Tag: Financial

  • What are the different types of Financial Accounting?

    What are the different types of Financial Accounting?

    The different types of Financial Accounting; Financial accounting classifies under the head of accounting functions that specifically maintain the financial transactions of companies; Accounting essay; Financial accounting explains the different types with their objectives or intentions or motives. The guidelines under accounting use to summarize and classify all transactions; It also involves preparing the financial statements of a company which gives an overview of the economic stability of a company to its investors.

    This article can explain the Financial accounting different types with their objectives or intentions or motives.

    This pertains to the recording of all business transactions in the books of prime entry, posting them into respective ledger accounts, balancing them, and preparing a trial balance, from and out of which a profit and loss account showing the results of the business and also a balance sheet depicting assets and liabilities of the business concern is prepared. This in turn forms the basis for analysis and interpretation for furnishing meaningful data to the management.

    The Accounting essays in types of accounting are part, both methods rely on the same conceptual framework of double-entry accounting for recording and reporting analysis data at the end of a certain period; Two types or methods of financial accounting are cash and accrual or remedial account; Although they differ, both methods rely on the same conceptual framework as double-entry accounting for recording, analyzing, and reporting at the end of a given period of time; Such as a month, quarter or financial year.

    The information generated by accounting is used by various interested groups such as individuals, managers, investors, creditors, government, regulatory agencies, taxation authorities, employees, trade unions, consumers, and the general public. Depending on the purpose and method, accounting can be broad of three types; 1] financial accounting, 2] cost accounting, and 3] management accounting. Financial accounting is mainly concerned with the preparation of financial statements. It is used on some well-defined concepts and conventions and helps formulate comprehensive financial policies.

    Cash Account:

    If you are the owner of a business, by adopting cash accounting you can only focus on corporate transactions involving cash. Other economic events with no monetary input do not matter because they do not make it to the financial statements. The business prefers to go for the cash accounting method only to focus on cash transactions that involve cash. Any other transaction that does not include any monetary value does not go into the financial statements.

    Under this method, all-cash credit cash entries are based on the number of related loans and transactions carried out. Under the cash accounting method, a corporate bookkeeper always debits or credits the cash account in each journal entry on a transaction basis. For example, to record customer remittances, the bookkeeper debits the cash account and credits the sales revenue account. Do not mistake cash debit accounting for banking debit. The former means an increase in the company’s money, while the latter reduces the money in the customer’s account.

    Accrual Account:

    The records of the company maintain the transaction under all modes irrespective of any monetary value. It also involves making entries about cash which is beyond other transactions that do not include monetary transactions. The method acquired in financial accounting is depositing an item and recording it legally when a cash transaction occurs. Under the contingency method of accounting, a company records all transaction data regardless of monetary inflows or outflows.

    In other words, this accounting type incorporates the cash accounting method but takes into account all transactions that carry out the operating activities of the corporation. In a financial dictionary, “earned” means an item to store and record as legally binding, even if there is no cash payment.

    The phrases “accounts payable” and “accounts receivable” perfectly illustrate the concept of pronunciation. The accounting, also known as the payable seller, represents the amount of money that the seller of a business paid at a given point in time. The entity accrues the debtors until it settles the underlying debts. The same analysis applies to customers. Receivables are another name for accounts receivable that represent the money customers pay to a business.

    The different types of Financial Accounting objectives or intentions or motives Image
    What are the different types of Financial Accounting? Image from Pixabay.

    Objectives or intentions or motives of financial accounting:

    What are the intentions or motives of financial accounting? Knowing the goals of financial accounting can have the effect of being an accountant and truly understanding what your business is doing. Accounting Objectives; Accounting norms can appear to be unfamiliar and discretionary; however, by learning the calculated structure you will have a reasonable foundation to comprehend the hypothesis of accounting rules without falling back on repetition retention. The goal of financial accounting is to give data to the end-client; however, the calculated system, or Statements of Financial Accounting Concepts (SFAC), mentions to us what characteristics that data must-have.

