budgets Flashcards
whats a budget
a financial plan for the future
what are budgets based on
objectives
what will a budget show
the money needed for spending and how it will be financed
what do they force managers to do
think ahead and improve coordination
how long are majority budgets set for
12 months to coincide with accounting period
what do small businesses often underestimate
the importance of financial control when running their businesses and budgeting is an easily adoptable method of control.
budgets fulfil the following specific purposes
control and monitoring
planning
coordination
communication
efficiency
motivation
how do budgets fulfil control and monitoring
targets are translated into budgets. how successful they are can be compared with the budget. any reasons for failing can be analysed and appropriate action taken. more effective to continually monitor budgets
how do budgets fulfil planning
forces management to think ahead. without it they may work day-by-day and only deal with opportunities and issues when they arise. budgeting anticipates future problems and solutions
how do budgets fulfil communication
planning allows objectives to be communicated to workforce. removes an element of uncertainty when decision making. budgeting also shows businesses priorities and highlights costs that need to be controlled
how do budgets fulfil coordination
budgeting is one way in which managers can coordinate and control activities of the many business areas
how do budgets fulfil motivation
provides targets and standards. fear of failing to reach a budgeted target is an incentive to workforce
how do budgets fulfil efficiency
empower staff by delegating decision making. budgeting gives financial power to lower levels of management who are best to make decisions at their point within the organisation
what are the 3 types of budget
income
expenditure
profit
whats income budget
forecasts amount of money thatll come into business as revenue.
how do businesses find income budget
to do this business must predict how much it will sell and at what price. done using historical sales figures and market research
whats expenditure budget
predicts businesses total costs for the year
how do managers estimate sales for expenditure budget
using historical figures
whats profit budget
income budget- expenditure budget
what is zero-base budgeting
budget holders start with a budget of £0 and have to get approval to spend money on activities.
what are the figures used in ZBB based on
potential performance
process for ZBB
budget holders have to plan the whole years activities ask for money to spend on them and be prepared to justify requests to financial directors
what skill do budget holders need
good negotiating skills
advantages of ZBB
-allocation of resources should be improved
-reduced unnecessary costs and eliminate inefficient practices- questioning attitude developped
-encourages managers to look for alternatives
-improved staff motivation as evaluation skills practised and developed firm operations knowledge
disadvantages of ZBB
-time consuming to collect and analyse data
-skilful decision making required
-threatens status quo decrease motivation
- managers may not be prepared to justify spending on certain costs
