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Importance of Business Finance

Answer :

Introduction

Today, businesses are expanding at a greater speed to make proper allocation of resources with the help of different approaches and tools. In order to expand the business entity, proper sources are required that will help in proper estimation of the income and expenses. Budgeting is the planning tool which helps to maintain proper balance between short term and long term expenses that are incurred while carrying out several operations. It is an important component for the financial success of business as it makes easier for people to make decisions to allocate the resources. The present report will discuss about the purpose of budget and its relevancy in the context of contemporary and dynamic environment in which the business operates. Further, this report properly discusses about the alternative budgetary system which is useful in the present environment to carry out the respective functions of business.

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TASK

Study of the purpose of budget and relevancy of traditional budgetary system in context of contemporary and dynamic environment in which the business operates Purpose of budget in context of planning and control

In order to make proper balance between functioning of various operations of business, it is necessary to maintain the proper balance and to manage the resources which are essential to carry out the business (Meltzer and Moon, 2005). There are different purposes which help business to predict the outcomes in order to implement the change in future. The planning and control is determined over the accuracy of information which is obtained to coordinate the different activities related to resource allocation, production and expenditure. The main purpose of budget is discussed as below:

Forecasting income and expenditure: Budgeting is an effective tool which helps to forecast the income and expenditure that is incurred while carrying out the various business operations. This helps the business entities to make prediction so that they would be able to make profit by performing the activities and various operations. This tool helps to forecast the strategies and plan to execute the operations in order to attain profitability.

Wealth building: It is an elementary aspect that helps to manage the different operations. This will determine an effective allocation of assets and resources for business in an appropriate manner. It is necessary to plan the operations in a proper manner so that investment would be made appropriately. This helps to determine the return and risk associated with the business and to save the portion of income for wealth building.

Tools for the decision-making: It is the tool which helps to take decision regarding income and expenses that are related to the business (Kelly and Rivenbark, 2014). It helps to design proper financial framework in order to carry out decision making process to plan and control business activities to attain profit. This tools help in effective management of different aspects that ensure proper control over the expenses related to business operations.

Monitoring the performance of the business: Main purpose is to monitor the performance of business that can be measured with the help of evaluating actual outcomes. This will enable the business to meet expectations and to identify the variance in expenditure that is incurred over the business operations. This determines the successful functioning of business as per the set performance standards.

Managing the stress: The budgeting tool helps to manage the stress which is associated with the income and expenditure over the business in order to attain maximum profits. This tool helps to effectively allocate different resources that are to be maintained in order to control the respective operations of business (Hagel, 2014). Besides this, it also helps to effectively plan the operations in an appropriate manner so that the focus is laid upon the operations to meet the business objectives.

Traditional budgetary system

This system indicates different aspects which are related to the amount of money that is allotted during specific time period in order to carry out the various operations (Gallani, Krishnan, Marinichand Shields, 2015). It is designed with the specification that is required to perform the task and activities in an effective manner. The system starts with the allocation of income which is incurred by performing the activities that are assigned to generate profit. It requires proper analysis of traditional methods that are adopted in order to allocate the resources to carry out the different operations. There are various assumptions which are related to the overall functioning of business to meet the objectives of

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