The Budget as a Financial Tool
A budget is as much a planning tool as it is an operational tool. Do you agree or disagree with this statement? Please explain.
Absolutely. The problem most managers of small businesses make it to assume that spending will automatically adjust to sales revenue. Usually the expenses creep up and overcome the unwary small business entrepreneurs.
Correct, they go hand in hand. a budget is the companies financial direction and strategy.
Agree. A budget is a plan to ensure that you have the money for your future business activities which allows you to make confident financial decisions by relying on solid figures that would otherwise have been based around guesswork and instincts.
Hi Marc! Thanks for your response. I too see a budget as both a planning tool and a control measure. It does give us the confidence to make the right decisions if it is realistic and well researched, and then holds us accountable accordingly.
Quick question, how much do you rely on former budgetary information or data to develop e new budget, given a margin for expansion or contingency?
Jay Hollowell
ML142 Facilitator
I agree. A budget is a very important operational tool. What do you do if someone in the "higher up" ie:management or CEO wants you to make the annual budget, but doesn't follow it them selves? How can budgets be enforced?
I agree. The budget can help in managing the cash flow, determining how much funds you will be able to allocate in increasing your business as well as help in determining what expenses to either cut or cut back on.
The budget is definitely a planning tool that helps guide the company in the future potential income and expenses. The planning process of the budget can assist in coordination of multiple department operations through sharing of each area's key drivers, constraints and impacts on other areas. The process can affect the quality of the end result.
Agree. In it's essence the budget is a plan or "blueprint" if you will, that lays out your company's expected operational performance. The budget sets up how your operations will be be conducted. It is your road map.
I agree.They serve as a plan of action for managers as well as a point of comparison at the period's end.
Thanks Bo! That's the power of the budget - it's a planning, monitoring and assessing tool all wrapped up into one document.
Jay Hollowell
ML142 Facilitator
I completely agree that the budget is a planning tool and serves to the operational side of business. A well-crafted budget gives us a working guide to see where we go and we must do to achieve it. When preparing a budget must be known to the amount of income you expect then we can raise the necessary expenses Distibution of starting with fixed costs, labor and other costs eventually. Once prepared this exercise we know if we increase revenue. After prepared and approved must be monitored monthly and compare vs. budgeted income and expenditure. Is important to know if we are within budget or are off-budget to take the corrective actions taken. If not we have periodically prepares year-end surprises and maybe we're not in time to make corrections.
Hi Jorge,
Thanks so much for your comments! You have captured the different roles of the budget. Of course, the budget is a planning tool, but also a control mechanism that allows a company to manage, through comparison, its resources, liabilities and, most importantly, cash flow.
Jay Hollowell
ML142 Facilitator
I totally agree it lays out all the financial data any manager or upper management will need to oversee any operation. Is important to have control of the budget and have real numbers to help project financial sucess.
It's a tool that provides the freedom to explore the edges of what is possible, and at once sets limits. The budget allows the manager to creatively move within appropriate parameters.
I agree, cause a budget establish a financial target that set the company future direction.
I definetly agree, a budget will give you the confidence to plan ahead.
Agreed. Budgeting is an strategic planning and a effective control tool.
Agreed. A campus Director should use the details of past and current budgets to determine the directiioin of the campus . Along with areas of improvment and area of great reward. We should also use the budget to guide us in our dady to day operation of the campus. Always looking to the metrics to understand what can be done to overachive.
Definately agree. Even though in my position, yet have not have to do budgets as this area is managed or controlled by higher management, it is of course important for me to know how to do a budget for my department; this helps the company im better planning for the future and to put things in perspective. Without a budget a company would be taking a high risk. A budget helps for one to be realistic of current funds available; it helps to know what might be left to apply it to other important areas and it helps to build the future financially.
