Strategies to Improve Budgeting and Financial Efficiency
Introduction
Budgeting, as well as planning, gives major support to work according to the strategic objectives that have been created by the manager. The company should make plans according to the needs of the project, it should include collaboration and an interactive budget and planning process. This process should be meaningful and it might work extremely beneficial for the company so that it could save time and money as well. It helps to fulfill the financial target that has been planned by the owner of the company.
The amounts that have been shown in the cash budget that is not realistic. Preparing proper and meaningful weakness of estimating process leads to several revisions and accompanied. On the other hand, in order to identify the weaknesses of any company, the company might have lots of vital unspent provisions remaining at the end of every financial year (Cerezo-Narváez et. al. 2020). Control and planning of budgeting are vital visible applications of financial information in the “management control process”. Setting standards which are provided for feedback and performance standards by several reports. Budgeting is one of the vital works which consists of month-to-month or sometimes year-to-year information of budget planning. It basically defines a profitable budget planning that the company should follow to earn revenue according to its needs.
Six Inherent weaknesses
Here are five Inherent weaknesses that have been clearly seen through the method that has been used to make a cash budget.
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Determination of the right process: The manager did not use the proper process. The method is unclear as it didn't work with a single particular budgeting process. The name of the process is missing. There are no such managerial goals that have been set in the budget. All the target seems unrealistic (Rostova al. 2019). The process of budgeting is too long. The manager should prepare a meaningful, easy, realistic cash budget of its newly launched products during the month of January, February, March, April, and May. Always the cash budget process should be clear as this a vital part of a company to work according to their budget. Budgetary planning as well as controlling it is one of the major works that visibility affects the business financial statement, it also controls the management process (Saeidi, et. al. 2019). If a company determines the right process it might help them to get accurate results. If the right process is able to give the right feedback on the budgeting it might be so beneficial for that company.
Spending unnecessary money: In this cash budget, some elements are unnecessariness that have been clearly shown in the budgeting items. The accountant or budget prepare person or the manager should consider it and remove these unnecessariness items from the cash budget to reduce the cost of the budget that the owner has set for the production (Schrittwieser al. 2021). The manager easily could reduce the cost of the budget as he or she has the knowledge and rights to solve these problems (Williams et. al. 2019). The budget seems to be prepared under an unfamiliar operation budgeting process which is not good for a company. Cost control is also vital to work for a business, as money is everything one should identify the misuse of money so that it can save money for future production. Any business organization should control its unnecessary use of money and should make a budgeting plan.
Wasting extra time: Using extra time for producing is not a vital reason for wasting money, it also wastes the production time of that company. The budget processing should be done within a stipulated time that has been provided by the budget estimating team or the owner of the company. This company shouldn't follow the time estimation for making this cash budget. Also, the process of the cash budget is not so current, as there is a lack of information provided on the items (Maskuriy, al. 2019). The main reason for the waiting time is the manager of this company shouldn't use new methods to prepare this cash budget. Every company should use fresh methods every year to prepare a cash budget. Time is the key to production, the right technique, the right policies, the right budgeting are methods, and the right controlling power is extremely important for the business (Van Looy, 2021). Wasting time is the most vital threat to earning revenue. The company should not waste its time and utilize it by producing products and giving services to the public.
Overlooking vital factors: The manager did not give attention to the raw materials that are used in excess levels. The final outcome of the cash budget method showed that the processor has a communication gap with the operating team of the company (Spanaki al. 2022). The manager has no idea of the allowances of the cash budget that has been allocated for production. So the manager could not perform according to the requirement for the production. It might be a chance for external damage to the production which is not good for any kind of organization. The manager should take details information on raw materials as it is the main ingredients of the production (Mork?nait? et. al. 2019). Raw material consumption is not healthy for earning a profit, if a company cloud uses fewer raw materials and can produce more products only then it might generate the maximum level of revenue.
Lack of information: The process of this budgeting is unclear as the method of this process is not mentioned in the work. The manager ignores providing information and shares such information that is unrealistic as well as unreal (Oluyisola, al. 2020). The changes have been made very frequently, and some of the information is incorrect. The manager could not make any proper decision as there is a piece of missing vital information which is necessary for preparing a cash budget properly (Shou, et. al. 2021). It is clearly shown that if a method of the preparation of the cash budget does not seem easy and not it takes less time it might have a chance to fail production in time. A clear vision of the method must be required to generate any job whether it cloud be making a budget or processing methods (Ahrens, and Ferry, 2020). A crystal clear vision and information are required to fulfil the work to meet the actual demand within budget. Providing all the pieces of information makes work easier as the worker has lots of information that might help his work.
