Business Finance Report: Budgeting for Business Development

This report delves into the realm of business finance, exploring the crucial role of budgeting in the development and management of a business model. It begins with an executive summary highlighting the significance of budgets in financial operations and forecasting expenses. The introduction sets the stage by identifying the purpose of budgeting and the processes involved, using Snappy Drink Plc as a case study to demonstrate the application of traditional budgeting approaches. Part 1 provides a detailed analysis of business finance, the purpose and processes of budgets for business model development, the application of traditional budgeting approaches, and the importance of traditional budgetary systems. Part 2 explains rolling, zero-based, and activity-based budgets, their potential applications, and determines the most appropriate budget for the company. The report concludes by summarizing the key findings and providing references, offering a comprehensive overview of budgeting techniques and their impact on business success.

BUSINESS FINANCE

Table of Contents
EXECUTIVE SUMMARY ............................................................................................................3
INTRODUCTION...........................................................................................................................4
PART 1............................................................................................................................................4
(i). Purpose and processes of budgets for development of business model.................................4
(ii). Application of traditional budgeting approaches..................................................................6
(iii). Importance of traditional budgetary system for better future..............................................7
PART 2............................................................................................................................................8
(iv) Explanation of rolling, zero based and activity based budget...............................................8
(v) The potential application of these methods............................................................................9
(vi) The most appropriate budget for the company.....................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

EXECUTIVE SUMMARY
In business context, the money needed to develop, establish and run business in
appropriate manner is known as business finance. In the report, proper and clear discussion on
the role of budgets and importance of business finance. Budgets support in proper management
of financial operation that bring more accuracy in operations so that expenses can be forecasted.
In addition, the report gives detail about use of traditional budgets that are used by company.
Additional, there is a vast summary about the importance of different budgets such as rolling and
zero-based-budgeting that makes easier for the management to take valuable decision.

INTRODUCTION
The below report is going to identify the purpose of preparing a budget. It also shows
what processes are important for a company in order to prepare a budge and help achieve success
in the set business model. The report demonstrates the application of traditional budgeting
approaches in order to plan the future cost management of Snappy Drink Plc. It is an
organisation which produces energy drink (Reynolds, 2016). The company is in the business of
the energy drink from the past 15 to 20 years. The report will also evaluate the importance of
budgeting in the organisational environment and types of budgets.
PART 1
Business finance is defined as the credit and money that are required in order to run the
business activity. In simple term it means that proper procurement and utilization of funds in
systematic manner so that companies are able to carry their operation in efficiently and
effectively. In recent time, companies are needed to plan for their future expenses so that sudden
drastic changes can be meet, thus they prepare budgets. With the support of budgets manager of
company are required to make meaningful plans that aid to spend their funds. Snappy drink plc is
producing energy drink from last 15 years and producing 60 product, with about 125 staff
member working to make company effective (Mauskopf and Earnshaw, 2017). The company
was using traditional budgeting system from staring (What is budgets, 2019). Therefore new
finance director is planning to change the system by applying ZBB and ABB that support in
company to prepare advance plan so that any future contingency can be resolved.
(i). Purpose and processes of budgets for development of business model.
In micro economic the concept of budget means the proper estimation of revenues and
expenses in a particular time frame so that decision are taken for better improvement. In business
era, the corporate budgets are necessary for operational to make them extreme efficient. Apart
from crucial resources, a budget also assist in defining goals, evaluating process and counting
outcomes and plan for future contingencies. The process of making budgets start with forecasting
assumption for future that are related to estimated sales trends, condition of market, cost trends
and entire look on economic situation. In snappy drinks manager use to prepare budgets in order
to brink stability within their business activities. There are various purpose of preparing budgets
that are discussed below:

 Help in proper estimate of income and expense: The financial plan “budgets” support
in forecasting future income and total expenses. Estimation are performed on the basis of
last year budgeted information and overall performance. In respected company budget
plays crucial role as they are planning to open new plant for producing flavoured energy
drink (Ponticelli and Voth, 2017). Thus it is important for management to make sure that
expenses must be properly estimated that aid to increase the profitability.
 Support in controlling: It is observed that controlling is crucial activity for any business
that support in increasing efficiency and overall performance of business. Thus proper
budgets are beneficial in monitoring and controlling of different activities of business. In
snappy drink manager and responsible team use budgets to control their future expenses
and bring changes in their existing polices so that future income can be raised and new
product could easily survive for long in competitive world.
 Help in evaluating business performance: Budgets are useful in coordinating the effort
of various department within organisation and accomplish of common objective. It also
assist in measuring and evaluating overall performance of business. In respective firm,
manager with the support of budget examine the performance of production activity and
tries to improve in case of any problems. They use to calculate financial performance by
considering total cost incurred while producing energy drink and compare with budgeted
cost so that possible alteration in performance can be managed.
In order to prepare authentic and timely budgets there is a systematic process that are followed
by the manager of respective company. The step by step process applied by manager of Snappy
drink is described below:
 Acquiring estimate: The very first step in making budget includes the examining the
estimate of sales, manufacturing level, total expected cost etc. Hence, management of
snappy drink is planning to prepare effective new budgets, so they analyse the
information from past year and receive estimate form different department.
 Coordinating estimate: This step is basically related to making coordinating of several
estimate received from assorted department of company (Barbour, 2016). It is consider to
be an essential step because budgets cannot be made for each section therefore
coordination is must to reduce the burden of budgeting.

