Essay on Budgeting -Evaluate Advantages and Disadvantages

1255 WordsSep 28, 20116 Pages
Evaluate the advantages and diadvantages of budgets A budget is a comprehensive, formal plan that estimates the probable expenditures and income for an organization over a specific period. Budgeting describes the overall process of preparing and using a budget. Since budgets are such valuable tools for planning and control of finances, budgeting affects nearly every type of organization from governments and large corporations to small businesses. A small business generally engages in budgeting to determine the most efficient and effective strategies for making money and expanding its asset base. Budgeting can help a company use its limited financial and human resources in a manner which best exploits existing business opportunities…show more content…
Expense allocations. The budget may prescribe that certain amounts of overhead costs be allocated to various departments, and the managers of those departments may take issue with the allocation methods used. Spend it or lose it. If a department is allowed a certain amount of expenditures and it does not appear that the department will spend all of the funds during the budget period, the department manager may authorize excessive expenditures at the last minute, on the grounds that his budget will be reduced in the next period unless he spends all of the amounts authorized in the current budget. Only considers financial outcomes. Budgets are primarily concerned with the allocation of cash to specific activities, and the expected outcome of business transactions - they do not deal with more subjective issues, such as the quality of products or services provided to customers. These other issues can be stated as part of the budget, but this is not typically done. Budgets provide a feasibility analysis. They can help develop a business model, review your key assumptions, and identify resource and capital needs. Budgets and forecasts can be used to find funding. They demonstrate the potential of your business to investors and lenders. Budgets and forecasts can also be used as a management tool. They can help you establish milestones and require
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