Incremental cost: When an additional new unit is being produced in a company the incremental cost appears. It means the extra cost that has been appearing when new items are produced. The incremental cost is calculated by additional expenses analysis. It involves the production process like raw materials and one extra unit production. Changing product lines is one example of incremental cost.
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From the graph, it is clearly seen that the production of the company's variable cost is increasing day by day which is a good sign (Pinneri et. al. 2021). If the future activity of the product reduces then the variable cost might get a chance to reduce. The variable cost is not a constant unit as it changes its units whenever new additional units are produced as well as sold from the business (Khoshnevisan et. al. 2021). The variable cost has never been constant. The per unit cost of the variable cost remains the same, on the other hand, it only changes when new units are sold or produced. As an illustration, a variable cost is the cost of wheat for a roti shop that produces roti daily (Tsang, et. al. 2021). The larger the number of products produced, the variable cost remains unchanged as the total wheat cost increases in that shop.
Total fixed cost behavior
The production cost does not depend on the production quantity. The total of the fixed remains always the same, it remains unchanged when the manager takes proper information and the quantity of the item (Olivieri, et. al. 2019). In this case, the fixed cost is decreasing which means there is a major issue regarding information. “Cost behavior pattern” is renowned as a fixed cost. A fixed always remains the same, no matter if the production increases at a higher level (Vian, T., 2020). As an illustration, the salary paid to the workers of a bike company who are the main manufacturer of bikes is the fixed cost for the bike company.
Conclusion
To achieve security and success in business every business organization should create a budget as it is the main pillar of the business monetary structure. It helps to understand and observe the business's monetary condition and ability to perform tasks. Deciding to make a budget might help the company to make a financial decision easily. The crucial aspect of managing any business organization's finances is budgeting. Making proper budget planning, monitoring its performance as well as taking corrective and meaningful actions which are needed for a company might help to improve its work quality and save lots of unwanted things that impact badly for the company. It could improve the companies' forecasting and planning more efficiently which also improves financial performance.
References
Journals
Ahrens, T. and Ferry, L., 2020. Financial resilience of English local government in the aftermath of COVID-19. Journal of Public Budgeting, Accounting & Financial Management, 32(5), pp.813-823.
Cerezo-Narváez, A., Pastor-Fernández, A., Otero-Mateo, M. and Ballesteros-Pérez, P., 2020. Integration of cost and work breakdown structures in the management of construction projects. Applied sciences, 10(4), p.1386.
Khoshnevisan, B., Duan, N., Tsapekos, P., Awasthi, M.K., Liu, Z., Mohammadi, A., Angelidaki, I., Tsang, D.C., Zhang, Z., Pan, J. and Ma, L., 2021. A critical review on livestock manure biorefinery technologies: Sustainability, challenges, and future perspectives. Renewable and Sustainable Energy Reviews, 135, p.110033.
Maskuriy, R., Selamat, A., Maresova, P., Krejcar, O. and David, O.O., 2019. Industry 4.0 for the construction industry: Review of management perspective. Economies, 7(3), p.68.
Mork?nait?, Ž., Kalibatas, D. and Kalibatien?, D., 2019. A bibliometric data analysis of multi-criteria decision making methods in heritage buildings. Journal of Civil Engineering and Management, 25(2), pp.76-99.
Olivieri, H., Seppänen, O., Alves, T.D.C., Scala, N.M., Schiavone, V., Liu, M. and Granja, A.D., 2019. Survey comparing critical path method, last planner system, and location-based techniques. Journal of construction engineering and management, 145(12), p.04019077.
Oluyisola, O.E., Sgarbossa, F. and Strandhagen, J.O., 2020. Smart production planning and control: Concept, use-cases and sustainability implications. Sustainability, 12(9), p.3791.
Pinneri, C., Sawant, S., Blaes, S., Achterhold, J., Stueckler, J., Rolinek, M. and Martius, G., 2021, October. Sample-efficient cross-entropy method for real-time planning. In Conference on Robot Learning (pp. 1049-1065). PMLR.
Rostova, O., Shirokova, S. and Sokolitsyna, N., 2019, March. Management of project for automation of investment control at industrial enterprise. In IOP Conference Series: Materials Science and Engineering (Vol. 497, No. 1, p. 012017). IOP Publishing.
Saeidi, P., Saeidi, S.P., Sofian, S., Saeidi, S.P., Nilashi, M. and Mardani, A., 2019. The impact of enterprise risk management on competitive advantage by moderating role of information technology. Computer standards & interfaces, 63, pp.67-82.
