Business Finance Report: Budgeting and Cost Management Analysis

This report provides a comprehensive analysis of business finance, focusing on budgeting and cost management strategies within the context of Snappy Drinks Plc. It begins by outlining the purposes of budgeting, the processes involved, and the importance of financial planning for business development. The report then delves into traditional budgeting approaches, including their application in cost management and their suitability for different aspects of a business. Furthermore, it explores alternative budgeting methods such as rolling, zero-based, and activity-based budgeting, comparing their advantages and disadvantages and examining their potential applications. The analysis includes a case study of Snappy Drinks Plc, evaluating how different budgeting methods can be implemented to improve financial performance and decision-making. The report provides a detailed examination of these budgeting methods, including their advantages, disadvantages, and practical application within the context of Snappy Drinks Plc.

Business
Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................3
(a) Purposes of budget and process that need to follow by the company....................................3
(b) Application of traditional budget approach for future cost management plan .....................5
(c) Traditional budget is appropriate for all or some part of business.........................................6
PART 2............................................................................................................................................7
(d) Understanding about rolling, zero based and activity based budget .....................................7
(e) Analysis of zero based budget in the aspect of snappy drink company.................................8
(f) Potential application of budgeting method ............................................................................9
CONCLUSION................................................................................................................................9
REFERENCE.................................................................................................................................11

INTRODUCTION
Business finance means credit and wealth which is employed in business. Finance is the
first need of each business that needs to buy assets, goods and services, raw material and flow of
economic activities. Moreover, it is the provision of money in any business that helps to run
efficiently and appropriately (Belás and et.al., 2015). This report will emphasis on the Snappy
Drinks Plc organisation that is energy drinks manufacturing company. It manufactures
approximately 60 different products. This report discusses about purposes of preparing a budget,
process that need to follow and how it can help in business development model. A part from this,
report will state about traditional budgeting approaches to make planning for future cost
management for any specific business. Additionally, this report will contain alternative budget
methods like rolling budget, zero base budget and activity based budget which is used to improve
the traditional approach.
PART 1
(a) Purposes of budget and process that need to follow by the company
Budget is the important and financial document which includes future income and
expenses that is used to run a business. Every organisation prepare different types of budget end
of the year that give suggestion how much need to invest in order to increase profitability.
Budgets are prepared with the help of past information and previous budget that gives ideas what
need to do and how to do. Snappy Drinks is international company that produce more than 60
products that influence the customers. It prepares budget every year by analysing the financial
and previous year budget (Bezemer and Hudson, 2016).
Budget plays different role in planning and control such as Snappy Drinks prepares a
budget that helps to make future planning that states what should need to do in order to increase
profits by reducing the cost. Moreover, budget helps to control the excess cost which has chances
to arise during business activity. Budget are perfect communication tools which is used to
achieve the financial and operating objectives.
Budget are prepares for multiple purpose that is discussed below:
Forecasting the income and expenses: As budget is the estimation of future income and
expenses that is used to make future planning and maintain the control over business activities.

The manager of Snappy Drinks prepares a budget with the helps of previous year budget that
gives information about future expenditure and expectation in order to make profits.
Allocating resources: It may be critical purpose of budget that need to allocate the
resources. By preparing budget an organisation can get idea how much need to invest in specific
department for growing the business. Such as Snappy Drinks divide the resources in different
sector or department that helps to produce better quality of products. Moreover , by allocating
resources employees can work collectively at work place for achieving particular objects.
To make effective business decision: The main purpose of this is to take corrective
actions for business decision. Manager of any enterprise prepares budget and make effective
business decision such as Snappy Drinks decides from where it should purchase raw material and
at what prises that will help to attract the customer for running a business (Cole and Sokolyk,
2016).
Assigning control: Another purposes of budget is assigning control that is used to make
budgetary business decision. Budget helps to control over business activities and keep it
centralised in order to make business decision. The manager of Snappy Drinks prepares budget
to keep control excess spending and cost and make profitable business decision.
Process that need to follow by an enterprise while preparing a budget -
Every organisation prepares a budget end of the year by following some process that
helps to set a budget effective and make profitable business decision. Such as Snappy Drinks
follow following process-
Research cost: All of the business organisation need to research the cost that helps to
accomplish the goals. The manager of Snappy Drinks creates a fixed and variable costs that helps
to underestimate the unwanted expenditure. By doing proper research Snappy Drinks can
planning for cost of operating the business (Budget Process need to follow by company 2019).
Project revenues: It is needs to get how much money need to be generate from selling
the products and services on monthly, quarterly and yearly basis. Such as the manager of Snappy
Drinks get estimation of revenues by selling the different types of drinks. It creates projects
which is based on revenues that helps to achieve organisation goals (Cumming, Hou and Lee,
2016).

