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How does a company effectively use budgets in the planning

Customer Question

How does a company effectively use budgets in the planning and control process?
Submitted: 5 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 5 years ago.

Dear Friend,


Budgets are very effective tool to which is effectively used in the planning and control process by the companies. Business budgeting is a basic and essential process that allows businesses to attain many goals in one course of action. There are several goals that many businesses seek to achieve (or should be trying to work toward) when they create and implement a budget. These goals include control and evaluation, planning, communication, and motivation.


It is a comprehensive, formal plan that estimates the probable expenditures and income for an organization over a specific period. Budgeting describes the overall process of preparing and using a budget. Since budgets are such valuable tools for planning and control of finances, budgeting affects nearly every type of organization-from governments and large corporations to small businesses-as well as families and individuals. A small business generally engages in budgeting to determine the most efficient and effective strategies for making money and expanding its asset base. Budgeting can help a company use its limited financial and human resources in a manner which best exploits existing business opportunities.


Planning is another purpose of budgeting, and is arguably its primary purpose. Budgeting allows a business to take stock of revenue and expenses from the previous period, and judge where the business will be in future periods. It also allows the organization to add and remove products and services from its plan for the future period. In larger organizations, the budgeting process may be completed by individual business units and compiled to form a master budget for the organization. This allows top management to get a picture of the entire business so they are able to better plan accordingly.


The company may use the budgets and planning tools in effectively enhancing managerial perspective, in flagging potential problems, co-ordinating activities to attain common profit objectives and evaluating performances.


I hope this helps...

Warm Regards,

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