Budgets are an important part of business coordination. They allow profitability and sales targets and allow corrective action through detecting deviations in actual versus planned figures.
A significant amount of planning is necessary to align objectives to a master budget or other resultant budgets, so a budget controller is usually assigned to manage this process.
Budgets facilitate authorisation processes and a means to delegation. They also provide early detection for any unexpected trends through evaluating performance.
Budgets must represent attainable goals, with thorough understanding of the objectives for those participating. Approval is communicated down for acceptance.
Flexible budgets vary in relation to output and are useful from a control standpoint, whereas fixed budgets are unchanged irrespective of level of activity.
A cash flow forecast provides a predicted cash book which allows us to plan where money is coming from to ensure we can cover our expenditure. This helps the business to make sure cash is available when needed and helps to identify a shortage or surplus.
Despite the proposed benefits for budgets, they are often blamed for many organisational problems!
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