Question

• Why are budgets so important for organizations?
• What are some advantages to budgeting?

Answer 1

It is important to prepare Budget plans. Budgeting assist in creating capital and revenue resources profitable. It helps in regulating income and expenditure of a business over a period of time. The budget controls every hurdle in the organization and fix with an organized and disciplined manner.

Advantages of Budgeting are mentioned below..

Planning orientation - This is the very first advantage of planning orientation for planning a budget which kept management away from its daily management of the business and forces the organization to think longer-term.

Profitability review - this advantage make easier to lose sight of where a company is making most of its money during the quick review of daily management.

Assumptions review - The budgeting process insists management to think about that, why the company is in business as well as its key assumptions about its business environment.

Performance evaluations - anyone in organization can easily work with employees to set up their goals for a budgeting period and possibly also set bonuses or other incentives plan for evaluating purpose.

Funding planning. A well structured budget should derive the amount of cash which will be required to help the operations. This information also help the treasurer to plan for the company's funding needs.

Cash allocation. There is limited amount of cash available to invest in fixed assets and working capital and the budgeting process which insists management to decide which assets will provide more earnings or which one is more efficient for the business.