Question

In no less than 200 words, discuss:

Budget is usually for one year with quarterly revisions. For any any new business there is an assumption that there will be a shortage of cash. Why is a quarterly review suggested?

Answer 1

Budgeting is an essential component of business planning. This is so because budgeting helps in allocating capital to different business processes. Budgeting also helps in keeping the expenses of the company under check. The business units and projects must be managed within the allocated budget. The budget of a business process or project is decided by analyzing the scope and scale of the same and is based on assumptions based on its strategic implementation.

Usually companies conduct budgeting in the start of each financial year. However they conduct quarterly review of the same. This is so because reviewing helps in keeping the working capital of the company in check. Working capital basically is the net cash available to the company. This cash will be used to manage the expenses of the company in the upcoming quarters. Moreover the quarterly review of the budget helps in assessing the expenditures of the company in the past quarter and checking if the business is running under, over or on budget. If the business is running over budget, then the company management needs to come up with interventions so as to control costs of the company. This way, the expenses and cash outflow of the company can be tracked with the help of quarterly budget review.

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