Budget is, indeed, a rather powerful tool that can impact the performance of an entire

organization. Budgeting stands for the administration and allocation of resources necessary for
the successful operation of departments, teams, and individual. By failing to provide a sufficient
amount of resources to a certain group or department, persons responsible for budgeting risk
impairing its performance and decreasing the success of this business in general. In this way, the
allocation of resources that stands for budgeting is a critical activity that is likely to determine
the future success of the organization or the lack thereof.

Budgeting for each and every food items and leaves some columns for comparing brand, type as
well as prices in order to be able to get the best deal from the market place. By this
way, unnecessary spending on unhealthy food such as junk foods and beverages which are not
necessary can be avoided.

Moreover, it is true that the outcomes of budgeting decisions can appear in the long as well as a
short term. From the practical perspective, a very careful assessment and planning are necessary
for a business to become well-balanced in terms of budgeting (Drury, 2004). In other words, a
detailed evaluation of the organizational performance is needed prior to the formulation of a
budgeting plan. For that, a team responsible for budgeting needs to identify the areas and
departments that are in need of investment and how this investment should be spent.

A budget is one of the more important parts of having a business. When a company has its
budgeting done right, leaders can make sure they have the income coming in to offset expenses.
A budget also makes it possible to plan for anticipated costs, like a large hire or a new piece of
machinery, to continue operations.

ACCA, (2006) states that, budgeting identifies current available capital, provides an estimate of
expenditure and anticipates incoming revenue. By referring to the budget businesses can measure
performance against expenditure and ensure that resources are available for initiatives that
support business growth and development. It enables the business owner to concentrate on cash
flow, reducing costs, improving profits and increasing returns on investment.

A budget is a manner by which an individual or business can detail their expenses and revenues,
as well as plan for saving and future spending (Curristine, and  Joumard, 2007). It provides a
way for a business to create an organizational plan that helps them manage their income,

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expenditures and even predict their future profit levels. A budget assists in maintaining a written
record of all monetary transactions and helps plan for the future. A good budget provides goals
and objectives that give the business a direction to follow in order to achieve success. Without
that direction it is easy to stray from particular objectives, which can lead to too much or too
little money being spent in the appropriate departments, projects therefore decreasing financial
responsibility.

Sullivan, and Sheffrin, (2003) said that, budgeting is the basis for all business success. It helps
with both planning and control of the finances of the business. If there is no control over
spending, planning is futile and if there is no planning there are no business objectives to
achieve.

Planning is all about setting the objectives of the business. So, budgeting forces the management
in an organisation to consider the objectives of the business. It also forces the business to look
into the future and to anticipate any potential threats that could be coming down the road. It also
gives a chance for management to look at the possible opportunities that the business could seize
in the future. And a part of planning is to ensure that resources are properly organised in the
future, so that the objectives of the business are achieved.

Responsibility is all about giving managers a clear indication of what it is that they're
accountable for. A budget gives a manager a very clear idea of the results that he/she is supposed
to be controlling and what it is that they'll be measured on, what they're actually responsible for.
Typically a manager that's given a budget to look after is called a budget holder. So, a budget
holder would have a clear idea of the different areas that they're responsible for.

Arora, (2000) said that, a budget gives a manager a set of targets to work towards. If you can
imagine in a production facility, a budget might list all the different costs that a production
manager might be responsible for. That gives them an indication of what their target is for the
year e.g. What cost they have to stay in line with, and that gives them the motivation to want to
achieve that cost target. It's important when you're putting budgets together, obviously, that the
goals and the targets set in the budget are difficult enough, and that they encourage the manager
to work hard to stretch themselves, but it's also important that the targets are not completely
unrealistic. We'll look at that in greater detail later in the article.

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Budgets are needed when a business organization grows in size, so all expenditure decisions are
already decided upon and approved. This prevents the owner or business managers from making
all expenditure decisions over and over again. Therefore, this frees up time for the managers
because they do not need authorize all items of expenditure every single day.

In addition, budgets allow all scarce resources to be allocated throughout the organization

according to the expected level of business activity for a specified period of time (usually one
year). It means that the part of the business with more activity will receive more resources.
Consequently, less resources will be used in those parts of the business where not much is going
on (Arora, 2000).

Any business budgeting can help it create a strategic and effective plan. This procedure will
promote the stakeholders to work with confidence and know the current situations of the amount
left. Besides, budgeting plays a key role when the collaborators easily comprehend the problems
appearing and solve them.

Of course the biggest advantage to creating and maintaining a budget is to determine the
profitability of the business; however there are several other benefits. The written plan and
ability to see projections versus actual monetary movement in the company helps CEO’s make
decisions and pay attention to the future of the business. They can create a detailed plan for
anticipating the purpose and mission of the company.

It also helps define areas within the business and their responsibilities for their piece of the
budget. Targets can be used to determine the efficiency of a particular department or
management team as well. The ability to forecast sales, expenditures and overall cash flow helps
direct the business in a more productive manner. This way a business owner can create changes
or make necessary plans for shortages or expansions that will help them grow their business. It
can also assist them in sustaining through economic hardships or other problems that they may
face throughout the year (ACCA , 2006).

However, according to Horngreen (1991), major benefit to using a business budget is that ability
to limit how much money is spent on certain operations. Budget usually counts to ensure that
capital is not wasted on unessential items or the company does not overpay for economic used in
the business. Also organization often use budgets to plan for future business growth and

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expansion. Capital saved on regular business expenditures may be placed into a special reserve
account designed for selecting new business opportunities. This ensures that companies have
capital on hand when needing to make a quick decision for expanding business operation.

In conclusion, a business’s budget is an extremely important tool for business owners.

Regardless of the size of the business they should engage in a budget to ensure that they are
meeting needs, as well as preparing for the future. Without appropriate planning and oversight it
is easy for a business to fall in a practice of struggle, which can eventually lead to financial
demise. While there are a number of methods and types of budget practices, it is important for
businesses to be aware that they may need to use more than one method to ensure that they are
addressing their financial needs and goals.

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 REFERENCES

Curristine, T.,  Lonti, Z.,  and  Joumard, I. (2007), “Improving Public Sector Efficiency:
Challenges and Opportunities”, OECD Journal on Budgeting, 7(1), pp. 161-201.

Sullivan, A., Sheffrin, S. (2003). Economics: Principles in Action. Upper Saddle River, New
Jersey 07458: Pearson Prentice Hall, p. 502.

ACCA (2006). Financial Management and Control, 2 nd Edition, BPP Learning Media Ltd,
London.

Arora, M. N (2000). Cost Accounting, 7 th Edition, Viscas Publishing House.

Drury, C. (2004). Management and Cost Accounting, 6th edition, Thomson Learning, London.