 Communicating budgets: It is crucial step in the context of company, as once budgets
are prepared than manager are responsible to communicate the same with other
department so that result can be maximised. It also involves staff interaction as they
provide their view point and feedback for improving budgets. In respective company
manager use to communicate budgets to entire staff that are involved in production of
new drinks.
 Implementing budget plan: Once budgets are prepared, communicated the next step is
related with implementation of these plans that support to run activities in effective and
productive manner.
From the above discussed budget preparing process, it is observed that it benefit in
development of business model as it is consider as future plan (Wheeler, 2016). As per budgets
firms are enable to evolve business model as it require essential financial information. From the
case of Snappy drink, there are two big decisions such as, launching flavoured energy drink and
other is establishing new outlets outside UK. Thus they require effective budget to develop a
business mode and analyse about total expending that are possible in development of new
manufacturing plant.
(ii). Application of traditional budgeting approaches.
Traditional budgeting approach used by organization to compensate the cost for the
current year by considering last year’s budget and financial forecast. The changes in business
cycle mainly use the traditional budget approach to relate the budget cycle. This helps in
projecting sales and revenues subject to eliminating the expenses with predicted profits. The
traditional budgeting process is proceed by taking care by budgeted income. Pricing strategies
are used to compensate the expenses with account with changes and variations. As the snappy
drink, organization is adapting the traditional marketing approach to format the process
successfully last year (Tomkin, 2016). Organizers are seeking to start new manufacturing stores
outside the country. Diverse budgets are used to carry out management of cost.
Incremental budget
This type of budget formation mainly depends upon last year’s budgetary reports and
budgets. There is a projected aspect consider in respect of changes and budgets are prepared by
considering all the changes and variations. In incremental budget, the approach helps to conduct
the budget with approximate changes and variations.

The incremental budget methodology of forecasting budgets are being utilized by the Snappy
beverages organization to earn the income of £550 million a year ago. If organization impels this
planning approach for further, at that point it will most likely help to consolidate expenses. This
methodology depends on the past data that demonstrates the part of conventional budgetary
approach (Berman, 2015). As past situation, expresses it is evaluated that planning for
forecasted income assist in managing the financial plans more effectively. For instance,
organization is going to dispatch new beverages in the market and the chance, which actualizes
this spending approach, at that point their cost, will be levelled out. This is the reason since this
expenditure approach focuses around utilization of past information and the past record of above
organization that shows favourable results.
(iii). Importance of traditional budgetary system for better future.
In business world, the oldest method of making valuable budget for betterment of
company is commonly termed as traditional budget. In changing business environment the
importance of traditional budgets is getting out of fashion because companies are more focused
on new, effective and authentic budgets methods. Although snappy drink is using the concept of
traditional budget for long time, but new finance manager is not guaranteed that it will produced
effective result. As company is planning to open new drink thus they think that old techniques is
not valuable in new environment. Some of the basic advantages and disadvantage of traditional
budget are discussed below:
Advantages:
 It provide a detail and outlined guidelines to control future cost and decrease expenditure.
 The major impact of this plan is to determine the reason for error in company.
 It is one of the easiest approach of budgeting that can be implemented in any context of
business but are not approachable in complex situation.
Disadvantage:
 The major drawback of traditional budgeting is that it consume lots of time while
preparing budgets and giving valuable result.
 This budgets are not flexible enough therefore it is not easy for management to adjust in
tough situation or unexpected event.

 Traditional budgets are not able to focus on allocation of resources as they miss this
scenario. Therefore for a manufacturing company is is not useful at all because in
producing of good resources must be properly allocated.
From the above describe advantages and disadvantage it is stated that traditional budgets are not
supportable in each part of business (Akgay, Alper and Ozmucur, 2018). In case, if Snappy drink
apply the concept of this budget in their new business venture than it can impact the future
operation.
PART 2
(iv) Explanation of rolling, zero based and activity based budget.
In present business scenario, there are new, fast, and effective budgeting methods are
implemented by companies in order to extract valuable result. Some of these are discussed
below:
Rolling budgets - This type of budgets are more approachable by business which means
new budgets are prepared and updated when as old one expire. It is commonly known as
continuous budget, that are updated at regular interval according to the nature of business.
Management uses this budgets in different business context
Zero Base Budgeting – Zero base budgeting in which all the expenses are approved for
each new period. It the type of budgeting by which the process of creating a budget nothing
without using the prior year's budget or spending numbers (Reynolds, 2016). It basically starts
from zero rather than traditional budgeting which is based on previous budget. In this budgeting
it is necessary to justify each and every expenses without adding to the actual budget. As zero
base budgeting helps a business in the allocation of resources efficiency and also this methods
help in cost reduction as it give true picture of the costs against the desired performance
(Mauskopf and Earnshaw, 2017). And also this budgeting identifies many opportunities and cost
effective ways which help the business to the large extent. It always look at the ways by which
cost can be cut and also reduce the cost as possible so that desire result can be obtained.
Activity Base Budgeting - Activity base budgeting is a approach that records and
analyses the activities that lead to cost of the business. It is design to provide better transparency
into the budget process. It is the method of budgeting by which revenue generated research
activities are allocated to the unit which is responsible for the activity. Activity cost budgeting

