Main Objectives Of Budgeting

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The main objective of any professional run organisation is to be successful and healthy. Being successful and healthy is strictly linked to making a profit, adding value to the asset and reinvesting to grow in the future. Therefore, an important management role is to achieve this objective by using a range of financial planning tools. Within these tools, the budgeting process is definitely the most effective and represents the crucial stage of the financial performance cycle. As stated by Professor Larry Walther, “organisations carefully plan their financial affairs to achieve financial success. The key to achieve this success is to have an annual budget”. Furthermore, he defines the “budget” as “a detailed financial statement that quantifies…show more content…
The concept is that the business will grow from year to year and the main aim will be to make a profit. Therefore, each annual budget will contain revenue goals, expenses amounts and profit expected and it will enable the organisation to achieve improvements over the last…show more content…
So it is important to agree on an operating budget so that everyone knows what to expect the business to generate in terms of profit over a given period. This gives the managers a guideline of expectations and also provides owners and shareholders with an expectation of return on their investment. It is important that, once agreed, the business is run within the limits of the budget because they are expected to achieve the budgeted revenue, spend within the budgeted expenses, which they will consider while running their department and making their daily decisions. The day to day activities must be in line with the budget as it represents the organisation’s strategy in numbers. As explained by Osmond Videz in his article “Why is it important for a business to budget?”, the major benefit of operating with a budget is the “ability to control the expenses (how much money can be spent and on which activities), to ensure that capital is not wasted or the company does not overpay for the resources used (i.e. labour cost and wastage of food). In addition, operating with a budget gives the companies a tool for future growth as it ensures that they have the capital needed when deciding to expand their
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