Business Finance Report: Traditional and Alternative Budgeting Methods

This report provides an executive summary and detailed analysis of business finance, specifically focusing on the Snappy Drinks company's budgeting methods. It explores the purpose of preparing budgets, including forecasting income and expenditure, aiding in decision-making, and monitoring business performance. The report delves into the application of traditional budgeting approaches like fixed, static, and incremental budgeting, while also examining alternative methods such as rolling, zero-based, and activity-based budgeting. It evaluates the advantages and disadvantages of each approach, considering factors like time consumption, complexity, and the need for understanding. The report highlights how the budget process can contribute to the development of a business model, and discusses the potential application of these methods within the context of the Snappy Drinks company. It also offers insights into how these budgeting methods can be used for future cost management.

BUSINESS
FINANCE

EXECUTIVE SUMMARY
As per the above report it is summarises that finance is back bone of any organisation and
for preparing a budget there is need to finance. If organisation small and long or manufacturing
or trading every organisation can prepare budget to analysis the performance in specific time
period. Most of the companies applied traditional method and their approach in effective way.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
1. The purpose of preparing of budget.........................................................................................1
2. Application of traditional budgeting approaches to plan future cost management.................2
3. Traditional budgetary system...................................................................................................3
PART 2............................................................................................................................................4
1. Alternative budget methods.....................................................................................................4
2. Potential application of traditional methods............................................................................5
3. Analysing whether one of methods would be more appropriate to the company....................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Business finance is a scope of financial products that will specific design for financial
products to provide help for survive business for long time (Berk and et.al., 2013). There are
involving acquisition and employment of funds so that business firms may be capable to find out
their business activities in effectively and efficiently way. There are including different types of
funds in business and fund needs to every type of organisations large or small, manufacturing or
trading. There are understand the report discuss about the company of snappy drinks, it is an
international manufacturer of energy drinks. In the particular report focused on following topics
such as purpose of preparing budget, process of budget and business model. Apart from
application of traditional budgeting approaches, systems in the reference to planned future form.
In addition, alternative budget methods, potential application and analysis them in the context of
company.
PART 1
1. The purpose of preparing of budget
In the context of business, every company prepare different types of budget according
their suitability. There are including purposes to prepare of budget -
Forecast of income and expenditure – Budgeting is very important part of any
organisation that would support to business owners and managers in order to forecast a business
in make profit or not in the reference of snippy drinks. It can provide high model to perform their
business and planning about the strategies, plans and events.
Tool for decision making – With the help of budget estimate about the financial
framework that will help in decision making process. It can help in arrange business activities
and control on the basis of budget amount of snippy drinks.
Monitor and control business performance – Prepare of budget for monitor all
business activities of each department and know how efficiently they are working. After the
preparation all activities perform according to budget and need to control wastage things. It is
specially regarding to inventory management in snippy drinks.
Process the company needs to follow for preparing budget
The company snippy drinks has followed p[articular steps in order to prepare budget of
the company -
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Set realistic goals – Firstly company has been set their goals and after that according to that they
help to make smart to spending choices (Burns, and Dewhurst, 2016).
Update budget assumption – For preparing a budget it is first step where determine the
assumption in the reference of business environment. Many times there are using past budget
that can help to predict amount.
Identify income and expenses – In every organisation income and expenses plays
significant role because it can help to know profit of the company. To tack the amount of profit
and operate of business in effective way there is need to estimate income and expenses of Snippy
drinks.
Available funding – There are calculating all available funds which can help to operate
business in effective manner.
Set savings and debt pay off goals – In order to evaluate realistic savings and debt pay
off goals that will help to find out of shortfall or overage in the reference of Snippy drinks.
Steps costing points – Evaluating whether any step costs will be included at the time of
likely range of business activity for upcoming budget period.
Create budget package – Every organisation can select budget according to their
organisation that can help to know their profits with the help of forecasting income and expenses.
After that issue the budget package in appropriate manner.
Review the budget – there is need to review the budget to senior management for show
highlights if any issues and limitations causes by funding problems.
Issue the budget – After reduce all problems and estimate all income and expenses in the
end issue of the budget and according to that follow all rules and guidelines.