    Significance:

    For data to be valuable to end-clients, it must be important. That implies that it must assistance a financial assertion peruser to settle on choices about the financial prosperity of the organization. For financial specialists, this verifiable think back serves to help settle on venture choices. To be important, data should likewise be current. Organizations report financial outcomes on a quarterly or yearly premise to fulfill this target. End-clients need the latest data conceivable to settle on the best choices.

    Unwavering quality:

    Accounting data must be solid. If an organization doesn’t create dependable financial proclamations, at that point speculators can’t pick up the data they have to decide. Dependable data can check, is liberated from predisposition, and isn’t deceiving. To assist organizations with meeting this goal, public bookkeepers will freely confirm accounting medicines and exchanges and issue conclusions dependent on these reviews. This makes end-clients more all right with their dependence on financial data.

    It is both Reliability and Relevance; A significant target is to get ready for such financial proclamations that are dependable, and choices can found on it. For this reason, such Accounting should speak to a dependable portrayal of exchanges and occasions embraced by the business, ought to speak to in their genuine substance and monetary reality point of view.

    Straightforward:

    Among all the goals examined above, it is the essential target that Financial Accounts are set up so that they are effectively justifiable by proposed clients. Nonetheless, while meeting this goal as a primary concern; it must be similarly fundamental to guarantee that no material data discard because it will be mind-boggling and unwieldy to comprehend for different clients. To put it plainly, endeavors must make to plan Financial Accounts simply to know at every possible opportunity.

    Similarity:

    An auxiliary nature of financial data is that it must be equivalent. This is the reason we have a setup arrangement for recording and detailing accounting data. Financial specialists regularly are given decisions on where and when to contribute. By having tantamount information, these speculators can make relative decisions about their venture openings. Nonetheless, similarity, being an auxiliary quality, must take on a supporting role to pertinence and dependability.

    Consistency:

    Consistency is another auxiliary nature of financial data. Since end clients are frequently given financial data that traverses different timeframes; these clients should have the option to look at data across financial periods. As guidelines change, and as organizations change, it won’t generally be conceivable to have totally steady data. Be that as it may, when accounting data isn’t steady, norms require the revelation of the irregularity. This is a case of the essential nature of dependability taking a front seat to the optional nature of consistency.

    Meeting the Objective of Various Stakeholders:

    Another fundamental target is addressing the requirements of different partners, which are related to the business. Various partners have various purposes, for example; loan specialists to the business mean to evaluate the ability of the business to pay interest and head; which loan to the business or planned moneylenders; so they are more intrigued by the dissolvability of the business and spotlight on that perspective. Additionally, clients are keen on knowing the development and steadiness of the business and spotlight more on income explanations; and, financial articulations to decide the capacity of the business to give better business terms and a reliable gracefully of products and enterprises.

  • What are the Financial Problems of Merger and Consolidation?

    What are the Financial Problems of Merger and Consolidation?

    Financial Problems of Merger and Consolidation: Entrepreneurial Marketing in a merger is when two or more corporations come together but only one of the corporation or policy or contract stays exists afterward. For example, if company X and Company Y merge to and only company X or Y exists afterward. While In consolidation, when two or more corporations come together to form a completely new corporation or policy or contract.

    Here the expiration of Financial Problems of Merger and Consolidation.

    After merging and consolidation, companies face several financial problems. The liquidity of the companies has to establish afresh. The merging and consolidating companies pursue their financial reports or policies when they are working independently. Some adjustments are required to make in financial planning and policies so that consolidated efforts may enable to improve short term and long term finances of the companies.

    Merger and Consolidation both are different from each other but some Financial Problems of Merger and Consolidation, the companies are following discussed below;

    Cash management:

    The Liquidity Problem is the usual problem faced by acquiring companies. Before merger and consolidation, the companies had their method of payments, cash behavior pattern, and arrangements with financial institutions. The cash pattern will have to adjust according to the present needs of the business.

    Credit policy:

    The credit policies of the companies are unified so that the same terms and conditions may be applied to the customers. If the market areas of the companies are different, then the same old policies may be followed. The problem will arise only when operating areas of the companies are the same and the same credit policy will have to pursue.

    Financial planning:

    The companies may be following different financial plans before merger and consolidation. After merger and consolidation, unified financial planning follows. The divergent financial control will unify to suit the needs of acquiring concerns. The methods of budgeting and financial controls may also be different.

