Budget and Its Advantages and Disadvantages
6. Budget : A budget is a financial document used to project future income and expenses. The budgeting process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses.
A budget may be prepared simply using paper and pencil, or on computer using a spreadsheet program like Excel, or with a financial application like Quicken or QuickBooks.
The process for preparing a monthly budget includes:
• Listing of all sources of monthly income
• Listing of all required, fixed expenses, like rent/mortgage, utilities, phone
• Listing of other possible and variable expenses
Advantages:
Using budgeting, you can plan what money you have and where it will be spent. You can moderate where money can be spent and can provide bonuses if things go particularly. Also budgeting can motivate staff as it can be used for assessing performance in a department and measuring there success.
Define goals and objectives
Align corporate goals with regards to markets, sales levels, margins, manning, cost levels and capital investment with your budgets.
Think about and plan for the future.
Compels management to think about the future. Management should look ahead and set out plans for each business unit, anticipating change and giving the organisation clear direction. It encourages management to be forward-looking and working within the framework of a budget encourages good decision-making.
Means of Allocating Resources
During the budgeting process many resource allocation decisions are made. Different segments may require resources for capital expenditure that the organisation can’t fully meet. The organisation will make decisions based on the various rates of return.
Uncover Potential Bottlenecks
Have I the resources to meet my revenue projections in terms of manpower, material resources and capital equipment?
Coordinate Activities
The budgeting process brings together the plans and
A budget may be prepared simply using paper and pencil, or on computer using a spreadsheet program like Excel, or with a financial application like Quicken or QuickBooks.
The process for preparing a monthly budget includes:
• Listing of all sources of monthly income
• Listing of all required, fixed expenses, like rent/mortgage, utilities, phone
• Listing of other possible and variable expenses
Advantages:
Using budgeting, you can plan what money you have and where it will be spent. You can moderate where money can be spent and can provide bonuses if things go particularly. Also budgeting can motivate staff as it can be used for assessing performance in a department and measuring there success.
Define goals and objectives
Align corporate goals with regards to markets, sales levels, margins, manning, cost levels and capital investment with your budgets.
Think about and plan for the future.
Compels management to think about the future. Management should look ahead and set out plans for each business unit, anticipating change and giving the organisation clear direction. It encourages management to be forward-looking and working within the framework of a budget encourages good decision-making.
Means of Allocating Resources
During the budgeting process many resource allocation decisions are made. Different segments may require resources for capital expenditure that the organisation can’t fully meet. The organisation will make decisions based on the various rates of return.
Uncover Potential Bottlenecks
Have I the resources to meet my revenue projections in terms of manpower, material resources and capital equipment?
Coordinate Activities
The budgeting process brings together the plans and