Essay on Budgeting Process

1312 Words Jul 1st, 2006 6 Pages
The budgeting process is utilized by managers to calculate and document the costs associated with running and keeping a business operating at a healthy level are estimated, expected revenues are projected, and then decisions are made which define how much debt you are in and how much can afford to borrow, and how much you can afford to spend on new purchases, new employees or new ventures. A budget must be established to measure current financial performance, detect substantial changes in circumstances or business conditions, it must be realistic and attainable, and be based on a thorough analysis that includes a clear identification of the budget's purpose to the company's mission, goals and objectives along with a
…show more content…
By having a reserve, it signifies both good money management and the company's ability to perform without breaking the budget set for them.
As mentioned in the previous paragraph, a budget will in sense be a barometer of success for an organization. At the end of the fiscal year, if a company has stayed within the parameters of the budget set for the year, this will indicate a positive performance for the year. Inefficiencies tend to rear their ugly heads when a budget is put in place. For example, a non-performing department with several employees can signify a large inefficiency as the budget allots for salaries, benefits, incidentals, etc. to be focused around a specific group of employees. A non-performing department can essentially eat away at the budget by taking without giving. So by reviewing the annual budget, this will prove the inefficiencies, and provoke a decision making process to eliminate those inefficiencies and tighten up the budget.
The business control cycle is the ups and downs that are seen in most of the economy, occurring simultaneously, for the most part. The business control cycle involves economic shifts over time between periods of growth and prosperity, alternating with periods of decline or recession. The budget is a necessary tool for the business control cycle because it is a maintenance tool. Because you cannot predict the highs and lows of the economy, by maintaining a firm budget, an organization is apt to succeed by keeping the

Related Documents