Essay
Unit 2 M4 - Analyse the reasons why costs need to be controlled to a budget
- Module
- Unit 2 - Business Resources
- Institution
- Pearson (PEARSON)
M4 – Analyse the reasons why costs need to be controlled to a budget
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Content preview
Unit 2 Business ResourcesMerit Criteria 4
M4 – Analyse the reasons why costs need to be controlled to a budget
A budget is used by a business to lay out all the costs, revenues and resources a business
will need to be successful.
Problems that arise when costs are not controlled to a budget
Without a budget it can become difficult to make decisions regarding money as there is so
much unknown. For example a business may want to know whether they have enough
money to hire a new checkout assistant, whoever is in charge of finance could quickly refer
to the budget and see if they have enough money available to hire this new staff member,
without having a budget that is correct, which can be due to poor management, they will
not know whether they could hire the new staff member, this would result in them either:
Ending up with a new staff member and not have enough money for them which
would make them lose profit
Not hiring the new staff member resulting in the checkouts not being efficient and
could cause their customers to turn elsewhere for their shopping, again losing the
business profit
A budget can help a lot if something changes in a business such as a key client going
elsewhere. If that client leaves and the businesses budget isn’t managed properly the
business could end up spending too much money on resources that they longer need, if they
did have a well-managed budget they could look at the decrease in income and equate that
with expenditure and figure out how much they need to reduce the outgoings of the
business until they get to the point where the clients they have are of the same value they
were previously.
With a regulated budget a business can easily look at what’s coming in to the business and
what’s going out of the business and the relationship between the two. For example if a
business has an issue with paying off debt they could look at their budget and see what
money they are spending that isn’t vital to the wellbeing of the company (Christmas party
budget) and take some money from that to pay off the debt, the business may make more
money later that year than they expect and put that money into the Christmas party budget
which they had previously taken away from or invest it to make more of a profit to put back
into different budgets.
A controlled budget helps a business to achieve its long term goals, this is simply because a
budget will help the business to make more money than it previously could have done due
to the reasons I have explained above. A business can use the budget to set out exactly
what they want to do over the (predetermined) period of time whilst staying realistic as
they have to make sure that they can afford everything they want to do and ensure they
make a profit from these set of goals. It is as simple as if a business doesn’t have an
appropriate budget then they are not going to know whether they have money to spend or
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