Importance of Budget Planning and Controlling

19 Jun 2019 12:51 PM
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Being one of the renowned super shops in Dhaka’s one of the most elite areas, it is very important for Businesses to control their cost using budgets. Managing the costs using budget will assist them to supervise the monetary inflow and outflow in an organized way. Designing a budget in a proper way will help to necessitate the important requirements and also emphasize the immediate needs, which is very important for renowned and active super shops like Businesses. Budget ensures that the financial amount Businesses is spending is being spent in the right place and not any unnecessary areas, which enhances the possibility for the business to reach higher business stages.

A budget consists the plan of the monthly incomes and how Businesses will cover all the variable and fixed expenses. Creating a budget for costs does not only indicate the necessities but also saves business from different unbearable issues such as, low working capital, dropped down profit and also bankruptcy. On the other hand, crossing the budget continuously does not leave any point of creating the budget. In the record of the last few months, Businesses have been crossing the budget frequently, for example, their cost of materials was adverse all three months, in June it was 150 adverse, later in July it was 150 adverse again and in August the amount rose way higher, the adverse amount was of 500, if Businesses continues to do like this, setting a budget will not lead them to augmentation, it is critically crucial to take budget seriously. 

Another factor, which budget ensures safety is, having enough money to fund the accidental emergencies. For example, if a robbery in Businesses take place, they will need to fund to buy the products for the stock again immediately in order to run the store, for unfortunate and accidental occasions like that, Businesses has to be prepared financially and mentally. However, as budget disables the business to spend money on factors, which were not included in the budget, money for emergencies are saved. On the other hand, Businesses is facing frequent adverse amounts, so, they must keep an eye on their budget before taking actions.(Banks, 2018)

As by cutting down expenses hugely helps to increase profit, budgeting helps to improve the profit margin. With the improvement of the profit margin it will be easier for Businesses to achieve the short term and long term objectives. Budget helps the business to keep a balance between the cash-inflow and outflow, if cash outflow is higher than cash inflow then slowly but gradually, business will reach to the end of the road; bankruptcy. 

The main purpose of budget is to control the costs, however, when the cost is not controlled, the profit decreases, the working capital becomes low and most importantly, Businesses will lose the ability of paying their employees, as a result, they will lose their employees.  
Sometimes, it becomes terrifically tough to control the expenses, especially variable expenses, to control that a guide is needed, constructing a relevant budget is the biggest solution at those times. By setting the budget, the unnecessary costs are omitted or they become limited, which leads to a great rise in a gradual manner. It will without a doubt, lead to a huge reduction on expenditure, which will enhance the chance of making more profit for Businesses. On the other hand, it develops a financial blueprint for the upcoming years to reach success. If Businesses follows the blueprint and takes the budget seriously, they will be able to make their cash inflow and outflow strong, generate more profit, achieve the long term goals and obviously create an organized system of monetary spending. 

There are two types of major budgets, one is zero-based budgeting and another is allocated budgeting, both are very useful but Businesses is currently using zero-based budgeting method. However, they can also use allocated or incremental, the budget remains very stable and when the budget is designed with relevancy and accuracy, it works as a great tool. On the other hand, the change becomes noticeable in a remarkably quick manner as allocated budget is used in the beginning of the year and there is no chance of increasing the budget, so, the employees have to work according to that.

Having allocated budget set before hiring new employees is very important because, salaries of the employees are fixed, so, while hiring employees Businesses should impose a budget friendly salary, which will not bring further troubles to the business. On the other hand, with the help of this budget Businesses can take control over providing employees incentives, business trips, annual picnics and many others irregular expenses because spending too much on them might bring financial issues for the business. Incremental budgeting is quite easy to implement and control, as the building the budget and informing the employees are the only two major steps, whereas, in
Zero-Based budgeting, the implication remains stable for a short period of time and then the budget needs to be changed again. Overall, for setting fixed costs and irregular expenses, Allocated or Incremental budgeting can be a great tool.(Riley, 2017)(Fowles, 2018)

Zero based budgeting method is also a great method for renowned super shops. The best part of Zero-based budgeting is that it helps the business to change their plans according to the demand. Businesses is doing the right thing by choosing Zero-Budgeting method for buying the stock, as the demand of stock fluctuates, so, keeping stocks according to the demand of the customers is vital for elite super shops like Businesses. On the other hand, zero-based budgeting will help Businesses to make rooms for new plans. There can be many new plans, such as a renovation of the store, deals with new companies and their products and many others. However, Businesses must take those kind of steps when there are adequate amount of money to make rooms for new plans and projects. 

However, a budget must have a few characteristics in order to be effective. Without having those characteristics, there will not be any point of having the budget. The characteristics make the budget’s efficiency stronger and more effective. The budget Businesses makes must consists these characteristics: 
•Relevant Spending Categories: While creating the budget, the creator must focus on the cash-inflow and outflow of the business and also distinguish between the expenses that are necessary and the ones which are not necessary. Cutting down expenses, which are necessary can lead to major problems for the business, therefore the budget will not be effective. Making use of worksheets for creating the budget is very beneficial. 

•Adequate Categories to Spend: Making a budget, which restricts the employees from all kind of activities, will lead to a huge demotivation, so, it is very important to keep adequate fund for expenditure. On the other hand, the employees will need a certain amount of time to adjust with the new budgets, so, it is crucial to go slow and not impose a strong and restricting budget all of a sudden. 

•Be Cautious about the Income: A major mistake most budget makers make is that they become overcautious about the expenses that they forget about the incomes the business is going to make. The budget must consist the amount of income, which must be made for every session the budget ends. It will help Family Business to grow in a gradual manner. 

•A Sector for Occasional and Irregular Expenses: Using allocated method, a fixed expense for occasional and irregular expenses must be kept. The employees also need motivation through entertainment, so, a budget must be created for that. Irregular and occasional expenses only takes places once or twice in every six months, so, keeping an adequate budget for that will do no harm for Businesses. (Fowles, 2018)

•Regular Reviews: Finding out if the budget is being controlled easily or if Businesses is following the budget easily is important. Monitoring the budget using variance analysis will help as it indicates if the amount is staying favorable or adverse. Unfortunately, Businesses has been exceeding the budget’s amount, which must be monitored accordingly. 

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