Importance of Preparing Budgets and the Budgeting Process Essay

Importance of Preparing Budgets and the Budgeting Process - Essay deterrent exampleThe main advantage of budgeting and the budgeting process is that it provides a way of communicating managements plan for the futurity and the financial need for the future (Garrison and Noreen, 2002). The budget helps in setting the targets that all the departments have to achieve, and likewise acts as a standard for measuring the performance of the company. The budgeting process also forces the manager to think about the future, quite of focusing on daily emergencies and to make long-term plans (Garrison and Noreen, 2002). Without the necessity of preparing a budget, management would not be forced to consider long-term plans for profitability and growth. The budgeting process also helps management in allocating financial resources to the areas of the constitution that show the most potential for growth.From an analysis of operations, the budgeting process can also uncover potential drawbacks in the first place they occur (Garrison and Noreen, 2002). As already stated, the budgeting process analyzes all areas of operation of the company, and as such, helps in credit of potentially problematic areas. This helps the company to plan for contingencies and extra financial resources. The above analysis also highlights another enormousness of the budgeting process, where the budgets are used to establish the financial needs of the company (Garrison and Noreen, 2002). The master budget helps in the identification of expected cash inflows and outflows from operations, and from this, the company can determine the cash deficiencies and senselesses at the end of the financial period. This helps in determining whether the company will need to borrow funds or invest any excess returns.Finally, budgeting helps the organization to integrate all its functions and centralize the planning function (Garrison and Noreen, 2002). From the budget, all the functions of the different departments are identified, andsince it acts as a master plan, all the functions of the organization are directed at a common purpose. This also serves as a benchmark for all operations, where the performances of the different departments are measured against the standards set by the budget.