Business Finance: Budgeting Strategies for SnappyDrinks Plc

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BUSINESS FINANCE
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Contents
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................4
i) Processes, purposes of preparing a budget and how the budget process itself can help the
development of the business model.................................................................................................4
ii) Application of traditional budgeting approaches illustrates your answer with examples...........7
iii) Analyzing whether a traditional budgetary system is appropriate to all or any parts of the
business in its planned future form..................................................................................................7
Part 2................................................................................................................................................8
iv) Types of budget and their importance in order to improve the traditional approach and
drawbacks........................................................................................................................................8
v) Application of these methods to the company and provide specific examples.........................11
vi) Analyzing which budget method (or a combination) more appropriate to the company.........12
Conclusion:....................................................................................................................................13
References:....................................................................................................................................14
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INTRODUCTION
In this part of the business finance, it deals the SnappyDrinks Plc company matter related to
company business finance. The SnappyDrinks Plc company having working experience over 15
years but it listed in the stock exchange (London stock exchange) after 5 years of establishment.
The SnappyDrinks Plc is working of production energy drinks in 60 various types of products.
The company having a business of manufacturing products at an international level covering
various fields in a different area of the country. In the light of this company, the incremental
budget will be made for the purpose of expanding their business activities in other countries
especially in China due to breaking down between of UK from EU (Europe Union). The
company wants to spread their business so it makes a budget based on traditional for analyzing
their previous performance that will help in future as to no repeat that same thing which is
included in the last budget planned of the company.
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PART 1
i) Processes, purposes of preparing a budget and how the budget process itself can help the
development of the business model.
The purpose of preparing a budget by the SnappyDrinks Plc is to analyze the behavior of the
customer for the energy drinks product that was spread and provide too many parts of the
country and outside also. Its aims are to provide help in business while preparing company
budget on the basis of previous research by the researcher. The main purpose of budgeting is to
provide a framework of business model how they perform in the near future (Wildavsky, 2017).
The management related with analyzing or researching the business areas should keep in mind
the changes that may occur in future like change in taste and preference of the customer, political
changes or any other changes that might affect company business and its profitability.
While preparing the budget, the following steps shall be followed by the SnappyDrinks Plc
company.
Sources: By Authors, 2019
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Obtaining
estimates
coordina
ting
estimate
s
Communi
cating
estimates
Impleme
ntation
Report
ing

1. Obtaining estimates from the market:
It is the first step in preparing a company budget. The company, SnappyDrinks Plc, should make
a study about the business market about their demanding product. This step is related with the
point of obtaining estimates of sales in the market that is their product is in demand or not,
production capacity, estimation of cost that incur while starting the process of production. The
management must provide the estimate changing of the future condition and related activities
that may impact on the company performance (Wildavsky, 2017).
2. Coordinating estimates among the department:
It is the next steps of budget preparing process. This step is connected with all department of
SnappyDrinks Plc like management, sales, and finance department. The budget committee
analyzes various available plans in order to determine the potentiality of plans in the overall
interest of the company for the purpose of surviving in the long term with good earning.
3. Communicating among different available estimates:
After the plans and budget are selected in the interests of company objectives and as per the
availability of resources. The budgets should be normal and easy in order to understand with
each department for the purpose of fulfilling the needs of the company i.e. earned high profits
(Segun, and Olamide, 2015).
4. Implementation of selected budget:
The select budget is produced in front of the concerned authority and adopts the budget as per
the requirement of the company objectives. The higher authority has the responsibility towards
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the implement the select business budget in order to runs the business for achieving pre desired
organizational goals.
5. Reviewing and monitoring:
The last but not least step of a budget is reporting and monitoring over the success of the budget.
The concerned authority has continuing liability until the plans are executed and success. The
management should take initiative to remove any mistake or variance in order to runs
organization business affairs i.e. manufacturing energy drinks smoothly and efficiently in an
effective manner.
The above steps are mainly included in SnappyDrinks Plc company. The company used such
steps before spending their business areas in China including also the area of Gulf, North
America.
The budget process helps the company SnappyDrinks Plc, to achieve their organizational target
as per the plans so that it can attain on time and also able to make more profit by calculating the
pre-estimated cost of the product. Accordingly, the price can be determined to generate more
income from the selling of products like energy drink products. It also provides a framework of
business model where the set of standards are mentioned how business is to be done in future for
influencing the future customers with the company that will ultimately increase liquidity and
profitability (Segun, and Olamide, 2015).
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ii) Application of traditional budgeting approaches illustrates your answer with examples.
The traditional budget is that budget which is prepared for the last year. It also is said that it is a
method that helps in preparing the budget in which the previous last year budget is taken as the
base. The incremental budget is prepared to take the help and estimation from the last year
budgeted figures in order to adjust or remove unnecessary expense incur during the process of
production of energy drinks of SnappyDrinks Plc. the allocation of new data and resources just
depends on the company last year period. It benefited to the company management because it
already provided the previous data information regarding the upcoming budget (incremental
budget) that directly help to the cost management in order to make proper utilization of resources
to achieve company objectives without making any variance that may impact company cost. If
the cost price of the product is high then the price of the product automatically high. For
instance, if the cost management sees that there was very high cost according to the previous
budget then the new fresh budget should be considered the reason behind that what the factors
that may affect company cost are (de Campos, and Rodrigues, 2016). For minimize the cost, the
traditional budget plays an important role in the preparation of the incremental budget.
iii) Analyzing whether a traditional budgetary system is appropriate to all or any parts of
the business in its planned future form.
The traditional budget has importance in some part of the company business plans. Sometimes
the traditional budget helps the management to make new fresh budget taken from the previous
data when there was an anticipation of no changes made in the future period. This method or
approach is only usable for the period for the same. It is appropriate when there was a condition
of the business and their product extension same in the same field of the area with concerning the
same existing customers. The company prepared this budget in advance to say for the period of
one year.
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Part 2
iv) Types of budget and their importance in order to improve the traditional approach and
drawbacks.
Sources: By Authors, 2019
Rolling budget:
A rolling budget is a budget that takes the space of the old budget for making an improvement in
the efficiency of the SnappyDrinks Plc company in terms of production or manufacturing. As the
previous month was expired another month (upcoming month) is added to the end of the budget.
As the recent budget is completed another month budget is added into this. Thus, it can say that it
is always a continuous process of budgeting or a new version of the old budget (Knopf, et. al.,
2017).
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Rolling budget
Zero based budget
Activity based budget

