Question

describe relevant health, economic, finance, and historical background of cash budgeting and its importance to a small hospital ?

Answer 1

Why Is it Important for a Business to Budget?

by Lisa McQuerrey; Updated March 15, 2018

A business that doesn’t budget sets itself up for a host of financial problems down the road. This is true for businesses of all ages and sizes. Conversely, a business that develops short- and long-term business objectives by creating a detailed business plan can create a road map for financial success and opportunities to expand.

Benefits of Budgeting

Just like a household, a business has certain debt obligations and expenditures it is responsible for. These may include:

• Rent or mortgage
• Utilities
• Loans or lines of credit
• Vendor accounts
• Professional services
• Insurance
• Payroll
• Purchasing obligations
• Advertising
• IT services

Imagine the potential implications if a business isn’t able to meet even just one of the above-mentioned financial obligations, because of poor budgeting. Being unable to meet payroll means employees will leave the company; not carrying insurance leaves the company open to liability; and, failure to pay rent means eviction.

Inability to Plan

A business that doesn’t know where its money is coming from or where it is going to isn’t in a position to expand, take advantage of investment opportunities or even make long-term commitments to suppliers or clients. It can also lose existing business if the unforeseen happens – like the power being turned off or a shipment of goods being delayed. Not having financial records in order can mean denial of operating loans, the purchase of equipment or the ability to bid on government contracts.

Benefits of Budgeting

A carefully constructed budgets allows a business to continually track where they are financially. This allows for strategic, long-term planning for everything from current operating costs to potential expansion. Knowing where the budget stands opens up the ability to hire new staffers, invest in new product lines and set earning goals in line with the organizations’ corporate financial objectives. Other benefits include:

• The potential to attract investors
• The ability to set sales goals
• The chance to open lines of credit
• The ability to make decisions about salaries, bonuses, benefits and overhead operating expenses
• Easier tax preparation

If a company answers to a board of directors or an advisory committee, a detailed budgeting process will enable the business to provide regular earning reports and status updates, and will be able to change strategy, when necessary, if projected earnings are outpaced by unanticipated costs.

Tip

• Budgeting is particularly important for small-business owners, who often operate on a shoestring budget. Being even a little bit off on cost projections or earnings can have a devastating effect on a small operation.

To ensure budgeting is done accurately, it may be worthwhile to hire an in-house or outside accountant, or a business manager who has expertise in business financ