for making decision: Budget also provides a financial framework that is used to
make decision process. The owner of business can take corrective action by reducing the cost of
organisation and make profits. The manager of Snippy Drinks records the business performance
and make business decision such as what quality of material it should purchase and at what price
that helps to eliminate the irrelevant cost and maintain profits.
Assigning the control: Budget are helpful in financial stability by controlling the
business activities. If manager founds excess expenditure on unwanted needs then through a
budget it can be control that helps to work properly. The manager of Snippy Drinks assign the
work among the employees and control over the excess expenditures which can increase the
profitability.
Process of preparing a budget which should by followed by a company
Every organisation prepares a budget with the helps to previous financial information that
helps to take effective business in order to make profits. Such as Snappy Drinks is following
some process to prepare a effective budget :-
Obtaining estimates: This is the first step of preparing the budget which means an
industry should obtain the estimates of sales, manufacturing, available resources and expected
cost that is used to predict the future profitability. The manager of Snippy Drinks are required to
provide an estimation of future expectation and business activities which may impact on the
company performance (Catan and Kahan, 2016).
Coordinate estimates: After obtaining the estimates manager are required to coordinates
with budgeted estimation that helps to maintaining the profitability. In Snippy Drinks, budget
committee analysis the different budget plan which is submitted by different industrial units to
determine the usability of plans for creating the company's interest and get information about
what resources can be allocate between different units of the enterprise.
Communicating budget: The manager of the organisation are responsible to
communicate the budget plan among employees and members, who helps to achieve the goals of
the organisation in certain period. In Snappy Drinks manager communicate budget with
departments and employees that helps to make changes and modify if required in order to
2

increase profit margin. Budget needs effective communication in order to convince the
departmental manager for making changes.
Implementation of Budget plan: This is the final process of preparing the budget that
requires to implement the budget plan. The manager of Snippy Drinks need to present the final
budget that can helps to increase future incomes by reducing the expenses.
Budget process helps to develop the business model
It has been evaluated that budget process is useful to develop the business model that
helps to fill the future needs and wants by setting a budget. By following a budget process an
organisation can make effective business decision such as if manager finds there is require to
invest more in order to expand the business then it can change the budget and can make effective
decision. Such as Snippy Drinks can take important business decision regarding expanding the
business activities across the world and develop new products that help to attract the customers.
For doing such manager need to prepare a budget and should follow budgeting process that will
lead to develop a business model. Hence , budget process can help Snippy Drinks to develop the
business model by preparing the budget (Cole and Sokolyk, 2016).
(ii) Application of traditional budget approach
Traditional budget approach is the oldest technique that is used to set the budget from
oldest method and earn profits. Such as Snippy Drinks is using traditional approach since 15
years and earning revenues £ 550 million. Moreover it wanted to increase the manufacturing
store in other countries. Herein, traditional budget approach help Snippy Drinks to manage the
proper cost as well as manage it gains estimated incomes with the help of traditional budget
approach. Therefore, it involves number of budget such as -
Incremental budget: It also involves in traditional budgeting that helps to make the
budget with the help of previous budget. It adds or subtracts the amount of sales forecast, new
development, market demand and capacity of production that helps to get expected results. The
manager of Snippy Drinks prepares incremental budget by involving past financial information
and modify it year to year that helps to save time and money. As result it earns estimated profits
by overcoming the cost of the organisation. Moreover, incremental budget allows manager to
focus on main functional areas of change as the changes in the cost can be analysis instantly
(Hope and Vyas, 2017).
3