In this budget, time is always remain constant whilst the real period of budget covered by the
changes in the budget. It is always for one year as the month expired new month is adding in the
budget time.
Advantages:
The rolling budget in SnappyDrinks Plc company make some benefits in the improvement of the
traditional approach. Some of the advantages are as below:
1. The rolling budget helps the company as it is more sensitive to adopt changes frequently and also
able to make adjustments for those changes that come in the future.
2. It also includes the changes from the last period of time into the upcoming period, also
increasing continuity and oversight. Therefore it is a more advanced technique than a static
budget.
Drawbacks:
1. Using a rolling budget in SnappyDrinks Plc company will make more dependable on reallocating
funds.
2. It is time consuming while making a rolling budget for the company because it requires every
time need to update.
Zero-based budget:
It is related to the forecasting process used for the purpose of forecasting future events related to
future plans of the company. This budget is also known as the ground budget because the budget
is prepared from the starting level that was being prepared for the first time. Zero-based budgets
are the aggregation of all the budgets, and it starts with the zero base (Lin, and Wu, 2017). It
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helps in comparing the actual results of the company with the standard results that further
contribute to long term success, growth, and expansion of the business within the organization.
Advantages:
The main advantages of the zero-based budgeting are that it helps in forecasting the future and
reduce the future risk ineffective and finest way (Varik, et. al., 2015).
1. It is cost effective in nature and transparent too.
2. Zero-based budget initiates with the zero bases and further contributes to the betterment of the
resources.
Drawbacks:
1. Sometimes unrealistic assumptions made by the budget is wrong, hence it is one of the
limitations of zero-based budgeting.
2. It is time-consuming and not easy to compute.
Activity-based budget:
This method of budgeting mostly used by the large organization like SnappyDrinks Plc who
want to know and evaluate their business capital where it goes and in which manner. Its
primarily aims to concentrate on the cost of each product (i.e. energy drinks) of the company. It
focuses on each activity of the company for establishing a relationship with the cost of each
product and how these each activity of the company can intertwine (Schutzer. et. al., 2016). This
budgeting is beneficial in some situations and also some drawbacks come in it.
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Advantages:
1. As this budget needs good research ability, it helps in removing the unnecessary activities of the
business affairs. By this so, the management able to remove all the problems that occur in
business activity and enable to carry business unit efficiently.
2. It helps is saving the cost as the unwanted activities of the business are eliminates from the
business affairs. It makes able to manufacture products at a low cost that will make a good profit.
Drawbacks:
1. It requires full knowledge and complete understanding of different functional areas of business
activity like production, finance, etc.
2. In reference to the preparation of the activity-based budget, by the nature of this budget, it is
more complexity. It needs to make research and analyze the different factors.
v) Application of these methods to the company and provide specific examples.
The company uses the above budget in their business in order to improve their creditability and
their business activities that are the manufacturing of energy drinks. All the budgets that were
discussed on the above questions, clearly seen from that these budgets are more significant and
appropriate for the company for attaining their success in future long term goals of the company.
The zero-based budget starts from the very first stage while on the other hand, the activity-based
budget is prepared to know the cost of each activity of the company. For example, in
SnappyDrinks Plc company uses both the budget process in their business part for manufacturing
their products. Both the budget has the same application that differs from each other. The zero-
based budget used by the company management for making their budget at ground level but as
the activity-based budget process used to estimate the prime cost of each product that will make
able to sale in an appropriate manner. From this, it has been analyzing that activity-based budget
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