allow for a high degree of cost planning. Also it provide more control over the budgeting process
and helps to achieve the goals of the organisation in the systematic manner. Activity based
budgeting take outputs based approach as it recognise the activities which are cost drive. It views
the organisation activities as it link with the business strategies. It is used in total quality
management to help to identify the cost management (Barbour, 2016). As it is one of the most
accurate budgeting type and give adequate results.
(v) The potential application of these methods
Rolling budgets: Snappy Drink Plc is a business that deals with the production and
selling of energy drinks. It is important for the organisation to make use of budgets which are
easy and can allow it to reach required growth and development. Rolling budgets fits for the
organisations needs as in these budgets only once the budget needs to be prepared and everything
works smoothly after that.
Zero-based budgeting: Zero-based budgeting is most effective when the organisation is
setting up its budgets for new purposes, or due to any change in activity process etc. This budget
is not appropriate for Snappy Drink Plc, as the company requires a budget a budget which is
constant and easy.
Activity base budgeting: This approachable is ineffective for an organisation like
Snappy Drink Plc because it revolves around understanding and leading of the development and
activities and as per these activities making required changes (Wheeler, 2016). It is important for
Snappy Drink to be have a budget which is constant and does not required too many operations
and manpower in preparation.
(vi) The most appropriate budget for the company
After analysing it has been found out that the most appropriate budget for Snappy Drink
Plc is rolling budget. Using this technique, the company can ensure that the budgets which are
old and expired, and now having no set role for the organisation can be kept aside. This provides
the organisation with a clear direction to prepare a new budget in which the needs and
requirements can be kept (Tomkin, 2016). Along with it, this can help the organisation in
reaching with new developments.
The technique of rolling budget is going to allow the organisation in identifying the set
needs and requirements. These requirements are one of the major impediments which Snappy
Drink Plc tends to face while preparation of its budget. While preparing any budget, it is

important for the organisation to identify what are its core needs and requirements and in what
manner, it can successfully ensure that desired growth and development is going to take place.
Once the requirements are identified the organisation can now smoothly move towards another
step to prepare a set budget successfully.
Rolling budget is one of the most effective and successful methods as it is very easy and
does not creates such situations for the organisation where it has to face problems related to
growth and development. The steps makes it easy for the organisation to ensure that set budget is
going as per the required needs and development (Berman, 2015). Also, it enhances the overall
growth of the organisation and provides it a brief time in which the next budget needs to be
rolled out.
CONCLUSION
The above report showcase the importance of preparing a budget. It is important for the
organisation to prepare a budget and ensure that as per the set budget required growth and
development is taking place. From the above evaluations, it has been concluded that preparation
of a budget is one of the most essential part of an organisation. It can enhance the growth and
development of the organisation and can help it reach new growth and development. The report
also highlights the types of budgets which are rolling, zero-based, and activity based and
showcases that rolling budget is the most appropriate budget for the organisation. Along with it,
it has been concluded that, from the help of rolling budget the organisation can reach to required
growth and ensure that effective development is taking place in the required time and in the set
finances.

REFERENCES
Books and Journals
Akgay, O. C., Alper, C. E. and Ozmucur, S., 2018. Budget Deficit, Inflation and Debt
Sustainability: Evidence from Turkey, 1970-2000. In Inflation and disinflation in
Turkey (pp. 83-102). Routledge.
Barbour, B. X., 2016. Big budget productions with limited release: video retention issues with
body-worn cameras. Fordham L. Rev. 85. p.1725.\
Berman, L., 2015. The Office of Management and Budget and the presidency, 1921-1979 (Vol.
1438). Princeton University Press.\
Mauskopf, J. and Earnshaw, S., 2017. Reporting Budget-Impact Analyses. In Budget-Impact
Analysis of Health Care Interventions (pp. 165-188). Adis, Cham.
Ponticelli, J. and Voth, H. J., 2017. Austerity and anarchy: Budget cuts and social unrest in
Europe, 1919-2008. Available at SSRN 1899287.
Reynolds, M. E., 2016, July. From Base Closings to the Budget. In Party and Procedure in the
United States Congress(p. 235). Rowman & Littlefield.
Tomkin, S. L., 2016. Inside OMB: Politics and Process in the President's Budget Office: Politics
and Process in the President's Budget Office. Routledge.
Wheeler, D. L., 2016. zxcvbn: Low-budget password strength estimation. In 25th {USENIX}
Security Symposium ({USENIX} Security 16) (pp. 157-173).
Online
What is budgets. 2019. [Online] Available Through:
<https://www.mymoneycoach.ca/budgeting/what-is-a-budget-planning-forecasting>.