Question

Small businesses with 200 employees or less, don’t derive the same benefits as larger companies do from budgeting.  Do you agree or disagree with this statement?  Discuss why small businesses might not choose to extensively engage in the budget process. Also discuss the various benefits of budgeting and state whether it is likely that a small business can reach their goals without engaging in some kind of budget process.

Answer 1

Small businesses do not have the same kind of financial resources that a large corporations has for the purpose of implementing budgeting process in an effective way. Small businesses completely runs on the motivation and will power of business managers and if they are given high targets and budgets, it will lead to loss of motivation for them. However, if the same is applied in big companies, it is culture of organization to set targets and achieve the same. Yet another factor which contributes to the fact that budgeting is not helpful for small business organization is that it is time consuming and costly. Most of the resources used in budgeting process can be applied elsewhere for better efficiency in the small organization. Therefore, I agree with the statement that small businesses do not benefit more from budget process than big businesses. As discussed, small businesses prevent itself from engaging in budget process due to lack of resources and the process is way time consuming for small business organizations. The budget set are not used in reality 87% of the times and therefore wasting already limited resources in budget process will not be beneficial for these small companies. However, there are various benefits of budgeting as well these includes:

• Planning orientation: The management of the company following budgeting process would shift their thinking from day to day business operations of the business to long term strategies and thinking to achieve the desired target in an effective way.
• Profits can be reviewed: If the profits mark are set, it can be reviewed during the tenure of budget. Which division is making profit, where improvement is required and overall profitability of the organization can be ascertained through budget.
• Funding Planning: A proper budgeting process would ensure that funds are being arranged properly and effectively for the business operations and general expenses in an effective way. The accountant or treasurer of the company will plan funds for the operations based on the budget and target set.

It can be concluded that, though budgeting can help but it is not mandatory and small businesses can run and manage their operations effectively even without allocating resources and expenses into budgeting. The management can set goals based on their experience and through efficient management techniques and past experiences the same goals can be achieved in the longer run.