It has been analysed that traditional approach is the old method of getting the estimation
of income and expenditure that help to predict the profits during a year. By application of
traditional budget approach Snappy Drinks can make planning for managing the future cost in
order to obtain profits. For instance, Snappy Drinks is preparing incremental budget and making
profits every year. During selling the different energy drinks it has analysed that it need to make
more investment for manufacturing the drinks. It can changes with the help of incremental
budget and maintains profits for the year end.
(iii) Traditional budgetary system is appropriate to all
Traditional budgeting is the process of projecting the business's income and expenses for
the future which is based on past year's budget. A traditional budgetary system is an accounting
system that is used to predict and evaluate the business's expenses and earnings. This system is
appropriate to all enterprises because it gives a templates to confirm the predictions and make
profits. As Snappy Drinks company are using the traditional system to sell is product and prepare
budget with the helps of traditional budgeting system. Moreover, it helps to make future planning
for expanding the business at different market place (Kopnina and Blewitt, 2018). For applying
this system it may face some advantages and disadvantages such as-
Advantages: Traditional budgeting system helps in making future planning and effective
decision. A budget make easier to perform business activities by changing the business functions
and increasing the sales. Moreover it helps to reduce the expenses and obtaining finance such as
Snappy Drinks shows its financial plans and projects to investors and lenders that provide
finance to invest in business activities and increase profitability.
Disadvantages: It has drawback also such as it might be inaccurate or inappropriate
representation of objects which is decided by the organisation. It can be manipulates by manager
because they have full financial information and can provide this information to competative
industry.
PART 2
(iv) Alternative budget methods such as rolling, zero base and activity based budget
The budgets are prepared in all industries that is used to get information about future
income and expenditure in order to perform business activities. Such as Snappy drinks can
prepare different types of budgets which is described below-
4

Zero base budget: It is transparent way of creating a budget that is used to prepare the
budget from new accounting period. In involves real expenses which are incurred during
business function. As name suggest budget starts from zero each year that helps to remove
unexpected cost and create a forecasting. Snappy Drinks can use this method to get the
estimation of future income by removing the unnecessary cost of the organisation. Moreover, it
helps to improve the traditional approach such as in traditional approach budgets are prepared
with the help of past information where as in zero base budget does not contains any past
financial information (Lagoarde-Segot, 2015).
Merits: It helps to obtain the future expectation and profitability by avoiding the waste.
Such as Snappy Drinks remove the wasting process and utilize properly available resources that
helps to achieve goals. It is not based on any past assumption that help to get actual revenues.
Demerits: This is time consuming process because takes soo much time to prepare the
zero base budget. So it may be drawback for Snappy Drinks that it need to collect more financial
information in order to prepare zero base budget.
Rolling budget: This budgeting method is is not static and continuous perpetually
because it can accept the changes if required. This budget repeatedly extends original budget
period. Snappy Drinks may use this budget to get information from experience in order to renew
the budget for next period of time. Additionally, this budget is helpful to improve the traditional
approach is prepared on yearly basis in which information can not be update where as in rolling
budget Snappy Drinks can update the financial information that leads to sustainable business
(Lee and Shin, 2018).
Merits: It help Snappy Drinks to make changes from previous period to next and will
lead to maintain profitability. It is used to be more responsible towards unexpected changes and
allows to make adjustments for doing changes in upcoming periods.
Demerits: It has drawback also such as for preparing rolling budget there is require
highly experienced and man power who can adopt the changes. Moreover, it need to research
more to prepare rolling budget.
Activity based budget: This method is used to research, record and analysis the
activities which is performed by the organisation. This is used to reduce the overall cost by
creating the efficiency. It is alternative budgeting practices that can be used by Snappy Drinks
5

