Budgets: An estimate of income and expenditure over a set period of time

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  • Created by: Sharmista
  • Created on: 16-01-13 17:25

Budgets

Advantages

  • Helps to control income and expenditure
  • Establish priorities and set targets in numerical terms
  • Provide direction and co-ordination, so that business objectives can be turned into practical reality
  • Monitor performance
  • Communicate targets from management to employees

Disadvantages

  • Inaccurate data or unreasonable assumptions can quickly make a budget unrealistic
  • Time consuming
  • Can lead to inflexibility in decision-making
  • Need to be changed as circumstances change
  • Managers can become too preoccupied with setting and reviewing budgets and forgetting to focus on the real issues of winning customers

Evaluation

Budgets are useful to an extent, as they help provide a way in which businesses can control their money, for example so that they do not overspend or go into debt. It is a way in which businesses can compare their actual spending with their predicted spending and rectify any cash flow issues, in order to try and remain as profitable as possible. 

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