Business Finance Report: Budgeting Methods for Snappy Drink

This report delves into the core concepts of business finance, emphasizing the importance of budgets in supporting organizational operations and ensuring effective financial management. It explores various budgeting types, including traditional, rolling, zero-based, and activity-based budgets, highlighting their roles in forecasting income, managing expenses, and facilitating informed decision-making. The report analyzes the application of these budgeting methods within the context of Snappy Drink, a company planning to expand its product line. It examines the advantages and disadvantages of traditional budgeting, while also discussing the benefits of more modern approaches like zero-based and rolling budgets in promoting business growth and the development of new products. The report provides a detailed overview of the budgeting process, from obtaining and coordinating estimates to communicating and implementing the budget, thereby offering a comprehensive understanding of financial planning in a business context. The report also analyzes how rolling, zero-based and activity-based budgets can be applied in Snappy Drink to improve its business operations.

Business Finance

EXECUTIVE SUMMARY
The main concepts about this report are to give a detail description about the importance
about business finance and the usefulness of budgets to support operation of an organisation. All
those budgets are crucial to manage the activities and make them effective so that available
finance can generate maximum result. Different types of budgets are supportive in making
proper forecast about future income and expenses in a specific time frame. Apart from this report
also summaries that usage of traditional budgets in snappy drink. The uses more effective
budgets methods such as ZBB and rolling budgets that support in further expansion of business
and development of new product line.

Contents
EXECUTIVE SUMMARY.............................................................................................................1
Contents...........................................................................................................................................2
PART 1............................................................................................................................................3
(i) Role of budgets in the development of business model..........................................................3
(ii) Application of traditional budget approach for future cost management..............................5
(iii) Traditional budget is appropriate to all or some part of business in future form.................6
PART 2............................................................................................................................................7
(iv) Explanation of rolling, zero based and activity based budget..............................................7
(v) The potential application of above mentioned budgets.........................................................8
(vi) Analysis of zero based, activity based and rolling budgets in the context of snappy
company.......................................................................................................................................9
REFERENCES..............................................................................................................................10
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PART 1.
(i) Role of budgets in the development of business model.
In business environment, the main focus of internal manager is to estimate about the total
income and expenses in effective manner so that actual profitability can be determined. They
prepare budgets that are beneficial in forecasting upcoming expenses and revenues
(Anandarajan, Anandarajan and Srinivasan, 2012). Manager analyse the past trends and
information to prepare authentic budgets so that future business operation can be managed and
overall performance can be measured. From the case study, it has been observed that snappy
drink is planning to produce new energy drink and develop a new venture. Therefore, manager of
company prepare budgets at regular interval that support in growth and development. These
budgets have different purpose which is discussed below:
 Prediction of revenue and expenses- The main purpose of budget is valuable in
predicting the upcoming expenditure and income. Usually manager looks at the previous
years budgeted information that helps in managing the available financial resource that
aid in running business operations. In Snappy drinks, financial plan are effective tools
that help them in launching new manufacturing unit for producing energy drink with new
flavoured. They mainly predict the overall cost that will be spend while establishing new
plant, hence they prepare polices to manage these expenses.
 Support in decision making- To run business in meaningful manner it is very crucial for
the manager to give more emphasis on decision making process. As it is observed that
many times a single decision can lead to big losses. Ultimately, appropriate budgets
benefit while making meaningful future decisions and overall growth. As budgets have
purpose to support decision making therefore it require valuable sources and information
that support in decision making process (Burns and Dewhurst, 2016). In case if business
firm consider their planned information while making decision than they get huge
successes.
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 Assist in monitoring business performance- In business era companies those are
effective in managing and monitoring performance are gaining immense profitability.
Annual budgets are beneficial to monitor business performance and performance of
employees. In general budgets support business firm to make proper analyse about their
performance by considering the estimated income and expense of a particular time frame.
So when total income is higher as compare to planned income it means that company is
doing well in market and if revenue are lower than budgeted than manager are require
taking decision in improving the policies. In respective company, manager use to
evaluate the financial performance considering the estimated cost and the actual; cost
spend on manufacturing new drinks.
The above mention are the few purpose of budgets helps to define that companies are gaining
success with the proper and effectual implantation of budgets. In addition, a budget basically
requires step to step process that adds value to the business of an organisation. There is a
systematic method to prepare budget preparation it is discussed underneath:
 Obtaining estimates- The first step related to making an effective budget is to analyse
the overall prediction for each unit of company such as sales, marketing, latest and past
trends and production. Ultimately, this is consider to be a valuable step while preparing
budget that further support to make decisions. If Snappy drinks, the manager are planning
to form a valuable budget, therefore it is their responsibility to obtain the proper authentic
and timely information from each of their existing departments and last year income and
expenses.
