How Budgets Within A Business - 1349 Words

4.1 Explain the uses of a budget There can be many uses of budgets within a business. The key two uses that are mentioned in most academic literature on the subject are for planning and con ¬trol. However, if a business is going to the effort of producing a budget, it would be sensible to know what other uses it could be put to. They key to the success of a budget’s success is whether they have been planned with much forethought and sensitivity – in these circumstances they can have many advantages. Planning Budgets can aid planning, which gives a business direction. A budget takes the organisational plan (goal and objectives) and quantifies this into something real to aim for. Such forward planning aids anticipating future business†¦show more content†¦There is also argued to be a motivational role for the budget – if set at the appropriate level. The argument being that the budget gives managers a target to strive towards. However there is also an argument that if set at an inap ¬propriate level (too high or too low) it can have the reverse impact and can demotivate. Budgets can be prepared and used for a fixed financial year or in some cases they can be a rolling budget. In a lot of organisations budgets are generally drafted from the ‘top- down’ and then passed down for comments, negotiation and agreement but generally it is believed that the more managers have full involvement in preparing their own budgets the greater their commitment to achieving them. . 4.2 Explain how to manage a budget Having a formal and structured budgeting process is the foundation for good business management, growth and development. Very similar to our personal finances, discipline and planning should be the cornerstone of a business budgeting process. So where do we begin? As with most things that come with managing an organisation, budgeting needs to be driven by the vision (what we are trying to accomplish) and the strategic plan (the steps to get there). Organisations that stay focused on their strategy and plan know exactly where they want to spend their resources and have a plan to help keep them from spending money in areas that do