Budgeting For The Budget

Just as the Chancellor has to prepare and put forward a budget in order to give the country framework for planning and resource allocation, control and performance evaluation, so the management accountant must assist with setting the budget for the firm to make its performance in a difficult market as strong as possible.

Firms use their budget to summarise plans for the coming year on the basis of financial statements. As with the Chancellor, it offers a platform for measuring performance and applying controls to ensure that strategy and objectives are realised.

Budgets can be a particularly effective way of motivating the workforce, particularly in a smaller company where people are closer to the person at the top, who wants to communicate their financial and other goals.

The management accountant will collect the financial data and set out the budget in such a way as to achieve these goals over an agreed timescale and taking into account the unpredictability of the market.

A major benefit to using a business budget is the ability to limit how much money is spent on certain operations. Budgets usually count expense accounts to ensure that capital is not wasted on unessential items or the company does not overpay for economic resources used in the running of the firm.

Limiting the amount of capital spent by the business may require owners and managers to find new suppliers for acquiring business inputs, saving money and meeting budget limits.

In addition, the management accountant will budget for future growth opportunities to ensure that the firm has capital in hand if quick decisions for expanding business operations are needed. This capital may also be used during slow economic times as a safety net for paying regular business expenses.

Posted in Blog, Business Technology.