Most companies choose to make a budget for the year and try to stick
to it very closely. A traditional budget is typically based on the
performance of the prior year. This is done by estimating revenues and
expense for the year. When a company knows that they have
something big coming up, they will add that to their budget so that it
does not show up unexpectedly and through the budget way out of
sorts. There are advantages to traditional budgeting such as increasing
savings, keeping expenses under control, and analyzing the trends of
the company’s spending trends. There are disadvantages to this as well
that include stressing out when the budget is cutting close, being
stricter on what you can and cannot spend on and fighting a good
budgeting pattern that works well for the company.
Some companies are using a 13-week cash flow instead of a traditional
budgeting plan (Rygelski, 2018). This allows a company to focus on
their spending instead of their budget specifically. It is also a much
shorter timeframe from a 12 month bases to a 2 month basis.
Companies are able to spend a lot of time analyzing their financials
instead of focusing on the budget, where they are according to the
budget, and if they will meet their budget for the year.
I do support a company’s use of traditional budgeting practices instead
of an alternative approach. I think that the article from Rygelski, 2018
made traditional budgeting sound like all the company focuses on is the
budget. However, the company that I work for uses a budget and it
seems to work for us. We always end up very close to our budget for the
year. Though there are weird things that pop for unexpectedly, that is
why we budget for expenses like this. These include payouts for
employees quitting or retiring as well as bonuses or referrals given to
employees. The budget allows the company to look closely at our
spending to make sure we are not wasting money on unnecessary items
when we could spend it in a different area that benefits the company
AND the customers as well. For example, our bank just went through a
new product that was easier and provided more options for customers
when they opened accounts. Yes, we are “losing money” because we
are waving more fees than before, however more customers are
opening accounts and putting their money into our bank which
ultimately benefits the bank and looks great from a budgeting
standpoint.
Datar, S. M., & Rajan, M. V. (2018). Horngren's cost accounting: A
managerial emphasis, global edition, 16/E 12. PEARSON EDUCATION
LIMITED.
Rygelski, M. (2018, January 5). Council post: Budgets don't work: Here's
how businesses can do it differently. Forbes. Retrieved May 22, 2022,
from
https://www.forbes.com/sites/forbesfinancecouncil/2018/01/05/b
udgets-dont-work-heres-how-businesses-can-do-it-
differently/?sh=c95e50c46b8a
