business strategy

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Why budget important?

To run a business without budget is just waste of time and money, I don't agree that budget is useless and functionless in a business.

So why budget important? The traditional idea of business management on the basis of day-by-day livelihood and recording operations in the old brochure, stained with oil and the smell of spices is still practiced widely in the world (Developing Countries &Less Devolving Countries), especially in grocery stores and small shops for retail sale, and this type often does not strive for the big profits that have been planned in advance, but to satisfy needs of individuals or small family, even if at the expense of capital eroded to access to bankruptcy.

Budget is very important because it represents a road map for setting goals and important not only for accounting when it gives estimates to easy readings of budget indicators, but its importance beyond that to help management to get a clear idea on expected costs, profits or losses, sales and revenue in the short and long term together, A very successful management was to achieve perfect utilization of available sources with lowest possible cost and the highest possible extent of the profits, Hold this delicate process of profit and loss account depends entirely on the calculation of the estimates of the costs and income compared with the results of last budget considering to the current figures and linked to the expected ones Thus, the budget is an important element in shaping the company's objectives of any kind manufacturing or service or the size of a small or large.

Budget Characteristics and functions:

Kenneth A. Merchant (1981) wrote : Budgeting system is a combination of information flows and administrative processes and procedures that is usually an integral part of the short-range planning and control system of an organization, since each business is in vital need to appropriate budget worthy of its needs, including the non-profit organizations in order to control expenditures and improve its financial performance, Therefore, the design budget is important and must respond to the needs of the organization in terms of its objectives, scope and size, which needs to effective participation bases on accountability and responsibility to improve company position and ensure its success in achieving its goals.

Therefore, the options offered by the budget are vital to reach success, as the right choices is the basis for accurate assessment and more accurate means of choice, that the adoption of flexible budget or adopt a variety of specialized budgets each is to care on specific element of production makes the task of short-term planning and long-term estimates based on comparative information linked the past with current towards the future by adoption of short-term budget for a year and long-term for five years for example.

Cash budget and production budget both are most important to play role of linking between the company's various budgets, so can be considered the pillars of the budget as well as the sales budget and profit & loss budget, the determinant of the success of the budget in its ability to create a high level of certainty in the thought and analysis in the short term and become a bridge between all departments in the company in decision -making process among analysed options, as the success of the budget in the development of performance means success in becoming a means of control, monitoring and evaluation, and these qualities are among the attributes of the appropriate budget for the company.

Analyzing the results of the budget is the second stage after set the objectives from considered options, variances are the indicators and main determinants of the company direction in profit or loss way, the exercise of management is by balancing between profit and loss, so start to control on production, income and sales be upon read the results of expected profit and loss, sales and overhead budget, last task related to the importance of review performance through modify budgets in line with the change in size or activity of the company and any changes related to production, costs and sales should be included directly in the budget allocated to it.


Problem related to budgets is when estimations are not true either increase expected cost and/or decrease expected profit in order to ensure a wide range of variances, which always makes the company profitable, the counterfeited success will cause unethical and harmfully affect company's activities, the more difficult for the company is to work out side budget. So budget must characterized by supporting decision makers with true expected financial results on revenues and expenses, and work as sensible and flexible measure to help managers do their budget allocations in accordance with company objectives (Rimma Shamsutdinova 2006)

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