Get estimation of profits: As profits states the financial health of business which is
calculates by manager of the organisation in order to get certain profits. Snappy Drinks make
estimation of profit which need to be achieve by performing the business activities.
Create cash flow statement: Every company need to know the how much amount is
supposed to be come in business during a year and how it need to be generate. Such as Snappy
Drinks prepares cash flow statement over a 12 month period. By preparing this it helps to
understand the payment and receipt method that affect a operating business.
To make investment plan: Spending is the major element that helps to maintain the
budget and gives ideas for investment in a particular project. Such as Snappy Drinks makes a
investment plan and decided how much should be invest in manufacturing and marketing the
products (Gelsomino and et.al., 2016).
Discuss cost with supplier and employees: Another process of budget is discuss cost
with supplier and staff who can work according to budget. Snappy Drinks company prepares
budget and discuss with its employees that helps to achieve goals within ascertaining budget.
To implement plan after reviewing budget: After discussing cost with supplier and
employees manager need to review the budget on monthly basis and should implement the
budget that helps to run a business.
Above mentioned process of budget are helpful in development of business model such
as it helps to make future planning that gives ideas about future income and expenditure after
getting the financial information. Snappy Drinks organisation is going to take important business
decision such as launching new drinks and expand the business market. For doing this it need to
set up a budget and also need to follow the budget process that helps to establishing new
manufacturing industry.
(b) Application of traditional budget approach for future cost management plan
Traditional budget approach is a type of budget making approach in which last year's
budgets are taken as the base. In other words, this approach is based on preparation of new
budget by making some changes that may occur due to change in inflation rate, interest rate etc.
In the aspect of the Snappy company they are implementing this budget since 15 years and they
are success. If they want to use this budgetary approach for their new venture then it would be
beneficial for them because it consists all the previous years information. There are many types

of the traditional budget like incremental budget, activity based budget, zero-based budget etc.
Herein, the incremental budget is mentioned as below:
Incremental budget- It is a kind of budget that use previous year's budget in process of
making budget. In this budget only incremental amount is added in the new year's budget. The
main advantage of this type budget is that it offers continuously funding requirement to the
various department. If the snappy drink company applies this budget then it would be beneficial
for their new business in availability of the fund at the right time (Gilje, 2017).
The traditional budget is applicable in effectively cost management this is why because
this budget ensures about the efficient use of available resources. Herein, the case of Snappy
drink limited company, they are planning to introduce new drinks as well as want to open a new
manufacturing store. In this situation the traditional budget approach can help them in cost
management. For example if they estimate the cost of their new products on the basis of
traditional budget then organisation will follow the same process which they are following from
last 15 years and it will work for them (Hope and Vyas, 2017).
(c) Traditional budget is appropriate for all or some part of business.
Traditional budget approach has its multi-pal uses, this is why the snappy drink company
is applying this approach from last 15 years. They earned the revenue of £550 million last year.
Herein, the question is that will this approach work effectively in the new business venture of
Snappy company? Eventually, there are many other budgetary approaches which have own uses
in different organisation. Companies can not relay only on one type budget approach. Like
snappy company is going to take two big decisions so they can not use only traditional budgetary
approach because it is not suitable for all part of business. It may beneficial in proper cost
management and proper fund allocation but some function of company can not be completed by
this (Lee and Shin, 2018). Some advantages and disadvantage of this budgetary approach are as
follows:
Advantages:
 It is beneficial in controlling the cost effectively by proper allocation of
the financial resources. If snappy drink company will use it in future
decisions then it may helpful for them.

 This budgetary approach is an easy process, it does not consider too much
time. The snappy drink company can save their time and cost in the
implementation of budget in their new business.
Disadvantages:
 The big disadvantage of this approach is the lack of flexibility and due to
this it becomes difficult for the companies to make change. The above
company may face this issue in their new business if they apply this
approach of budget (Xiang and Worthington, 2015).
So these are the advantages and disadvantages of the traditional budget approach that
shows this budgetary approach is not suitable for all business functions. It can be helpful for
some functions but not for all. The snappy drink company may use the combination of traditional
and modern budgetary approach in their future decisions.
PART 2
(d) Understanding about rolling, zero based and activity based budget
Rolling budget: This is a new and revised budget which is prepared with the helps to
new financial planning in upcoming accounting period. Moreover, rolling budget is used to
replace the old budget from new budget. The manager of Snappy drink replace the old budget
with new budget that is prepared with the helps of new financial information. It can prepare for
satisfying the upcoming demand and increase the production level.
Advantages: It helps to improve the traditional approach by replacing the new budget
with old budget that does not consume more time. It helps to give more response to unexpected
changes in order to increase the productivity.
Disadvantages: The drawback of rolling budget is more expensive because it need to
spend more to prepare the roll budget. Additionally, it is not suitable for all types of organisation
so small size of organisation can not prepare this budget.
Zero based budget: This types of budget are prepare on the basis of actual expenses
which are incurred in an enterprises. It does not includes any previous budget because it starts
with new accounting period. It can use to improve the traditional approach such as in traditional
approach companies starts with past period's budget as an estimation and then build new budget.

