Financial Control ToolBudgeting is a primary financial control tool used by businesses to manage their operations. Budget is an approximate of revenues, resources and costs over a specified period, giving a reflection reading of future financial conditions and goals (Plunkett, Allen & Attner, 2013). Running businesses requires managers to plan carefully and review their finances. Many companies create budget on an annual basis so that they can carefully outline the expected needs of each department (Chenhall, 2003). Creating a budget on a yearly basis also helps to limit the time organizations spend in creating and managing capital resources.

Managers use the budget to make a decision on the most effective strategy to put in place so that they can limit expenditures in an organization (Chenhall, 2003). A budget helps managers to decide on ways of limiting the amount of money spent on certain operations. It count on the expenses account to make sure that the company does not spend money on unessential items or overpay for economic resources used in the business (Plunkett, Allen & Attner, 2013). Managers find new suppliers for acquiring cheaper inputs in order to limit the business expenditures.

The budget also helps managers to create a financial roadmap for their business operations. They review the previous year budget to determine how effectively, they followed the guidelines and why the variances occurred (Chenhall, 2003). This review helps managers to plan for the next financial year efficiently while taking care of the unexpected deviations such as an increase in sales revenues. The budget also equips managers with knowledge on the how to plan for future growth and expansion of their organizations. Budgeting for later growth opportunities ensures that companies have capital at hand when there is need to make quick decisions for expanding business operations (Plunkett, Allen & Attner, 2013).

References

Plunkett, W. R., Allen, G. S., & Attner, R.F (2013). Management: Meeting and exceeding customer expectations (10th ed.). Mason, OH: South-Western Cengage Learning.

Chenhall, R. H. (2003). Management control systems design within its organizational context: findings from contingency-based research and directions for the future. Accounting, organizations and society, 28(2), 127-168.