How the budget process itself can help development of the business model
Budget process can help to develop of business model of snippy drinks because of a
budget can evaluate the position of company and business model depend on the type of
company. If company wants to sale out new health drink in market so they are apply sales and
market budget and apply sales model. Both budget are helping to support develop business
model (Chan, Chang and Chang, 2013).
2. Application of traditional budgeting approaches to plan future cost management
In present time some organisation can work on traditional approach and operate business
according to that, these are -
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Fixed budget – The particular budget related to time period and apply by organisation
when they are working on fixed criteria. A fixed budget is a budget that does not change year on
year and company has to follow same rules regarding to increase and decrease of activity. For
example snippy drinks can prepare fixed budget because from last 15 year they are working as
internal manufacturer of energy drinks so there is need to fixed raw material, labour and
overhead that would not change easily.
Static budget – A static budget is a kind of budget that incorporates and does not changes
as volume changes is a company's annual master budget is a static budget, the budget for sales
commission expenses will be one amount such as $200000 for the year. On the other hand the
static budget the budgeted amount for sales commission expenses will remain at $200000 even if
the actual sales during the year are $3 million, $4 million or $5 million (Haeger, 2017).
Incremental budgeting – An incremental budget is a budget which is prepared on the
basis of past performance and there are requiring to add additional amount for new budget
period. The portion of resources depends on previous year performance. It is a very common
approach of traditional system and it can help to estimate amount of products and process.
According to change in time can affect to cost of product so accountant of Snippy drink can
added additional value and prepare budget. In present the company has launched new energy
drink so for this calculate extra amount of every products that can use to manufacture energy
drink.
3. Traditional budgetary system
Tradition budgeting system is a method that can help to produce budget on the basis of
last year's budget. Last year budget can take as a base of present year budget as compare past
year after that marked some changes to adjust all income and expenses. In the current year
budget include inflation rate, market situation, consumer demand etc. In the reference of snippy
drinks analysing traditional budgeting system for future planned so it is not good because it
might be inaccurate and present wrong information regarding to goals. Sometimes it consumes
much more time as well as too many management resources.
Traditional budgeting is term of incremental budgeting where add addition cost on the
basis of current year. But always estimation is right, it is not possible so traditional budget is
good option for future planned term. Sometimes for some parts it is good like fixed expenses that
can not change any time. In the context of time period approach apply fixed budget, for forecast
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value used static budget and for forecasting process used incremental budgeting. The defect in
traditional approach that it is simple to comprehended it often misses what budgeting should
really be about achieving today's business objectives. It is not just updating previous figures
incrementally or marginally (Marlow and Swail, 2014).
PART 2
1. Alternative budget methods
Many organisation can use traditional budget that is presented one year amount on
forecast base and do not change during the particular time period. Companies use traditional
budget because it is easy to apply in company and put together for simplify coordination of
budget assumption across department. Here in present alternate of traditional approach that can
help to do effective work.
Budget parameter Traditional budget Alternate approach
Time period of the budget Fixed budget Rolling Budget
Forecast values Static budget Activity based budgeting
Forecast process Incremental budgeting Zero based budgeting
Rolling budget – It is continuously update amount in new budget as per the requirement
and it is based on the particular time period. In the rolling budget consist of incremental
extension of the existing budget model. By doing so, a business always prepare their own budget
that extend one year into the future. In fixed budget amount can not change amount of budget on
the other side use as alternate budget rolling budget where amount time to time update on the
basis of market trends. The company has to prepare this type budget on quarterly, monthly and
yearly basis. These plans are used in the current time period and set objectives of an organisation
and after complete one year prepare a new plan regarding to new accounting period (Ziemba and
Vickson, 2014).
Zero based budget – It is a method of budgeting in which all expenses must be justified
for each new period. The base of the budget Zero and every function starts from Zero and it has
been analysed for its needs and costs. It is mainly base of marketing budget where many
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organisation simply allocate the same marketing budget each years. There are marketer create
their own plan because this plan start from zero.
Activity based budget – It is a system that records, researches and analyse activities that
lead to costs for a business. Activity based budget can adjust amount of in previous budget and
mainly focused on inflation or business development. On the other hand ABB searches for
efficiencies in business activities and develop budgets on the basis of changing activities. In the
system allow for high degree cost planning in the reference of company (McLean and Zhao,
2014).
