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Budgeting - Essay Example

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Budgeting plays an important role in a business. It is very significant for the reason that it permits the firm to ensure of how much credit it may provides to consumer before it begins to have liquidity troubles…
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Download file to see previous pages... Budgets can set aims for attaining a certain level of profits and also maintaining expenses. “Budgeting can help a company use its limited financial and human resources in a manner which best exploit existing business opportunities” (Budgeting 2013). I will agree the statement of “management of any business will be ineffective without the preparation and use of budgets”. Following are some of arguments that will support to the agreement.Arguments for:
- To Help Achieve Organization’s Goals:
Budgets play efficient role in attaining organizational goals in this sense that these are the methods through passing which reach at the goals. In budget development process tries to predict that will productively reach at goals or not. Budgets puts the standards to attain goals and with the assist of these standards firms can assess the fluctuations happen throughout the year and aim to ascertain the cause from deviating from attaining the define objectives. Formulation of the budgets allows the organizational management to react actively to the market circumstances to fast way the goal achievement method. Risk identification would allow organization to adopt procedures that would guide to economic risk minimization.

- To Compel Planning: The budget planning method allows the management to recognize and evaluation the impact on the organization’s cash flows, inventory planning with the balance sheet. It also allows the organization to access their monetary position and their needs of borrowing from the market. “Budgetary Control is planned to assist the management for policy formulation, planning, controlling and coordinating the general objectives of budgetary control” (Chapter 27: Budgeting and Budgetary Control n.d.).A financial budget is a firm’s estimated plan for the future period that will be stated in financial terms. It contains planned expenses, revenues, liabilities, assets and cash flows. It also assists the firm to manage its money and allow the management to create confident monetary decisions and get together his aims in the long run. It can also allow managers to arrange, assess them in detail and to decide on the greatest alternative methods. It also supports managers to predict troubles before they happen, therefore it provide them time to think alternative methods of overcoming the troubles when it happen. It also assists to arrange for unexpected conditions. Budgeting by planning tends creates better result than a choice made at that moment. - To Communicate Ideas and Plans: In the budgeting procedures, managers in all departments justify the resources they require to get their goals. They justify to their managers the scope and capacity of their activities in addition to how their responsibilities will be performed. “A financial plan, or budget, is a decision-making tool based on the basic principles of scarcity, choice, and opportunity cost” (Budgeting your financial solutions 2013). The communication among subordinates and superiors assists affirms their mutual obligation to organization goals. Additionally, different units and departments must talk with each other throughout the budget ...Download file to see next pagesRead More
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