Advantages: Zero base budgeting give preference to profits over expenses. That's why it
will be beneficial for Snippy Drinks to prepare zero base budget. More over, it helps to make
strategic planning to grow business, get more customers and serve more clients.
Disadvantages: It is resource intensive that may be drawback for Snippy Drinks because
it take too much time to prepare zero base budget. It can be manipulated by administrators in
business organisation.
Activity based budget: This is prepared on the bases of activity based costing that
considers the overhead cost to make the budget. Moreover, it is used to analysed the cost of
business activity and state profitability situation. It helps to improve the traditional approach
such as it does not consider the past year's budget to get the current year budget that leads to a
appropriate activity based budget.
Advantages: This method are helpful to each and every cost of business activity by
eliminating the irrelevant activities. In other words, it helps the Snippy Drinks to gain the
competitive advantages by serving the different drinks at market place.
Disadvantages: It has drawback such as it requires large number of man power and
deeply understanding of different functional areas of the business. This method is very complex
because it needs research and analysis of different factors.
(e) Analysis of zero based budget in the aspect of snappy drink company
In the context of Snappy drink company, the zero-based-budget will be more appropriate
for them. This is why because their plan is to start a new manufacturing store as well as to
introduce some new drink products. In this situation, the zero based budget can be suitable for
them because this budget has justification of each and every activity as well as it starts from a
zero level without considering the past budgets activities. It can be a best budget for the snappy
drink company for their new products because for new products they will need a kind of budget
which is not based on the previous data. Eventually, zero-based-budget has some advantages that
will show that this budget is appropriate for the snappy company:
Efficient allocation of the resources- The zero based budget ensures the efficient
allocation of available resources. This is why because each this budget is made on the base of
new information. It can be useful for the snappy drink company in their new manufacturing
business due to efficient use of resources.

Reduce the wastage operations- This budget identify and eliminate those operations
which are wastage for the business. As well as it prevents the use of out dated techniques in the
production. Herein, the aspect of the snappy drink company this budget can be beneficial for
them if they apply this budget because it protects from wasting of the resources in the
production.
So due to following advantages, the zero based budget can be beneficial for them in their
new manufacturing business and in launching of new drinks.
(f) Potential application of budgeting method
The above mentioned budget and its method such as zero base, rolling and activity based
are very important in Snippy Drinks organisation because by applying zero base budgeting
method organisation can perform well and can increase profitability through arranging the
business finance. It should use zero base budget method that will helps to prepare a new budget
in new accounting period. Moreover, this method will be easy to apply because it consider actual
expenses which has incurred in the organisation. This budgeting will be more effective because
it contains following elements-
Reliable: It provides accurate and exact information about cost and expenses that will be
reliable for Snippy Drinks organisation and customer can rely on its products.
Appropriate: Snappy Drinks provide better quality of drinks that helps to attract the
customer ((Zhao, Fan Yan, 2016).
Reasonable in budget: Due to this element, Snippy can increase its profitability by
selling number of product at reasonable prices that is used to set reasonable budget.
Hence, these elements of zero base budgeting can impact on engaged business positively
so that Snippy Drinks should adopt modern approach that helps to reduce the time and save the
money. Modern approach contains zero base budgeting that helps to prepare the budget with new
accounting period after eliminating the irrelevant expenses.
CONCLUSION
From the above mentioned report it has been concluded that finance fulfil the business
needs and helps to expand the business across the world. It helps to make successful planning
which is used to run a business speedily. Each company prepare budget that give suggestion of

spending and expected revenues. This report contained various topics such as process of
preparing budget, traditional budget approach and budget method that helps to improve the
traditional approach.

REFERENCE
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Online
Budget Process need to follow by company. 2019. [Online]. Available through:
<https://www.incorp.asia/blog/13-steps-to-follow-when-creating-a-business-budget/>