 Coordinating estimation- At this stage the main role is to provide a systematic
coordinating within various departments with each other’s and estimate the information.
It is consider to a valuable step because it is not compulsory to make individual budgets
for each department. In respective company manager are using the estimation of
information from several department while making budgets for new business unit.
 Communicate the budget- The very next step while preparing budget is related to
spread the budgeted information inside company and make any possible changes. In
snappy drink manager use to prepare budget and share with entire processing team to
ascertain any feedback that can help to attain the future goals.
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 Implementation of budget- The last step while preparing budget is related to implement
the overall estimated information as a single financial plan that gives proper controlling
and monitoring all activities. In case if budgets work and company is able to generate the
budgeted income than snappy drink will be able to survive for long.
There from the above discussion it has been stated that budget making process is supportive
in expansion of new business model as they are future financial plan. According to this plan
organisation create their business model as it acquires all necessary financial records and data.
From the case study of Snappy drink, management is planning to make two valuable decision
that are introducing new floured energy drink and other of establishing new business unit at
global level. Hence budget plays a crucial role in this context and provides support to new
model.
(ii) Application of traditional budget approach for future cost management.
In business world different kind of budgeting approach have added value to the business of
companies as per their nature of business. The most valuable is traditional budget approach, this
types of budget preparing method is unique as it require last year happing to the business to
prepare new budgets. This is an old technique of budget making; it does not consider any other
elements in new budgets. In Snappy drink manager have implemented this approach many year
ago that is from last decade and are able to gaining and maintain successes form last 15 year in
competitive environment. As company is moving into new product line and willing to open new
and establish new manufacturing store in other countries, therefore they have a fear that old
method will not provide authentic records. But somehow this traditional budgeting is supportive
to suitable management of cost and focus to earn record. Ultimately, this method involves many
more budgets that increase the performance. Some of these are discussed underneath:
Incremental budget- The effective budgets are made on the basis of last year data and
information such as incremental budgets. In this kind of budgets manager obtain the information
from the previous budgeted information and they add some incremental amount in current year
budgets (McLean and Zhao, 2014). It is observed that when company are planning to open new
product or business unit than they prepare incremental budgets. Such as in case of snappy drinks
as they follow the concept of traditional; budgets thus they add incrementing expenses in last
year budgets that support to meet the criteria.
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Therefore traditional method of resources planning is being implemented by Snappy
drinks that assist them to earn total income of about £550 in previous year. This simply means
those traditional budgets plays a valuable role and add value to the business of respective
company. In case if they keeps continuous focus on this approach of budgeting it will defiantly
deliver better result by managing cost as information is collected from last year data. For
example, respective firm is producing new energy drinks in existing market so this budgeting
method help them to manage cost and increase production level and maintain proper supply in
market. Hence it is stated that with the use of traditional methods company are able to analyse
the trend of expenses in previous year and make suitable changes in upcoming period to meet the
desired objective.
(iii) Traditional budget is appropriate to all or some part of business in future form.
In business scenario the most oldest and effective method of budgeting in known as
traditional budget that deliver the systematic support to business operation in an organisation
(Oakshott, 2012). But in changing and challenging business environment the trend of this
budgeting is getting blur as companies are focuses to apply the fast and more effective
approaches of budgeting. However, in snappy drink management use to apply the concept of
traditional budgeting since many years ago. In recent time company is planning to expand their
business at global level, hence finance manager have fear that this old techniques will not deliver
the better result in this changing environment. There are different usefulness and drawback of
traditional budgets that are defined below:
Advantages-
 It support in providing authentic guidelines for managing and controlling the
upcoming cost to business.
 This method aid in identifying issue at early stages and provide proper solution so
that reason of problem can be resolved and com can get maximum result for belter
future.
 With the help of traditional budget business firm such as snappy drink are able to
determine the actual revenues earned by them in specific manner, but it does not
able to include complex business situations.
Disadvantages-
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 This type of budgeting methods is not flexible enough as they are not able to give
authentic result in case when company is planning for new business scenario
(Rogers and Makonnen, 2014.). Such as in case of respective company as they
plan for new business venture than it does not provide the overall accurate
estimation about expenses.
 Traditional budget are not helpful while distributing resources as it only focuses
on estimation of income and expenses. Thus it is not possible for business firm, to
allocate the resources that help them to run business activities in effective manner.
Like in snappy drink, if traditional budgets are not supportive to distribute
resources in proper way than new venture may faces different issues for its
survival.
 One of the major drawbacks of this budgeting is that they require more time and
cost for preparation.
Thus the above discussed advantages and disadvantages describe that traditional budgetary
tactic support an organisation only in few potions of business and fails while preparing for
complex situations. In snappy drink this economic approach would not support completely in
future planning and they have to consider new method for more accurate results.
PART 2
(iv) Explanation of rolling, zero based and activity based budget.
