What are the benefits of preparing budgets? (P+L, CF, BS)

[mojomojo]

Yo,

So.. what're the benefits of preparing budgets in general .....and benefits that specifically relate to each of the 3 budget reports?

[eeps]

One reason is that budgets can be compared against the business' actual performance, which can then highlight problem areas and thus, the owner can take corrective action to fix it.

Another reason is that it will make the budgets for the next reporting period more accurate, in that it identifys problem areas etc...

A third reason, is that budgets highlight seasonal trends, which items of stock sell the best during certain times of the year. (i.e. ski gear during ski season.)

A reason for preparing cash budgets is that it predicts the budgeted bank balance at the end. This can assist with decision-making in regards to making additional loans or capital.

[davyp3]

One reason is that budgets can be compared against the business' actual performance, which can then highlight problem areas and thus, the owner can take corrective action to fix it.

Another reason is that it will make the budgets for the next reporting period more accurate, in that it identifys problem areas etc...

A third reason, is that budgets highlight seasonal trends, which items of stock sell the best during certain times of the year. (i.e. ski gear during ski season.)

A reason for preparing cash budgets is that it predicts the budgeted bank balance at the end. This can assist with decision-making in regards to making additional loans or capital.

Purchase of Non Current assets

[eeps]

Another reason is that budgets can motivate staff (by setting goals/targets) and also, aids planning by indicating future requirements of the business (i.e. the level of staffing - some may not be needed and thus, can be fired).

[eeps]

In relation to the Balance Sheet, budgets can predict future assets and liabilities, which promptly aids the owner in decision-making as the owner can plan for future replacement of NCAs, as the old ones wear out.