Business Finance Report: Budgeting Methods, Analysis, and Performance

This report comprehensively examines business finance, focusing on budgeting methods and their impact on company performance. It begins with an executive summary and then explores the purpose of budgeting, including forecasting, decision-making, and performance monitoring. The report details the budget preparation process, emphasizing setting goals, identifying income and expenses, and creating a budget package. It then delves into traditional budgeting approaches, analyzing their advantages and disadvantages. The report contrasts traditional methods with alternative budgeting techniques like zero-based budgeting, activity-based budgeting, and rolling budgets, evaluating their potential applications to improve financial performance. The analysis includes a case study of a company, "Snippy Drinks," to illustrate the practical application of these budgeting methods and their implications for financial planning and strategic decision-making.

BUSINESS
FINANCE

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
PART 1............................................................................................................................................1
(a) Purpose of preparing of budget and their process to develop business model......................1
(b) Application of traditional budgeting approaches..................................................................3
(c) Analysis of traditional budgetary system to planned future form.........................................4
PART 2............................................................................................................................................5
(a) Alternative budgeting methods..............................................................................................5
(b) The potential application of budgeting methods to improve performance............................6
(c) Analysis budgeting methods in the reference of company....................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

EXECUTIVE SUMMARY
This report summarises that every business need to finance to survive and run their
business for long time (Dempsey, 2013) . It is back bone of any organisation because it is related
to purchase assets, goods, raw materials and continue flow of economic activities. To understand
the concept of take snappy drinks plc, it is an international manufacturer of energy drink. The
company has been manufactured about 60 different products. In the report consist of purpose of
preparing of budget , their process, application of traditional budgeting approaches. It further,
analysis traditional budgetary system and alternative budget methods. In addition, potential
application of these methods and analysing regarding to company.
PART 1
(a) Purpose of preparing of budget and their process to develop business model
Budget is a action plan which is prepared by every organisation in order to monitor and
control their business activities and comparing actual performance with planned performance. It
can show the relationship between planning and control and role of the budget to play overall
process. There are defined purpose of preparing of budget - Forecast of income and expenditure – Budgeting is important part which can apply by
company in their organisational process. It can help to predict potential income and
expenses of business from past budget basis. In the budget process analysis all sections
and record their income and expenses. Tool for decision making – The purpose of budgeting to supply a financial framework in
reference to decision making process. The budget provide all detailed information
regarding to each department so top management know about weakness and according to
that taking appropriate steps in the reference of a company. Monitor and control business performance – Before preparing the budget analysis the
performance of each department and determine last year budgets. When budget prepare
than monitor of operation and control those activities that are not follow according to
budget (Colombo and et.al, 2016) .
 Prepare Action plan – It can help to prepare action plan in the reference of the company
and focus on the weakness of the company. After that prepare effective strategy and
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policies which can help to face in the future and timely reduce from organisational
process.
Process of preparing of budget -
Every company prepare budget in systematic process but it will depend on the size of the
company. The company snippy drinks has followed particular steps in the manner to preparing of
budget -
Set Realistic goals – Before preparing of budget there is need to set their goals and
objectives in the reference of the company so snippy drinks set their realistic goals.
Update budget assumptions – For the preparation of budget needs to assumption that is
based on the last years budget. Past budget provide to understand activities of the business in
particular manner.
Identify income and expenses – The company snippy drinks can utilise past budget and
forecast to income and expenses because they are play significant role in any organisation. To
operate business in effective way need to predict incomes and expenses of every department.
Available funding – Every business have different sources of funding which can utilise
to run business and conduct their business activities. In budget mention all sources of fund which
can plan to growth of the business (Glova, Sabol and Vajda, 2014) .
Set savings and debt pay off goals – In snippy drinks in budget process set saving
because they can pay off debt on the basis of their goals.
Steps costing points – There are analysing any step costs that will be consisted during the
likely range of business activity regarding to upcoming period. It defined the amount of different
activities at different levels.
Create budget package – To copy forward the basic budgeting instructions from the
preceding year. There is add up to date information of actual expenses of current year and
analysis these after that create package of budget of snippy drinks.
Review the budget – After preparation of budget review the budget and highlight those
constraints issues that are reasoned of funding problems.
Issue the budget - After all analysis and review the budget and distribute it to all
authorized recipients.