In recent time there have been different fast and effective budgeting techniques which have
replaced the old methods that deliver more accurate result to an organisation. Some of these are
discussed below:
 Rolling budget- It is consider to crucial financial plan that is depended on preceding
budget estimations (Morris, 2012). In simple term it is defined as continuous budget and
requires huge cost and time for delivering best possible outcomes. Manager usually
update these kind of budgets at regular interval so that it work in proper manner and
provide better result if future. Main important this support business firm to compare the
result of previous period that are extracted from traditional budget. In addition the rolling
budgets have few disadvantages such as they are quite expensive and need proper
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guidance and updates that are not easy for every firm. This is the reason that only large
organisation apply this budgeting methods.
 Zero based budget- It is one of the most effective tactics of budgeting that basically
starts with zero and all those business operations are acceptable before being a part of
budget (Storey, 2016). ZBB are not depended on last year information thus require proper
re-evaluation of total cash flows and proper reason for all expenses during a time frame.
Therefore is observed that zero based budgets are more advanced than any other
budgeting methods. There are number of benefits of applying this methods of budgeting
such as determine the reason of problem in an organisation and giving suitable solutions,
proper allocation of resources and adjust in complex situation that are unexpended for
business.
 Activity based budget- This type of budget are mainly depended on activity based
costing that allows companies to manage and run different activates in proper manner.
Activity based budget do not require past data and information and closely looks on the
cost that are linked with different valuable activities (Vasant, 2012).
All above mention budget are more effective than traditional budgets this is because they
consider on decreasing the cost of developing a specific product. Apart from this, these kinds of
budget are more beneficial to maintain an effective relation with each department of company.
This help in achieving the desired objective by making optimum utilisation of available
resources.
(v) The potential application of above mentioned budgets.
In snappy drink, it is stated that company is launching new product and opening new
business unit therefore above discussed all budgets are beneficial for attainment of goals. Such
as, ZBB do not requires any past information and the process start at initial level (Laitinen,
2013). It is observed that essentials of zero based budgeting are supportive to increase the overall
budgeting process. Some components are discussed below:
 Accuracy- It conveys more accuracy and gives justification to each kind of activities
within company.
 Safe and secure- Helps to deliver more safe and secure planned activities for company
through budgets.
 Less costly- The main important is lower cost which gives better profitability to business.
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These are few elements of ZBB that provide positivity to entire process of budgeting. More
importantly all these recent methodology of budgets support to reduce time and cost for
company. In case is Snappy drink applies these tactics of modern budget then surely their
performance will increase in upcoming time and attain the profitability
(vi) Analysis of zero based, activity based and rolling budgets in the context of snappy
company.
In the context of snappy drink, as they are establishing new producing unit outside UK and
launching new energy drink with additional flavoured. Therefore it is observed that ZBB are
more suitable and appropriate as it start from zero initial level. Apart this, the budgets provide a
systematic explanation on each activates and cost related with them. There are various grounds
that describe the importance of ZBB in snappy drinks that are discussed below:
 Efficient distribution of resources- ZBB are more focused on allocation of available
resources in systematic manner. In snappy drink, with the help of this budgets manager
are able to make valuable decision of launching business venture and developing new
drinks. With optimum utilisation of resources they are able to make more accurate and
appropriate result in future situations.
 Increase communication- This kind of budget are beneficial in improving the
communication network and bring more strength in coordination between different staff
(About zero based budget, 2018). In snappy drink manager apply this budgeting methods
for increasing communication level so that important message can be transferred to each
responsible member. This support in better functioning and company will be able to
succeed with its desired objective.
Therefore it is stated that the ZBB bring more sustainability to business as it does not
includes any past information.
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REFERENCES
Books and journals:
Anandarajan, M., Anandarajan, A. and Srinivasan, C .A. eds., 2012.Business intelligence
techniques: a perspective from accounting and finance. Springer Science & Business
Media.
Burns, P. and Dewhurst, J. eds., 2016.Small business and entrepreneurship. Macmillan
International Higher Education.
Scholes, M. S., 2015.Taxes and business strategy. Prentice Hall.
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.
Oakshott, L., 2012.Essential quantitative methods: For business, management and finance.
Macmillan International Higher Education.
Morris, T., 2012.Innovations in Banking (RLE: Banking & Finance): Business Strategies and
Employee Relations. Routledge.
Storey, D. J., 2016.Understanding the small business sector. Routledge.
Vasant, P .M. ed., 2012.Meta-heuristics optimization algorithms in engineering, business,
economics, and finance. IGI Global.
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.
Rogers, S. and Makonnen, R., 2014.Entrepreneurial finance: Finance and business strategies for
the serious entrepreneur. New York: McGraw-Hill Education.
Online :
Zero based budget. 2018. [Online]. Available through:
<https://www.turfmagazine.com/business-management/zero-based-budgeting/>
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