for establishing the industry and expanding the business activities. As it is more demanding than
traditional budgeting approach, which is used to adjust past budget for inflation or development.
Merits: It can help Snappy Drinks to control over the budgeting process by overcoming
the unnecessary expenses. It is time saving process that helps to save time and money by
concentrating on business activities (Nyman, 2016).
Demerits: This method needs more assumptions to use activity based budgeting.
Moreover it requires extra efforts that may be difficult for Snappy Drinks.
(v) Potential application of these method and statement how it can perform effectively
It has been evaluated that the budgeting method like zero base, rolling and activity based
budgeting helps to perform business activities effectively for instance, Snappy Drinks adopts
Activity based budgeting that helps to improve the relationship between enterprise and its
customers. Moreover, by applying this method organisation can eliminate the unnecessary
activities that helps to serve customer with best quality. This methods contains some elements
like-
Accuracy: It helps to make accurate budget by justifying each activity and performs
well.
Measurable performance: By applying activity based budgeting organisation can
measure the performance and can make improvements (Tuyon and Ahmad, 2016).
Therefore, these are the element which can impact on entire business activities. By
applying this method organisation can perform well.
(vi) Analysing of selected method that may be more appropriate to company
From the above mentioned budgeting method it has been analysed that Activity based
budgeting method will be more appropriate for Snappy Drinks such as it want to expand its
business across the UK then it need to focus on business activities and need to control the excess
cost which is incurring during business activities. Additionally, this method will be more suitable
for this company because it will justify each business activity and helps to improve the business
performance. This method covers some appropriate points such as-
Optimum utilization of resources: Snappy Drinks should use Activity based budget that
helps to utilize the available resources proper and will state future demand and expectation in
order to maintain profitability.
6

Increase communication: As Snappy Drinks is planning to expand business through
activity based budgeting it can communicate with staff and employees properly.
Helpful to remove wasting activity: Snappy Drinks can improve its business activities
by removing the wasting activity and make effective business decision (Vismara and Benaroio,
2017).
Hence, Snappy Drinks should adopt the Activity based budgeting that will identify the
business activities and will helps to expand the business by producing new products and
controlling the cost.
CONCLUSION
Business finance is the basic need to establish a business, run it to expand the business
across the world. This report discussed about budget and the process that should be followed by
the company that helps to develop the business model. A part from this, report contained
traditional budgeting approach for future cost management plan for specific business. Moreover,
it discussed about alternative budget methods such as rolling budget, zero base budget and
activity based budgeting which is used to improve the traditional approach.
7

REFERENCE
Books and Journal
Alyousef, H. S. and Alnasser, S. M., 2015. A study of cohesion in international postgraduate
Business students’ multimodal written texts: an SF-MDA of a key topic in finance. The
Buckingham Journal of Language and Linguistics. 8. pp.56-78.
Audretsch, D. B., and et.al., 2016. Entrepreneurial finance and technology transfer. The Journal
of Technology Transfer. 41(1). pp.1-9.
Catan, E. M. and Kahan, M., 2016. The law and finance of antitakeover statutes. Stan. L. Rev..
68. p.629.
Cole, R. and Sokolyk, T., 2016. Who needs credit and who gets credit? Evidence from the
surveys of small business finances. Journal of Financial Stability. 24. pp.40-60.
Hope, O. K. and Vyas, D., 2017. Private company finance and financial reporting. Accounting
and Business Research. 47(5). pp.506-537.
Kopnina, H. and Blewitt, J., 2018. Sustainable business: Key issues. Routledge.
Lagoarde-Segot, T., 2015. Diversifying finance research: From financialization to
sustainability. International Review of Financial Analysis. 39. pp.1-6.
Lee, I. and Shin, Y. J., 2018. Fintech: Ecosystem, business models, investment decisions, and
challenges. Business Horizons. 61(1). pp.35-46.
Nyman, R. B. E., 2016. An Algorithmic Investigation of Conviction Narrative Theory:
Applications in Business, Finance and Economics (Doctoral dissertation, UCL
(University College London)).
Tuyon, J. and Ahmad, Z., 2016. Behavioural finance perspectives on Malaysian stock market
efficiency. Borsa Istanbul Review. 16(1). pp.43-61.
Vismara, S. and Benaroio, D., 2017. 11. Gender in entrepreneurial finance: matching investors
and entrepreneurs in equity. Gender and entrepreneurial activity. 271.
8