Budget Management in Business: A Small Case Memoir
The budget is the reports and plans that describe the work and activities to be performed in the next period in order to achieve the strategic goals and objectives of the enterprise. If there is an effective budget in a business, the work of managers is greatly facilitated in the current year. Because a budget agreed upon after the fights in the budget period includes the business plans to be made in the current year. The budget removes the uncertainties of the next year of the business. The next thing to do is to run the budget during the year, except for unexpected risks and opportunities. The contribution of the budget and the director to the business is of vital importance. We can list some of the benefits of the budget as follows:
It enables controllable risks and opportunities to be viewed in advance due to the planning of the future and to make decisions accordingly.
It provides a common goal unity in the whole business with the budget.
Eliminates uncertainty thanks to the annual planning of the business.
The budget strengthens coordination and communication between departments and makes it easier to identify the disrupted processes.
Budget and responsibility are intertwined, while determining what to do with the budget, those responsible are also determined. The budget evaluates the performance of those responsible.
It helps to determine standard costs and therefore to identify problems in analysis at their source.
Thanks to its control function, it prevents possible losses.
Provides support to decision makers in cost management and resource utilization.
The budget can be prepared with standard financial reports used in accounting, as well as detailed with special reports followed by business managers in management accounting. The most basic budget functions; sales budget, expense budget, asset and financing budget, cash budget and investment budget. Plans are made for each function in line with the main purpose, these reports are consolidated by the Budget Coordinator and submitted for the approval of the Management. If the Budget Coordinator and Management see a problem during the consolidation process, the budget is sent back to the relevant units for correction. Once the management approves the budget, business functions are subjected to execution according to the budget. In one of our businesses, the purchasing department had made the first item budget to be purchased within the next year. Since raw material purchases were made in advance, the cash budget was also directly affected. In the raw material purchase amount budget, which the purchasing unit made, bulk purchases were planned when the prices would be the lowest.
When the budget came before me, my first job was to create the cash flow budget. However, in the table that appears, purchases concentrated in the same month (the lowest price). The company's cash position and credit limits for the relevant month were not sufficient. For this reason, the budget was sent back to the procurement unit and the raw material purchase was requested to be extended to other months. However, he was warned that the target prices should not be changed (prices were the performance indicator of the purchasing unit). As can be seen in the end, a possible cash crisis that might occur during the year was seen early in the budget period and precautions were taken.
Ass. Prof. Orhan ÖZAYDIN
