Best Practice in Budget Control
A company’s budget is the most powerful and important tool that provides estimates about income and expense within a specified period. Budget control is a best practice that allows CEOs and Managers to use budgetary reports to coordinate business activities. It helps them make decisions about financial management.
The objective of budget control is to optimize financial resources for day-to-day processes. Managers have to reduce expenses and manage costs to sustain the market. Best practices in budget control are important in order to achieve successful risk management. Companies that manufacture at a large scale are subjected to more pressure. Monitoring expenses and cost becomes challenging and risky. Therefore, defining objectives of budget control is recommended.
Objectives of Budget Control
- Encourage Self Assessment: Various aspects of the company must be evaluated and used by executives to help improve the business.
- More Coordination: Budget control ensures coordination and involvement of the entire operating team. This leads to a united and cooperative approach to achieve objectives.
- Promote Planning: Budget control encourages executives to plan the course of action by key members of the company.
- Compliance with Policies: Through budget control, compliance with company policies and government acts can be achieved. CEOs and Managers will have to implement best practices to define the aims and responsibilities of employees.
- Increase Efficiency: Budget control will force increased efficiency and maximized performance by employees. With limited resources, there will be less waste of resources and more productivity. Although, this theory cannot be generalized for all kinds of businesses.
- Highlight Potential Improvements: Budget control helps highlight the company’s weaknesses. Making changes where operations can improve becomes possible by assessing budget control reports.
- Relate with Economic Conditions: Budget control best practices ensure that the company’s finances are managed effectively, keeping economic conditions in mind.
- Facilitate Implementation of Controls: There are controls in every enterprise. Budget controls facilitate compliance with these controls.
- Increases Accountability: Budget control ensures accountability by the treasury departments. This encourages proper documentation of all financial transactions (expenses and reconciliations).
- More Transparency: Budget control encourages CEOs and Managers to promote transparency in every process. Direct communication between executive officers and the employees is encouraged through this best practice.
Consequently, compliance with best practices in budget control facilitates coordination and proper management.