Question

Assume you are a CFO of a small manufacturing company and the CEO wants your input on whether or not a budget is important enough to allocate employee time to. Write a two page memo to the CFO defining a budget and describe the benefits of a budget. Include in your memo a cost/benefit summary and your recommendation to the CFO on whether or not to prepare a budget and how much employee time should be spent doing so.

Answer 1

memo

To: Chief Executive Officer

From: Chief Financial Officer

Preparation of Budget and Its Influence

   A budget sets goals and objectives for profitability. The budgeting process can be done on a bottom-up basis,where each departments can develop its goals and objectives under the general guidelines of the owner or top management. A budget is a financial plan for a defined period ,often one year.It may also include planned sales valumes and revenues,resource quantities ,costs and expenses ,assets ,liabilities and cash flows.It may also include a budget surlus ,providing money for use at a future time,or a deficit in which expenses exceed income. Since budgeting allows you to create a spending plan for your money,it ensures that our company need and the things that are important. Following a budget or spending plan will also keep our company of debt if our company is currently in debt .In order to achieve the goals,the department can create its action plans and determines the necessary expenses. A budget should tell if there are any gaps in funding ,and exactly where the gaps are. It should show exactly what one need to do to close those gaps and make it possible to keep careful track of money,to adjust to changes and not to overspend.

It is important for organisations to create accurate and up-to-date annual budgets in order to maintain control over their finances and to show funders exactly how their money is being used. The preparation of budget is important in a company because:

* It sharpens the understanding of our company goals.

   * It gives the real picture by accurately showing what we can afford and where the gaps in funding are.budget allows us to    plan beforehand to meet needs,and to decide what we actually are able to do in the year.

   * It encourages effective ways of dealing with money issues by showing what we can't afford with known income.

   * It fills the need for required information of funding proposals and reports to funders and the community.

* It facilitates discussion of the financial realities of the organization.

   * It helps to avoid surprises and maintain fiscal control.

   In short devising a budget process that examines the organization's priorities and using it to produce an accurate,balanced budget for the coming fiscal year will help to keep control of the organization's finances, and will help guide the work of the organization. A rational and accurate budget will allow us to give accurate reports to funders and to spend their money as promised.And it will give you clear guidelines about what and when one can spend. The budget preparation encourages employees to become involved and contribute their inputs,. Employee performance reviews usually take place throughout the year based on the annual date of when the employee was hired.The budget is completed at the same time during the year,usually in the fall for the next year. the budgeting process adds to the workload of some employees,especially those in the accounting department. The budgeting process adds to the workload of some employees, especially those in the accounting department,this additional work could be resented by those employees. Additionally,if the budget is completed on a top-down basis ,where you decides what the expenditure levels will be on department level, the employees may feel they can't achieve the objectives because they had no say in determining those.