Reference no: EM13362315

Benefits of Budgeting

Budgeting is a necessary tool that is primarily used by corporations and individuals as a source of problem solving to make wise investment decisions and to keep an eye on expenditures. Budgeting is relevant to how individuals and corporations make financial decisions and for the most part a budget improperly integrated could ultimately lead to a company's demise. A budget's primary use is to determine an organizations strategic positioning in the industry. An integrated budget will fix the current and future problems in order to enhance the company's cash flow (Dayanada, Irons, Harrison, Herbohn and, Rowland, 2010).

According to Gerry Roberts (1997) there are six main benefits of budgeting, however, I feel that only five benefits mentioned are relevant to your question, such as:

Planning- planning offers an organization an advantage to identify possible problems and to develop a course of action to alleviate those problems.

Organizing-consolidate departments and make all leaders and managers aware of any scarcity of resources.
Controlling-By investigating variances from established targets (ie differences between actual and budgeted) and taking corrective actions. Actual performance can be compared against budgeted amounts, giving managers an insight whether operations are up to expectations. If deficiencies arise, corrective actions can be implemented to bring the operation back on target. Specific areas can be pin-pointed and investigated (Roberts, 1997).

Coordinating-Collectively everyone who is operating under one system will know where the company is headed financially and will ensure that the company is on the right track.