What Is Budgeting

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  • Topic: Budgets, Term, Zero-based budgeting
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  • Published : March 18, 2015
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Writing a 750 words brief essay integrating aspects of the module with at least three external source to support your position about whether you agree or disagree with the following statement: “Budgeting is a key component in management short and long term planning.”

In a company, budgeting and operational activities link together, and budgeting plays an important role in a company’s running. At the end of the year, senior director will start to plan the budget for the next year. A successful business must be having a detailed budget. In this article, we are going to talk about what is budgeting and how is it important.

What is budgeting
Budget is an important process of management, it is a process of planning and identifying the objects as well. Once we prepared a completely budget, we can use it to examine whether our overall plan be adapted closely. It is the plan that is for saving, spending and borrowing. Budget is very specific plan for firm can actually find out financial problem. Budgets help you define how much money you have and how to use it, and help you decide whether money that you have is enough achieve own financial goals. Thence, people said, “Budgeting is a key component in management short and long term planning.” It is the view that building a budget means you can know the company’s income and expenses clearly, and you will decide how much money you will cost in each programmer. The last but not the least, budgeting can help a company reduce financial risk.

Short-term financial planning
Some budget allocation may be short-term which any items to be purchased and paid for the tear. Short-term budgeting can help you cover expense. The cash budget is one of the primary tools that are used in short-term financial planning in order to plan for cash flow. In this case of short-term budgets, they provided bugger details and information. A good cash budget allows the senior to see short-term financial needs and opportunities for the business. There is an example that the firm may have extra cash and may be able to save some money in a money market fund or take advantage of a bargain in the marketplace in a month. In another month, the firm may have a shortfall and have to withdraw some money from savings or even apply for a short-term bank loan to cover its needs. Or a business with a fleet of cars would need to include the cost of fuel and maintenance of the vehicle for the year in the annual budget, monthly household budget, even a date need.

Long-term financial planning
A long-range budget involves more uncertainty than a short-term budget. It is because typically, market movements and the business cycle are predictable more easily in the short term. Developing a long-term budget means that you look at not just day-to-day expense, but that you consider what kinds of purchases you want to make in the future. Given an example, when people raise a child, they not only pay for the child’ tuitions of primary school and beyond tuition. By preparing budgets for the company, senior director and managers are able to easily identify specifically the variances. Once it is identified, managers and senior director can then take necessary corrective actions to ensure that future results will be able to conform to the budget. In addition, they can also forecast and identify the periods of expected fluctuations of cash shortages or excess, as well as, profits or loss and plan for necessary actions. There is an example that the successful company, Apple. The company steered their attention and focus on their marketing budget clearly, they set an increasing advertising budget every year which was a strategy to rise the sales. Last year, Apple spent less than 1% of sales on advertising. On the contrary, its sales growth has been far outpacing its advertising budget. This is a successful example to tell us a budget is a quantitative plan of operations that...
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