When we purchase something, we make the budget. In Budgets, there are two sides to income and expense. Many of us make a monthly budget to know the expenses and save from our income. It’s not foolish thinking; it’s a wise decision.
All corporations are preparing their budget to reach the expected profits. In addition, a budget helps purchase heavy machines and buy land for development. However, corporation officials quickly take the capital from the budget.
Many corporations are taking care of their advertising campaigns and future projects because of those campaigns they will earn millions or billions of revenue. But many times the planning of spending a large amount of capital on those campaigns will create a severe situation for the corporation.
As a result, the organizations should be aware of the competitor’s budgets. There are many options available to provide your products to the customer. But, it needs a proper budgeting plan.
When preparing the budget for the corporation, the most important question is generating revenue and utilisation for the corporation’s future projects. Then as a budget manager, you have to concentrate on the important project expenses because those projects will give you the best amount of capital in the form of revenue.
If you allocate the best amount of capital to advertising campaigns and projects then you can start it carefully because customer needs constantly change. Without a budget, your campaign could not run successfully and quickly.
Big corporations are investing huge amounts of capital in fixed and unfixed assets. In making a budget 60% of the amount will be spent on assets management, a new purchase, and maintenance. So, you have 40% of the budget, you can carefully spend it the right way. 0.001% of wrong decisions will impact the company with full destruction.
So, every organization starts to appoint a Manager of Budget Making who has expertise in assuming capital needs and expenses.
In this article, I put a case study related to the real problems of Budgeting while you prepare it.
The Opiam Ltd is a famous organization for providing Jewelry products to the world. It has $ 250 million in sources of capital. It has the liability of Equity Shares, Preference Shares, and Public Borrowings. In the Article Of Association, Company would be liable to pay the Dividend and Interest in two parts with the financial year.
The company’s Board of Directors decided to RETURN the preference share because they decided to purchase the machinery to save time and cost of production. The company doesn’t need a burden to pay the dividend part of the profit to shareholders. Then Company’s CEO, Mr. jor, decided to stop the Advertising campaign to save capital to spend.
Assume that You’re the Expert Budget Officer of opaim Ltd, and the Board Of Directors demands the right and accurate suggestions from you.
- Which is the internal factor affected in this case regarding Budgeting?
- What are your suggestions for making a proper budget? And Why?
- What Is The Gain and Spent Capital Plan In Budget?
The first question answers that opaim Ltd. is suffering from a lack of Coordination between the Board of directors and the CEO. They both are not aware of the trends of the market. The board of directors behaved rudely toward the CEO and executives, and employees. They believed in the centralized authorization. Directors try to handle all the organization’s problems one-handed, without any help from the CEO or employees, which is impossible.
opaim CEO thinks that the advertising campaigns are not generating sales so the extravagant amount of capital should be invested in other securities, so he tried to stop the campaign of newly launched engagement rings, wedding necklaces, or gold chains. He decided to do no more advertisements on selling platforms which cost $2.2 million.
The Board of directors and CEO are not in the mood to understand the customer needs. The budget manager will be interrupted in this discussion and tell them to solve it quickly because the budget is a very crucial part of the corporation. They both must have a proper plan for future new arrivals of gold or silver jewelry products.
The budget manager must ask the board of directors and ceo for future income generation and expenditure. In the industry, the customer does not stand only as a solo choice; he changes his mind in milliseconds so the budget will be more flexible, not fixed. A budget is the estimation of the particular year’s income and expenses of the company. It’s now the responsibility of the budget manager to create a frequency of income generation and expenses of the corporation at his discretion.
The first option is to Maintain the Reserves. In one financial year, if the corporation has earned much more profit than expected in budget, then the corporation should create reserves. Because reserves are your friend to save your brand’s goodwill to drawn in the market. When your investors are refused to give capital to your corporation, then what is the way to operate your organization? The answer is only reserves and surplus.
Because in small or giant corporations, many the Billions or Millions of dollars are required to reach a worldwide customer’s range.
In my survey of business operations, I reach the conclusion that 84% of businesses are not generating expected revenues due to a lack of timely accurate decisions. For example, here in the case of the CEO, Mr. jor thinks that the corporation will stop the advertising campaigns for newly launched products like an antique cut of diamonds, engagement rings, and wedding bracelets. It is not a good way to generate millions of revenues worldwide because it’s the wedding season in the US and INDIA. Now you can tell his thinking needs a change. Answer needed in the comment.
Then as a Budget Manager, you can tell him that for new products, advertising is necessary.
Suppose a corporation respects his decision and stops the advertising campaign then it will create a destructive result for the organization. When the buyer searches on google for the “engagement ring” then the advertisement will show up at the top of the search result. But, opaim ltd has just stopped the advertising campaign for newly launched diamond engagement rings.
Directors should invest some amount for purchasing diamond jewelry machinery, but they have to consider first for sales frequency. Because if the corporation purchases the machinery and invests in human resources but the sales don’t increase, the spent amount behind the machinery it’s wasted. That’s why the board of directors should wait for brand awareness to customers. Once the opaim jewelry is easily reached to customers, then they can purchase the diamond machinery.
If opaim jewelry needs a big amount of capital, then they don’t rush to bank loans or debentures because it’s very expensive because these financial sources demand regular interest. If a corporation fails to pay them an interest timely, then it will be harmful to the corporation’s goodwill.
So, the option is equity shares that demand not profit or dividends, but when corporations need support, they invest capital in the company. When a company wishes to give a dividend or bonus share, then it will be encouraged to them invest more and more capital in the company, but it needs time, and if the company has sufficient funds of balance, then the above option is best.
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