Budget and Budgeting
Question: Budget acts as planning and monitoring tools. Critically evaluate.
A budget is a financial plan for the future concerning the revenues and costs of a business. However, a budget is about much more than just financial numbers. Without a budget, the business owner is literally shooting in the dark when it comes to trying to plan expenditures for the business and match them to sales revenue. Budget is not only a plan of action for a business; it is also a tool for monitoring performance during a specific time period.
First and foremost, a business budget is a planning tool. Selecting strategic options (the best of the courses of action or strategies) and formulating a long-term strategic plan is one of the five key steps of the development of a business plan. The strategic plans are broken down into a series of short-term plans, one for each element of the business. These short-term plans (typically one year and expressed in financial terms) are called budget. Thus, the budget allows businesses to attain their goals by converting the strategic plans into actionable blueprints for the immediate future.
Budget is developed with the numbers based on the planned inputs (sales revenue) and outputs (expenses) for the business. This means it shows how to use revenue and expenses. It is also used to look back at previous time periods and to look forward at future time periods. Overall, budget defines precise targets for a given time period concerning following financial activities: * Cash receipts and payments * Sales volumes and revenues, broken down into amounts and prices for each of the products or services provided by the business * Detailed inventories requirements * Detailed labor requirements * Specific production requirements * Asset requirements * Liabilities and equity requirements * Etc.
Secondly, a business budget is a monitoring tool. Business uses it for the purpose of control. Budgets help prevent
A budget is a financial plan for the future concerning the revenues and costs of a business. However, a budget is about much more than just financial numbers. Without a budget, the business owner is literally shooting in the dark when it comes to trying to plan expenditures for the business and match them to sales revenue. Budget is not only a plan of action for a business; it is also a tool for monitoring performance during a specific time period.
First and foremost, a business budget is a planning tool. Selecting strategic options (the best of the courses of action or strategies) and formulating a long-term strategic plan is one of the five key steps of the development of a business plan. The strategic plans are broken down into a series of short-term plans, one for each element of the business. These short-term plans (typically one year and expressed in financial terms) are called budget. Thus, the budget allows businesses to attain their goals by converting the strategic plans into actionable blueprints for the immediate future.
Budget is developed with the numbers based on the planned inputs (sales revenue) and outputs (expenses) for the business. This means it shows how to use revenue and expenses. It is also used to look back at previous time periods and to look forward at future time periods. Overall, budget defines precise targets for a given time period concerning following financial activities: * Cash receipts and payments * Sales volumes and revenues, broken down into amounts and prices for each of the products or services provided by the business * Detailed inventories requirements * Detailed labor requirements * Specific production requirements * Asset requirements * Liabilities and equity requirements * Etc.
Secondly, a business budget is a monitoring tool. Business uses it for the purpose of control. Budgets help prevent