All organisations need a clear vision for their future, it is only through examining their strengths and weakness that their vision can come to fruition.

After performing a SWOT analysis, organisations can start the budget planning and a good system will help the company reach strategic goals.   By being aware of the budget the company can control major categories of activity such as revenue, expense and financing and plan for the future.

There are two types of budgets that need reports.  The first is the Financial budget which plans the use of assets and liabilities and results in a projected balance sheet.  The second is the Operating budget  which helps planning future revenue and expenses and results in a projected income statement.  Together both reports provide a financial picture for the company and aids to ensure the company vision is fulfilled.

The benefits of budgeting include improved communication, planning, coordination, and evaluation.   In addition a budget aids the company to: keep track of expenses, plan operations and cash flow, evaluate performance and key financial planning for the future.

When looking at budgets, it is important to remember the ethical standards and hidden bias that may exist.   When requesting data from individual departments, team leaders may be tempted to pad or change the numbers slightly in order to ensure they receive company bonus. They change the figures to achieve the targets, and therefore may create lower targets to ensure achievability.   Ensuring that all reports are accurate by being aware of this bias, will provide the organisation with the most accurate financial snapshot, therefore ensuring future company planning is realistic.  Both the Financial and Operating budget are therefore key stakeholders within a business, and their reports are vital to the business success.

References:

Ch. 7 why it matters – principles of Accounting, volume 2: Managerial Accounting. OpenStax. (n.d.). Retrieved May 8, 2022, from https://openstax.org/books/principles-managerial-accounting/pages/7-why-it-matters

Ch. 9 introduction – principles of management. OpenStax. (n.d.). Retrieved May 8, 2022, from https://openstax.org/books/principles-management/pages/9-introduction