- June 15, 2020
Imagine you are preparing a business`s cash budget, which involves determining the amount of cash to keep on hand. How might the nature of the business affect your decision? Provide specific examples in your response.
Abusiness cash budget represents an estimation of the cash inflows andoutflows for an enterprise over a certain period. According to Byrd &Megginson (2013), it is crucial for small businesses to monitor thecash budget because it provides the main source of funds for theenterprise. However, this budget is considerably influenced by thenature of the business. First, a business such as a hotel or a bar orany other enterprise that receives large sums of money, and majorlydeals in cash transactions, there is the likelihood that the businesswill demand large amounts of cash on hand to meet the daily expenses.However, in the case where the enterprise involved majorly deals incheck payments, then it is likely that it will require little cash athand to meet is petty cash expenditure.
Additionally,if the organization involved is a public corporation, the cash heldat hand will be limited, thus reducing the cash budget, since publiccorporations in occasions do not deal with cash, but rather prefer touse bank deposits and checks (Edey, 2014). Another scenario wherelittle cash at hand is required is a manufacturing company whose mainclients are other companies and corporations. Such business willprobably require, if any, less cash at hand to help meet theemergency needs of the employees because the majority of transactionsinvolve making deposits and checks in the banks (Edey, 2014). Inshort, the cash budget is considerably affected by the nature of thebusiness, depending on whether it handles a lot of cash transactionsor checks and bank deposits. This budget will be high in the casewhere the majority of transactions are paid in cash and low when thetransactions are directed towards the bank.
Kimmel, P. D., Weygandt, J. J., & Kieso (2016) focus on budgets for organizations that have revenues and expenses. Suppose you were the manager of a research and development division of a biotechnology company that has no revenue. How would budgets be helpful to you?
Accordingto Kimmel et al. (2016), a budget plays a critical role in planning,controlling, and making organizational decisions as well as enhancingcommunication and coordination within the enterprise. A businessbudget refers to a plan that companies use to estimate the outgoingexpenditure and the incoming revenues for a particular time duration.As a manager of a research and development division of abiotechnology company that has no revenue, a budget is still helpfuland plays a critical role in planning, controlling, and makingfinancial decisions.
Abudget can be utilized by the manager as an evaluation tool toapprehend and predict the performance of the company so as to meetthe organization’s performance goals (Kimmel et al., 2016). Thebudget may also help the manager to ensure that the expenditure ofthe company follows and stays within a certain preset limit, and doesnot surpass the funds available for the organization because thecompany has no revenues. The budget can assist the manager to supportfunding request by displaying how the funds will be used by thecompany (Kimmel et al., 2016). Similarly, the manager can use thebudget to execute and control the activities stipulated in the budgetand assess the financial performance of the company by comparing thebudgeted and the real operations. Therefore, as the manager of thebiotechnology company with no revenue, the budget will help to ensurefinancial accountability, proper planning and perform the controlfunction without difficulties. Finally, it is also important to notethat planning, controlling, and evaluation of organizationalperformance are both efficient when a proper budget is establishedregardless of whether the company has revenue or not.
We agree that a budget is important for an organization as a budget provides a comprehensive financial overview of planned operations. How is the organization`s budget affected by the organization`s strategic plan and long-range planning? Explain.
Anyorganization needs to have both a budget and a strategic plan as wellas a long-range planning. A strategic plan provides an organizationwith approximately five-year road map. Similarly, every enterpriserequires a long-range fund-raising strategic plan that incorporatessteps to spot the funding requirements of the company, oftenevaluated through the development of an annual budget and the growthprojection of the enterprise as well as the sources of revenue forthe organization (Kimmel et al., 2016). However, there are limits tothe resources that can be allocated to the long-range planning. Thestrategic plan and long-range planning affect the organization`sbudget in some ways.
Anorganization’s strategic plan greatly influences the budget becausean organization uses it as the platform to develop the budget. Theorganization keeps on modifying these plans with the changes in theenvironment (Kimmel et al., 2016). However, these changes willconsiderably affect the budget as it will also be modified with thechanges in the environment and internal alter plans which are addedto the budget. Again, a five-year strategic plan may change quiteoften every time the review is done, typically on a yearly basis.Again, it is also likely that in the preceding year, the external, aswell as the internal environment, will have drastically changed,calling for changes in the budget. Similarly, it would even be worsefor the long-range plans which might forecast decades ahead. Theseplans will keep on changing every time an evaluation is performed dueto economic and environmental transformations as well as alterationsin the internal operations. However, any interim changes in thelong-range budget are unlikely to affect the short-term budgets, eventhough any major changes noticed should be immediately reviewed.
Byrd,M. J., & Megginson, L. C. (2013). Smallbusiness management: An entrepreneur`s guidebook.New York, NY: McGraw-Hill.
Edey,H. C. (2014). BusinessBudgets and Accounts (RLE Accounting).Routledge.
Kimmel,P. D., Weygandt, J. J., & Kieso, D. E. (2016). FinancialAccounting: Tools for Business Decision Making.