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Budgeting in Business Operation - Term Paper Example

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This paper discusses different aspects and key areas related to the process of budgeting in order to understand the role that budgeting plays in the success of a company and certain issues in order to know the importance of budgeting for a company…
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Budgeting in Business Operation
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Budgeting in Business Operation

Download file to see previous pages... Budgeting is such process that companies use to plan their business activities regarding time and money. This process makes the business operations undergo in an effective and efficient manner. According to Morgan (2006), a company’s financial success depends largely on the budgeting decisions that its managers take concerning all financial aspects of the business. Therefore, it is imperative for a company to develop a perfect budget plan that should help the company achieve its desired goals and objectives, as well as it should help it maintain the financial equilibrium. Objectives In this paper, we will discuss different aspects and key areas related to the process of budgeting in order to understand the role that budgeting plays in the success of a company. We will discuss in detail certain issues in order to know the importance of budgeting for a company. Topics in Detail about Budgeting and Discussion The topics which will be covered in this project include functions of budgeting, employee motivation through budgeting, responsibilities of budget holders, budgetary control, capital budgeting, and techniques of capital budgeting. Discussing these topics will help us get a good understanding of some of the core aspects of budgeting. Let us discuss all of these topics in some detail. Functions of budgeting 1. Financial Analysis Budgeting helps firms in doing financial analysis. Managers of the firms can know the exact financial position of the company through proper budgeting. They can know the actual strength of their company and can take various decisions based on that financial analysis. They can know what is happening in reality related to the use of money for various business activities. Budgeting is a process that provides managers with the information concerning the current financial position of the company, capital in hand for the company, and predicted future expenditures related to current and ongoing business processes. Companies can save their capital and related business expenditures through effective budgeting. The proper financial analysis also helps companies cut off the extra costs from the business expenditures and utilize the available capital for other business activities. 2. Planning Budgeting helps companies properly plan their business activities in accordance with the financial analysis report and available budget. Planning is one of the key business processes that help companies take calculated steps towards progress. A company can take measurable steps regarding its future activities, such as, loan decisions, investment decisions, employees’ salary increment, compensation and benefits, and buying or selling decisions after forecasting the financial position and planning for activities. 3. Communication is another key function of budgeting. If a company makes some kind of financial contract with some other company, budgeting helps in resolving all kinds of issues regarding the use of capital between the two companies. Companies can set priorities considering their budgets in order to escape from financial issues and conflicts. An effective budget is one which assists companies to communicate with each other for discussing various money-related issues, such as, the way the companies should spend the money and the amount of money they should spend on different business ventures. 4. Motivation Budgeting is a process that plays a critical role in motivating the employees of a company. ...Download file to see next pagesRead More
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