Financial planning, Budgeting, and controls

Financial planning, Budgeting, and controls

Reasons for budgeting

A business cannot open its doors each day without knowing what to expect and close its doors without knowing what happened. A company cannot run without proper preparation for the future and control its actual performance to meet its financial goals.  Business managers can look ahead and plan for the profit, cash flows, and financial condition. These plans can be compared with the actual results and detect the reasons for the differences. It helps to exercise control when things are going off course. Planning financial performance and comparing that with the actual implementation is called budgeting. Any business cannot survive without budgeting, leading to exercising control over the economic condition.

How is the budget prepared?

Financial statements are usually prepared after the transactions have taken place. Budgets are prepared in advance for the expected deals to take home and in conjunction with the company’s economic strategy and goals—budgets built on realistic forecasts for the coming period. Allocations are not done by imaging the figures with wishful thinking. The business managers analyze the previous period’s financial statements and prepare the budget for the future. Then managers decide on concrete goals for the future depending on the comparisons with the actuals and revise the budget. Budgeting takes a fair amount of time for the manager. So why should they do it if that is not helpful? I will show you the reasons for budgeting in the next chapter.

Exhibiting reasons for budgeting

The manager gets paid to prepare the budget, analyze and compare it with the actuals. Their job doesn’t stop there; they need to find a path to increase their profit in the future. They will create a blueprint for the company’s future development and how to increase profit, cash flow, and controls.  That will be a roadmap to indicate the actions the others involved need in the company’s progression. There are three budgeted statements to prepare by the managers Budgeted profit and loss, Budgeted balance, and Budgeted cash flow. Budgeting requires good working models of profit-making, a financial condition that includes assets and liabilities, and cash flow.

Planning reasons for budgeting.

Planning a budget is to force the manager to prepare financial objectives.  That will show what needs to be accomplished for the coming year—the financial budgeting and schedules of the destination on this commercial flight. The purpose of creating a budget shows the specific things that you must do to achieve profit objectives.

Benefits of budgeting

The advantage of budgeting is that it will encourage a business to articulate a vision and strategy. Every manager will have that in mind, and there is no point in that. It needs to write down so anyone can follow that easily.  These could be developed by preparing financial statements to enhance the company’s profit objectives.

Another help from budgeting is maintaining discipline in achieving the business objectives by setting a deadline to accomplish necessary tasks.

Management control reasons.

  • The budget serves management control functions.
  • Managers do better forecasting because of budgets.
  • Budgeting also assists in the communication between different levels of

It is an essential help to write business plans.

Sample Home Business Budget  
 
  January February March April May June July August September October November December Total  
INCOME £ £ £ £ £ £                
Sales 500 750 1000 1250 1750 2000 2500 2750 3250 3500 4000 2500 25750  
                             
 Less                            
 Cost of sales      100      125      150         75      200      225      250      200      300      250      400      350   2,625  
                             
                             
 TOTAL      400      625      850   1,175   1,550   1,775   2,250   2,550   2,950   3,250   3,600   2,150  23,125  
 EXPENDITURE                            
 Salaries      200      204      208      212      216      221 500      500 600      700      700      800   5,062  
 Training              –                        
 Consultancy              –         300                300  
 Travel         50         51         52         53         54         55         56         57         59         60         61         62      671  
 Premises              –                      400      
 Rent/      500      500      500      500      500      500      500      500      500      500      500      500   6,000  
 Heat & Light         50         51         52         53         54         55         56         57         59         60         61         62      671  
 Water         20         20         20         20         20         20         20         20         20         20         20         20      240  
 Equipment Hire              –             250            250  
 Insurance         20         20         20         20         20         20         20         20         20         20         20         20      240  
 Telephone         20         20         21         21         22         22         23         23         23         24         24         25      268  
 PPS            100                125          225  
 Computer Maintenance                600                  600  
 Bank Charges         12             15       15       20.00           62  
 TOTAL      872      866      873      995      886   1,493   1,475   1,193   1,531   1,508   1,806   1,489  14,588  
 Surplus/deficit –    472 –    241 –      23      180      664      282      775   1,357   1,419   1,742   1,794      661   8,537  

 

 

 

 

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