Question

From a management perspective why do you think budgets are so important AND give an example, that relates specifically to your major, of how you will use budgets in your field. Do not forget APA format on your sources and in-text citations.

Answer 1

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.Budget 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.

A budget should describe management’s assumptions relating to:

(1) the state of the economy over the planning horizon

(2) plans for adding, deleting, or changing product lines

(3) the nature of the industry’s competition; and

(4) the effects of existing or possible government regulations.

If these assumptions change during the budget period, management should analyze the effects of the changes and include this in an evaluation of performance based on actual results.

Example of Business Budget.

A simple business budget includes expenses common to most small businesses.

Income	Actual	Budget	Difference
Operating Income
1st Quarter Sales	$34,300.00	$35,000.00	-$700.00
2nd Quarter Sales	$35,250.00	$35,000.00	$250.00
3rd Quarter Sales	$31,300.00	$30,000.00	$1,300.00
4th Quarter Sales	$27,100.00	$25,000.00	-$900.00
Total Operating Income	$127,950.00	$125,000.00	$2,950.00
Non-Operating Income
Interest	$650.00	$600.00	$50.00
Other	$1020.00	$500.00	$520.00
Total Non-Operating Income	$1,670.00	$1,100.00	$570.00
Total Income	$129,620.00	$126,100.00	$3,520.00
Expenses	Actual	Budget	Difference
Operating Expenses
Rent	$12,000.00	$12,000.00	-
Insurance	$2,500.00	$2,500.00	-
Electricity	$1,150.00	$1,100.00	$50.00
Gas	$1,250.00	$1,100.00	$150.00
Internet	$600.00	$600.00	-
Phone	$2,200.00	$1,900.00	$300.00
Travel	$2,300.00	$2,100.00	$200.00
Salaries, Wages, and Benefits	$66,000.00	$60,000.00	$6,000.00
Advertising	$1,200.00	$1,000.00	$200.00
License Fees	$500.00	$500.00	-
Office Supplies	$430.00	$500.00	-$70.00
Shipping and Delivery	$850.00	$1,000.00	-$150.00
Maintenance and Repairs	$1,100.00	$1,500.00	-$400.00
Other	$800.00	$1000.00	-$200.00
Total Operating Expenses	$92,880.00	$86,800.00	$6,080.00
Non-Operating Expenses
Smartphones	$1,800.00	$2,000.00	-$200.00
Tablets	$1,500.00	$2,000.00	-$500.00
Total Non-Operating Expenses	$3,300.00	$4,000.00	-$700.00
Total Expenses	$96,180.00	$90,800.00	$5,380.00
Net Income	$33,440.00	$35,300.00	-$1,900.00