Budgeting is a basic and essential process in a business which allows businesses to gain many goals in one course of action. The budgeting process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses. There are several purposes to create and implement a budget include control and evaluation, planning, communication, and motivation.
Control and Evaluation
This is most important matter after finalized a budget is providing sufficient control and evaluating its performance.If performance does not meet the budget, action can be taken immediately to adjust activities. Budgeting allows a company to have a certain range of control over costs, such as reducing many types of unnecessary expenses or assigning responsibility for these expenses. A budget also gives a company a benchmark by which to evaluate business units, departments, and even individual managers. Unfortunately this purpose of budgeting may be effect on employees to have negative thinking about the budgeting process because their compensation and, in certain situation, even their jobs may be operating on meeting certain budgeting target.
Planning
Planning is initial purpose of budgeting. It is also design by decisions, and many questions must be answered. Besides that, budgeting allows a business to take stock of revenue and expenses from the previous period, and judge where the business will be in future periods. It also allows the organization to add and remove products and services from its plan for the future period.
Communication and Motivation
Other goals that an organization may use its budget to achieve that are less obvious include communication and motivation. It is important that make correlation according to the chain of command like from management level to supervisor level, this is only to gain mentally satisfaction of the staff. When an employee is involved in creating his or her department’s budget, that person will be more likely to strive to achieve that budget. Budgets also allow a company to motivate its employees by involving them in the budget.