Budget: A Vital Part of Daily Life

I absolutely agree with the point raised by the statement. Budget is a vital part of our daily life that we cannot imagine a life without budget. For example, we budget our time, food and money. Budgeting is important in all areas of life, also to run a business and even a country. Every organization or company needs a budget because its used to represent a detailed analysis of how a company expects to spend money in the future time. Some of the companies create budgets on an annual basis so they can carefully outline the expected needs of each department in the business. By using an annual budget process can help companies limits the amount of time companies spend creating and managing their capital resources.
In this time of economic environment, most of the entrepreneurs refused to do a budgeting. It is because they feel like working on something as old-fashioned as an annual budget confines the imagination and its limited the flexibility. A lot of excuses for avoiding budgeting such as, “Startup cash flow is too unpredictable.” “One big customer order could change the course of the business, so what is the point in setting a budget?” As Advani (2009) state that, those excuses conceal the fact that right-brain creative entrepreneurs just do not like left-brain financial planning. So, if you are running your startup solo, you should force yourself to develop a budget to hold yourself accountable. It will help you to become a better manager. It will help you raise money. Also, it will help you avoid running out of money and so on.
Well, let’s talk about budget for a long-term planning. Five years or more is a long-term budget to me. The advantage of it is that it forces you into that discipline of thinking further out than this year. By the way, as Favaro and Rotz (2011) claim that, “I can tell you I've never really seen a good financial plan beyond two years.” In other words, when you get out beyond two years it will starts to lose its probability, but that does not mean that you should not do it. It still forces you to think about what needs to be done today so that you can be achieving those revenues in four years or five years. Typically, there is so much change in the market place, things are so competitive and complicated that you really are going to have a hard time being a good predictor, but at least you will be prepared for the things you have anticipated.

Moving on to short-term budgets, as the Congo Limited do so, the cash budget is one of the primary tools used in short-term financial planning in order to plan for cash flow. It is usually developed on a month-by-month basis. A good cash budget allows the owner to see short-term financial needs and opportunities for the business. However, the problem with the one year budget is that it is difficult to say what you are going to do different to increase revenue. One month, the firm may have extra cash and may be able to save some money. For another month, the firm may have a shortage and need to add people to increase your revenue or even apply for a short-term bank loan to cover its needs if necessary. All of those factors that contribute to making the business successful need to be thought through and put it into budgets.