Question

Why is budgeting important for a company? What are some reasons that a company would not prepare a budget?

Answer 1

Answer: Budgeting helps to plan, coordinate , delegate responsibility and enhancing clarity in pursuit of an organisation.

Explanation: Every budgets is principally prepared to achieve a set target  but there some limitations which makes it  difficult for some companies to prepare and follow through with a budgeted plan action. Some of these limitations at any given point in time affect the activities of the organisation. It may be traced to Production capacity, shortage of labour, materials, space, Finance and customer demand. This  limitation can at any point in time affect the overall plan of the organisation making it difficult to achieve their set target .

Answer 2

Answer:

Budgeting is important for a company as it provides the following

1. a disciplined approach to the solutions of the problems
2. obliging management to make an early study of its problems and instilling into an organization the habit of careful study before making decisions.
3. co ordinating and correlating all efforts since no management activity reveals weaknesses in organization as quickly as the orderly procedure for systematic budgeting.
4. aiding in directing capital and effort into most profitable channels.
5. developing throughout the organization an atmosphere of profit minded ness and encouraging an attitude of cost consciousness and maximum resource utilization.

Intelligent Budgeting is a difficult task , it needs a lot of expertise , times and is sometimes costly. Time constraints can be handled more effectively ,by converting the elements of conventional into a functional planning tool through the use of computer modelling techniques.

Companies may not use budgeting for following reasons.

1. Smaller or very large companies where profit remains unaltered year after year do not require a budget. They are sure that the next year would be the same as the current year.
2. their reports are very well maintained. Companies whose reports are very well maintained do not require a budget because the whole information or decision making or future planning can well be comprehended from these reports.
3. business is facing losses or is in a situation where it is useless to predict its future.