How Budgets Can Serve Many Purposes

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Budgets can serve many purposes and can be a very advantageous tool for businesses to utilize. Budgets, as stated by Vitez, “represent a detailed analysis of how a company expects to spend money in future time periods” (Vitez). A few of the purposes a budget can serve are: limit expenses, outline trends, create a financial roadmap, improve cash flow by not having cash tied up in excess products, early warning, as well as business planning. Through analysis of the budget, it can be determined where the business is being wasteful and needs to become more efficient. This potential improvement outlines where there is opportunity for the business. The budget can also be used as a roadmap detailing the incremental financial steps the business should take in order to get to its desired location. By comparing the actual financials to the budgeted financials, any negative variances can serve as an early warning system to the business. This allows the business to make any needed changes to get the business back on track. Another purpose to the budget is for business planning, the budget can help to guide decision making and planning. Having the business stick to the proposed budget will help to determine what needs to take place for the business to succeed.
A well-made and accurate budget can be an effective tool for any company. Since budgets are associated with many financial advantages, Babycakes bakery should definitely take utilize a budget to obtain these benefits.
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