Describe at least five benefits of budgeting.

Week 3 Discussion 1 Describe at least five benefits of budgeting-Sample Solution

Benefits of Budgeting

Budgeting entails the creation of plans or estimates of expected financial expenses an individual or company is likely to incur over a fixed duration (Eldenburg et al., 2020). The process is vital to individuals and businesses since it enables them to control spending rates. A well-developed budget contains strategic plans guiding the execution of the organization’s activities, including checking and making financial decisions based on the organization’s capacity. Another benefit of budgeting is constructive, allowing organizations to utilize their resources effectively. Strict adherence to its guidelines eliminates surplus product production, leading to wastage or spending finances beyond capacity. Additionally, Eldenburg et al. (2020) observe that companies can use budgets to develop and evaluate their policies and goals. They use budgets to evaluate their progress in achieving their objectives. This can inform future decisions, such as whether to inject more funding if the current budget is not satisfying its objectives.(Budgeting Benefits Sample Essay)

Moreover, Eldenburg et al. (2020) explain that budgeting eliminates the potential of overspending, which may drive the company into bankruptcy. Strict adherence to the budget helps eliminate unnecessary expenses, which may force the business to borrow funds to meet its objectives. Furthermore, budgeting is the most appropriate method of dealing with emergencies. Well-developed budgets include allocations of funds for emergencies, such as legal suits against an organization. The funds can still be incorporated into the next budgeting period if unused. Also, it increases the potential for saving money (Eldenburg et al., 2020). Organizations or individuals who strictly adhere to their budgets tend to save more and pursue extensive investments since they don’t incur unnecessary expenses which eat into their profits or income. Lastly, organizations can use budgeting to achieve and maintain a competitive advantage in the market. It enables them to estimate and compare their activities with those of competitors and make necessary adjustments to increase their market position and profitability.(Budgeting Benefits Sample Essay)

Reference

Eldenburg, L., Brooks, A., Oliver, J., Vesty, G., Dormer, R., Murthy, V., & Pawsey, N. (2020). Management Accounting. (4th ed., pp. 141-181). Milton, QLD: John Wiley & Sons Australia, Ltd. ISBN: 9780471205494