Methods attempts to improve traditional approach and their drawbacks
There are described about the traditional approach that can improve performance of the
company and their drawbacks -
Time Consuming – Rolling budget consume much more time as well as zero based
budget because in rolling budget time to time update all information regarding to material and
other things. On the other hand in zero based budgeting prepare budget from zero so there is no
idea about present income and expense so it will take much more time. These are simply a tool
that support in decision making process but always right it is not possible.
Complex – Activity based budgeting and zero based budgeting complex to prepare
budget because from past experience basis prepare current year budget. It is not easy to estimate
upcoming income and expenses in order to analysis the company performance. In zero base
budgeting started from the zero base so it is not easy to understand which amount is good to set
for income and expenses.
Requires understanding – There are required to understand concept of each budget
which is not easy. Zero base budget not easily understand because there is need to experience of
market and time to time focus on market trends which can change any time. It is not easy to
understand each topics and each item of budgets.
Short term – Many budget are applied only for short term and activity based budget is
from them. It is not applied for long time and many time it can not help to company regarding to
market research (Mitchelmore and Rowley,2013).
2. Potential application of traditional methods
These methods can be applied in snippy drinks and they are applying for launching new
energy drink regarding. Rolling budget can use to update information and it is prepared the basis
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of quarterly and monthly basis. It can help to know performance of the company in the reference
of snippy drinks. Zero based budgeting through prepare budget from zero base and it can help to
improve performance in effective manner. With the help of this budget evaluate performance of
each department and know weakness. After that try to reduce these weakness in the efficiently
manner and understand the activities. When it is applied in organisation so accountant of a
company take base as zero and estimate amount of fruits and other related material which can
use in energy drink. In rolling budget if company launch in market after that sales and profit
increase and decrease in all items (Sassen, 2017). It can affect to each item to related budgeted
items and compare with actual budget to control and monitor business activities.
3. Analysing whether one of methods would be more appropriate to the company
In the reference of snippy drinks rolling and zero based methods are good for new energy
drink. For launch new product so there is need to prepare new budget according to new product.
On the basis of times it can change an affect to business policies so there is need to update
amount of raw material and other things. It is part of rolling budget where time to time update
amount of income and expenses. In zero activity based budget take past year budget to update
information and take help to prepare current year budget. Both budgets are helpful in for the
company and know about the each item of the company. With the help of these budget time to
time monitor all business activities and control if there is any issues created. Rolling budget
provide benefits to reflects on the dynamic business environment and it can help in more logical
spending decision in the reference of an organisation. The activity based budget can help to
improve relationship with with organization and with their customers. It is helping in competitive
market and help to secure from competitors (Scholes, 2015).
CONCLUSION
As per the above report it has been analysed that finance is basic need for every
organisation and it is required to survive business for long time period. Budget is part of
planning where predict all income and expenses in order to know business performance in
upcoming time period. Mostly companies has been applied different traditional methods but it
can not work all time so there is apply alternate methods of traditional budgeting system.
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REFERENCES
Books and Journals
Berk, J. and et.al., 2013. Fundamentals of corporate finance. Pearson Higher Education AU.
Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan
International Higher Education.
Chan, K. C., Chang, C. H. and Chang, Y., 2013. Ranking of finance journals: Some Google
Scholar citation perspectives. Journal of Empirical Finance. 21. pp.241-250.
Haeger, J. D., 2017. John Jacob Astor: Business and Finance in the Early Republic. Wayne State
University Press.
Marlow, S. and Swail, J., 2014. Gender, risk and finance: why can't a woman be more like a
man?. Entrepreneurship & Regional Development. 26(1-2). pp.80-96.
McLean, R. D. and Zhao, M., 2014. The business cycle, investor sentiment, and costly external
finance. The Journal of Finance. 69(3). pp.1377-1409.
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.
Sassen, S., 2017. Finance and business services in New York City: international linkages and
domestic effects. In Deindustrialization and Regional Economic Transformation(pp.
132-290). Routledge.
Scholes, M. S., 2015. Taxes and business strategy. Prentice Hall.
Ziemba, W. T. and Vickson, R. G. eds., 2014. Stochastic optimization models in finance.
Academic Press.
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