Budget process can help to develop business model
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In business model includes costs, key activities, key resources, revenues and customer
relations which are important part of any organisation. Through budget process develop of these
business model because during the preparation of budget process can focus on each department
and know their weakness. The company has prepared effective strategy in the reference to reduce
their weakness. The company has been sale out new health drink in the market where need to
contact with business model so for this need different type budgets to arrange all business model
in effective manner (Jeston, 2014) .
(b) Application of traditional budgeting approaches
Snippy drinks uses traditional budgeting approach in its operation. The budget approach
has been applied since its covers a one year duration in its covers a one year duration and has
presented forecast that do not change during the budget life cycle. In snippy drinks have different
department to conduct their business activities and the approach of traditional budget has
simplified which can coordinate to across all the sections. With the help of traditional budget
approach get a particular framework which can control and make easier to arrange all the firm's
activities with ease.
Snippy drinks has been operated their business last 15 years and got revenues in last year
550 million. The company has been listed into London stock exchange, after all analysis it is
getting that from 10 years ago the market capitalisation of the company 600 million and with the
debt of 100 million. In the present time snippy drinks have 65% sales in the UK market and 30%
in other European countries. The budget process of the company needs to follow various areas of
the company and these area are finance, operations, human resource and management. The sales
and marketing are required to improve and arrange proper efficiency regarding to budgetary
allocation (Xiang and Worthington, 2015) . The firm also consecrate on the incremental
approach for potential changes in manufacturing process and required to adequately budgeted for
to make it possible. The incremental budget approach based on the past performance and add
additional amount of new buget. In the particular budget process analysing the company
performance and compare to actual expenses with budgeted expenses. The budget process need
to take into account the future demands of the company and the possible future prospects that
the firm need to venture realize their goals.
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(c) Analysis of traditional budgetary system to planned future form
Traditional budgeting is a method of preparation of the budget in which last year's budget
is taken as the base. To prepare current year budget, last year budget take as a base and making
changes and add additional amount after analysis. There are adjusting amount of expenses which
are inflation rate, market situation and consumer demand etc. current years budget is part of
internal system that are based on the last year budgets. In traditional budget need to justified in
over year and above the last year's budget. A traditional budget can show the amount of money
which can set time period in the specific financial obligation (Cassar, Ittner and Cavalluzzo,
2015) .
Advantages of traditional budget
 Traditional budget can help in decision making process and makes it easier from spot
issues.
 If the business exceeding to their budgeted expenses than cut back and reduce business
expenses.
 It is important for business regarding to obtain financing and the budget provide financial
plans and projecting.
 With the help of traditional budget the firm can show back up of projecting because of
previous year budget.
Disadvantages of traditional budget
 The traditional budget might be present inaccurate representations of goals where
company wants to reach.
 At the time of develop traditional budget take much more time so it is time consuming
budget.
 In this budget amount can be manipulated of some items that are looking attractive to
investors.
 Lesser motivation – It is created by top management to mark few changes in the last year
so it can not help to motivate to people who can work in organization.
 Excessive reliance – Past year budget are based on the inaccuracy and that are became
base of current year budget so it would lead of incorrect budgets of the organization.
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PART 2
(a) Alternative budgeting methods
In snippy drinks apply tradition budget from last 15 years and earn revenues but last 3
years ago in the company Hayley has joined as new finance director and in present time they
have concern with this approach because it might not be the most appropriate when such
significant changes may affect the company in coming years. In the next year company had been
change their budget process and apply alternative methods (van Ewijk and Arnold, 2014)
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
Zero based budgeting – It is a method of budgeting where include all incomes and
expenses of new period of time. In the starting of this process take base as a zero and each
function and activities will be analysed from starting. It can fulfil the need to organisation in the
relation to upcoming period. In this budgeting process includes management accounting as well
as preparing the budget from the zero.
This method attempt to improve traditional approach because zero base budgeting can
use at the place of incremental budgeting because in this budget add additional amount and
expenses on the basis of previous budget that will be inaccurated because previous budget also
made on assumption base.
Drawback – The particular budget prepared from zero so it will take much more timing to
produce budget for the company.
Activity based budgeting – In this system record, examine and analyses all activities
regarding to business that lead to costs for a business. It is prepared to use based costing after
including the overhead costs. The particular budget can not prepared on the basis of last year
budget instead of analysis present activities and investigate.
The particular budget can improve the tradition approach in the reference of static budget
because in the budget predict of all items in particular period of time and it can not change
during the time period.
