- Social external influences:There are also many social factors that also can act as external influences on your business budget.For example, a change in lifestyle patterns or in behavior can affect the way that people decide to spend their money.In addition, a change in the population can also have an external affect on the business budget.Many things can affect the change in population in an ...
Meaning of a Budget. www. questia.com , Alagiah, R. 2006 pages (6 and 7) A budget is the monetary or /and quantitative expression of business plans and policies to be pursued in the future period (www. questia.com).The term budgeting is used for preparing budgets and other procedures for planning, coordinating and control of business enterprise.
Many organizations prepare budgets that they use as a method of comparison when evaluating their actual results over the next year. The process of preparing a budget should be highly regimented and follow a set schedule, so that the completed budget is ready for use by the beginning of the next fiscal year.
increment-based budgeting; prescriptive budgeting; flexible budgeting; authoritarian “from-top-to-bottom” budgeting; participative “from-bottom-to-top” budgeting;
Factors Affecting the Budget. Family budget is influenced by. Income of the Family; Size of the Family; Composition of the Family ; Occupation of the Family members
A budget key factor or principal budget factor is described as follows : The factor which at a particular time or over a period which limit the activities of an undertaking.
A budget key factor or principal budget factor is described as follows : The factor which at a particular time or over a period which limit the activities of an undertaking.
If the sales department could sell only 50,000 units, it is no use of producing 1,00,000 units. If the production department has the capacity of producing 50,000 units, a sales potential of 1,00,000 units is not of much consequence. Deliberations in the budget committee would lead to a decision regarding steps to get over a limiting factor.
In most of the organizations, sale is the major governing factor. If a limiting factor cannot be got over by any means then the whole budget involving all functions will have to be built around that factor.
Budgets provide benchmarks against which to compare actual results and develop corrective measures; give managers “preapproval” for execution of spending plans; and allow managers to provide forward-looking guidance to investors and creditors. Budgets are necessary to persuade banks and other lenders to extend credit.
Budgets should provide sufficient detail to reflect anticipated revenues and costs for each unit. This philosophy pushes the budget down to a personal level, and mitigates attempts to pass blame to others. Without the harsh reality of an enforced system of responsibility, an organization will quickly become less efficient. Deviations do not always suggest the need for imposition of penalties. Poor management and bad execution are not the only reasons things don’t always go according to plan. But, deviations should be examined and unit managers need to explain/justify them.
These plans are generally expressed as “budgets.” A budget is a detailed financial plan that quantifies future expectations and actions relative to acquiring and using resources.
Budgets can take many forms and serve many functions, providing the basis for detailed sales targets, staffing plans, inventory production, cash investment/borrowing, capital expenditures (for plant assets, etc.), and so on.
Within most organizations it becomes very common for managers to argue and compete for allocations of limited resources. Each business unit likely has employees deserving of compensation adjustments, projects needing to be funded, equipment needing to be replaced, and so forth. This naturally creates strain within an organization, as the sum of the individual resource requests will usually be greater than the available pool of funds. Successful managers will learn to make a strong case for the resources needed by their units.
But, successful managers also understand that their individual needs are subservient to the larger organizational goals. Once the plan for resource allocation is determined, a good manager will support the overall plan and move ahead to maximize results for the overall entity. Personal managerial ethics demands loyalty to an ethical organization, and success requires teamwork. Here, the budget process is the device by which the greater goals are mutually agreed upon, and the budget reflects the specific strategy that is to be followed in striving to reach those goals. Without a budget, an organization can be destroyed by constant bickering about case-by-case resource allocation decisions.
The budget is the tool that communicates the expected outcome and provides a detailed script to coordinate all of the individual parts to work in concert.
Besides the above, there are many more factors that can vary during the budget period, like operating regulatory changes, taxation changes, import or export restrictions, interest rate changes, dumping duties, quota restrictions, currency rate variation, etc. And all these factors are beyond the control of the organization. Hence, forecasts of the management can go wrong and lead to variances in the budget.
A flexible budget is a financial plan with scope for change in the value of its key parameters. It is according to the level of activities undertaken by the organization over a defined period. On the other hand, a static budget is a financial plan without any scope for change. For example, if a company decides that it will supply 10000 units of a product per month and no more or less, it is a case of a static budget. Flexible budget variance is the variance between the actual figures or estimates, and the figures previously estimated. It is of use to commercial organizations, government, and even individuals.
On the other hand, a static budget is a financial plan without any scope for change. For example, if a company decides that it will supply 10000 units of a product per month and no more or less, it is a case of a static budget. Flexible budget variance is the variance between the actual figures or estimates, and the figures previously estimated.
A company may face significant deviations from its budgeted figures because of poor planning and control of its key activities. Sales and other activities that affect cost-drivers may not work the same as originally planned.
When actual figures are superior over the budgeted ones, it is a positive or favorable budget variance. On the other hand, if the real numbers fall short of the budgeted or estimated numbers, it will signify a negative or unfavorable budget variance. In simple words, it will be a loss for the company.
Moreover, due to the change in labor laws and minimum wage regulations , the cost of labor also increases.
When developing a budget, it is important to be as concrete and specific as possible about future income and expenditure. The budget must consider direct and indirect costs and enable the organization to allocate and plan for the coming year. Budgets are prepared before the start of the ...
Budgets are prepared before the start of the fiscal year, so unknown factors need to be predicted. Budget analysts review historical trends as well as make assumptions about upcoming expenses to try and accurately predict the organization's financial situation for the year ahead.
Changes to the inflation rate and stock market conditions directly affect the organization's net worth and its ability to generate funds or loans. If the company relies heavily on investments as a funding vehicle, then poor stock market performance will have a direct, negative effect on budget predictions. Likewise, if the rate of return on investments outperforms the prediction, then the budget will have a surplus.
Certain legislative changes have a direct impact on budget projections. In most cases, businesses will be aware of pending legislation before it takes effect and can plan accordingly. Sometimes, just the introduction of future legislation, even if it has not taken effect, will disrupt current budget projections.
External factors negatively affecting assumed revenue might include an economic downturn, unexpected competition causing lowered sales or an inability to sustain the level of growth needed. Internal factors such as inadequate collections and poor accounts receivable practices could also impact revenue.
In many industries, salary and benefits is more than 50 percent of the organization's total expenses.
When developing a budget, it is important to be as concrete and specific as possible about future income and expenditure. The budget must consider direct and indirect costs and enable the organization to allocate and plan for the coming year. Budgets are prepared before the start of the ...
Budgets are prepared before the start of the fiscal year, so unknown factors need to be predicted. Budget analysts review historical trends as well as make assumptions about upcoming expenses to try and accurately predict the organization's financial situation for the year ahead.
Changes to the inflation rate and stock market conditions directly affect the organization's net worth and its ability to generate funds or loans. If the company relies heavily on investments as a funding vehicle, then poor stock market performance will have a direct, negative effect on budget predictions. Likewise, if the rate of return on investments outperforms the prediction, then the budget will have a surplus.
Certain legislative changes have a direct impact on budget projections. In most cases, businesses will be aware of pending legislation before it takes effect and can plan accordingly. Sometimes, just the introduction of future legislation, even if it has not taken effect, will disrupt current budget projections.
External factors negatively affecting assumed revenue might include an economic downturn, unexpected competition causing lowered sales or an inability to sustain the level of growth needed. Internal factors such as inadequate collections and poor accounts receivable practices could also impact revenue.
In many industries, salary and benefits is more than 50 percent of the organization's total expenses.