Business

Importance of Budgeting

Introduction

According Kaplan (Kaplan Financial Limited, 2012; Kaplan Financial Limited, 2012), “A budget is a quantitative plan prepared for a specific time period ”. Budgeting is also forecast for the future plan and allocation of financial resources. It is generally expressed in financial terms and prepared for one year. However, the success and importance of budgeting is relates to the identification of organizational goals, allocation of responsibilities for achieving these goals and consequently its execution (Shan, 2007; Robinson, 2007; Drake and Fabozzi 2010). It is important to everyone that whether they are individual or business entity to understand and make a right use of finance. When it comes to an entrepreneur it is even more important because every factors, plan and allotment of the resource decides whether they are going to survive or swiped away. There are many aspects of budget why budgeting is required which are explained below:

Purpose

One is Purpose which works for many determination of financial utilization. First purpose is planning where entrepreneur needs to look at how they are going to utilize their available sources for survival because it will stops management from “relying on ad hoc or poorly co-ordinated planning” (Kaplan Financial Limited, 2012, p.250). Second purpose of budgeting is control where an entrepreneur will have overview for the future to benchmark the budget and make changes and take action. Third is communication, where budget becomes medium of communication channel which allows all employees to converse. Fourth Co-ordination, which helps to manage all parts of entrepreneur or business entity towards a common goal. Fifth Evaluation, a benchmarking between actual results and projected budget provides information regarding performance and indicates the need for correct action for next period. While evaluating the evaluation would be very meaningful because it identifies the differences,...