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Drawback – To conduct activities regarding to this system need much more work load
and need time to understand their concept.
Rolling budgets – It is a new, amended set of financial plans for the next accounting
period and it is used by company in continuous way. Rolling budget is new version of old
budgets which can apply by organisation . In present time to set financial plan apply rolling
budget and set benchmarks and performance goals for a company (Ashamu, 2014) .
The particular budget apply by company instead of fixed budget because in rolling
budget time mark changes as per the requirement but in fixed budget can not change amount
after the prepare of budget.
Drawback – Many times it is not advisable because circumstances are not constantly
change and they are remain same. The rolling budget can waste of resources and time to
unvarying of environments.
(b) The potential application of budgeting methods to improve performance
To improve the performance of snippy drinks using a particular alternative method in
order to launch new product in the variety of low fruit exotic fruit flavours. So for this apply
rolling budget because in rolling budget time to time update information of snippy drinks sales.
If any issue will come in the selling that are mentioned and how to sort out with specific strategy.
On the basis of time period company has been adopted rolling budget instead of fixed budget. In
fixed budget can not update information time to time because it can remain same in particular
accounting period on the other hand rolling budget can update information.
In the reference of snippy drinks can applied rolling budget because it perform more
effectively it is more flexible and provide changes on the basis of previous time period it is more
than up to date of fixed budget. Rolling budget can prepare for short time period because it is
time to time update information.
(c) Analysis budgeting methods in the reference of company
In the reference when analysing alternative methods so there are selected methods are
rolling budget and zero based budget because in rolling budget time to time update information.
For launching new product for this prepare new budget which is based on the zero so regarding
to new product prepare all new budget. These are appropriate for company because both are
playing important role to improve performance and help to meet their goals and objectives.
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Rolling budget mostly prepared for short time such quarterly, monthly and yearly basis. So it
will help to achieve short term goals.
Zero based budgeting analysing all activities regarding to new product because for the
budget base is zero. It can help to find out all financial issues which are arisen in snippy drinks.
It can carry out each year on account of the fact that it is a time consuming. Interim reviews can
be carried out but that is the organization's choice with respect time and priority. The particular
budget detects inflated budgets. It can help to increase motivation of staff members regarding to
more responsibility and initiatives in the process of decision making. The particular approach can
increase coordination and communication in particular decision and analysing opportunities for
outsourcing (Liu, Zhou and Wu, 2015).
CONCLUSION
As per the above discussion it has been concluded that business finance need to any
business that is fulfil from different resources. Traditional budget are used by mostly companies
because they are applied every time and gain effective advantages. There are many drawbacks
which can not help to achieve set goals and objectives of an organisation so there are applying
their alternative approach. It is working in effective way and provide effective result. When
company has been applied in business to improve performance in efficient manner.
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REFERENCES
Books and Journals
Dempsey, M., 2013. The capital asset pricing model (CAPM): the history of a failed
revolutionary idea in finance?. Abacus. 49. pp.7-23.
Colombo, M. G. And et.al, 2016. Open business models and venture capital finance. Industrial
and Corporate Change. 25(2). pp.353-370.
Glova, J., Sabol, T. and Vajda, V., 2014. Business models for the internet of things
environment. Procedia Economics and Finance. 15. pp.1122-1129.
Jeston, J., 2014. Business process management. Routledge.
Xiang, D. and Worthington, A., 2015. Finance-seeking behaviour and outcomes for small-and
medium-sized enterprises. International Journal of Managerial Finance. 11(4). pp.513-
530.
Cassar, G., Ittner, C. D. and Cavalluzzo, K. S., 2015. Alternative information sources and
information asymmetry reduction: Evidence from small business debt. Journal of
Accounting and Economics. 59(2-3). pp.242-263.
van Ewijk, S. E. and Arnold, I. J., 2014. How bank business models drive interest margins:
Evidence from US bank-level data. The European Journal of Finance. 20(10). pp.850-
873.
Ashamu, S. O., 2014. The impact of micro-finance on small scale business in Nigeria. Journal of
Policy and development studies. 289(1849). pp.1-15.
Liu, X., Zhou, L. and Wu, Y. C., 2015. Supply chain finance in China: Business innovation and
theory development. Sustainability. 7(11). pp.14689-14709.
Atrill, 2015. Management Accounting for decision makers. 8th ed. London Pearson. Chapter 6
Budgeting. Pdf.
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