    Dividend policy:

    The companies may be following different policies for paying dividends. The stockholders will be expecting higher rates of the dividend after merger and consolidation on the belief that financial position; and, earning capacity have increased after combining the resources of the companies. This is a ticklish problem and management will have to devise an acceptable pay-out policy. In the earlier stages of merger and consolidation, it may be difficult to maintain even the old rates of dividends.

    Depreciation policy:

    The companies follow different depreciation policies. The method of depreciation, the rate of depreciation, and the amount to take to revenue accounts will be different. After merging and consolidation, the first thing to decide will be different. After merger and consolidation, the first thing to decide will be about the depreciable and non-depreciable assets. The second will be about the rate of depreciation. Different assets will be in different stages of use and appropriate amounts of depreciation should decide.

    Here is the Mobile App for maintaining your Financial Problems.

    What they are? It calls Khata Book, you may download it on Google Play Store or iOS store. Khata Book (Ledger Account Book) – Replace your traditional debit account book (Udhar Bahi Khata) by a new digital ledger cash book. It is 100% Free, Safe, and Secure for all types of businesses to maintain their customer’s accounts. It is Tally for mobile. Shop owners can use the app to record credit (Jama) and debit (Udhaar) transactions for their trusted customers.

    Financial Problems of Merger and Consolidation Image
    What are the Financial Problems of Merger and Consolidation? Image from Pixabay.

    Differences between Statutory Merger and Consolidation:

    The following differences below are;

    1. In a statutory merger, one of the two parties retains its entity and another party merges into the other by losing its entity. While statutory consolidation, when two parties come together, both of their legal entities cease to exist, and a new identity creates.
    2. In a merger, a union whereby one or more existing corporations and absorbed by another corporation that survives and continues the combined business. While consolidation, a union of two or more existing corporations to form a new corporation called the consolidated corporation
    3. In a merger, the assets and liabilities of the merging company (one that loses its identity after the merger) become the property of the acquiring company (one that retains its identity intact even after the merger). While consolidation, the assets, and liabilities of both of the companies become the assets and liabilities of the larger company that forms after consolidation.
    4. In a merger, all constituent corporations, except the surviving corporation, dissolve. While consolidation, all constituent corporations dissolve and absorb by the new consolidated enterprise.
    5. In both mergers and consolidation, the federal and state government can stop the process of merger or consolidation by using anti-trust laws; if they find that by merger or consolidation; a company (new or old) gets an unfair advantage over others or can affect the market by becoming a monopoly.
  • Explanation of Statement of Cash Flows with Objectives

    Explanation of Statement of Cash Flows with Objectives

    What does the Statement of Cash Flows mean? In accounting, a statement of cash flows, also known as the cash flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Explanation of Statement of Cash Flows with Objectives. The statement of cash flows is one of three very important financial reports. That managers and investors look at when analyzing a company’s past or present financial status.

    Know and Understand the Concept of the Statement of Cash Flows.

    The balance sheet and the income statement are the other two reports. All of these reports are very important in running a successful business. But the statement of cash flows is the most important. It is like the blood of a company since it would not survive successfully without it. Cash on hand can be much more important. Than income, profits, assets, and liabilities put together, especially in the early stages of any company.

    Introduction:

    The statement of cash flows tells us how much cash we have on hand after all costs are met. It shows how much cash we started with and how much we pay out. There are two parts to the statement of cash flows which are the top and bottom halves. The top half deals with the inflow and outflow of the company’s cash.

    The bottom half of the statement reports where the funds end up. Just like the balance sheet, the top and bottom halves of a cash flow statement match. Knowing just how important it is to have cash on hand to pay the bills we want to make sure and review cash flow statement regularly.

    Cash flow is a little more honest than an income statement because the cash flow statement shows money coming in only when we deposit it and money going out only when we physically write out a check. Because the statement of cash flows reflects the actual receipt of cash, no matter where it comes from, the entries are a bit different from the revenue shown in a company’s income statement.

    These funds are usually made up of gross receipts on sales, dividend and interest income, and invested capital. Gross receipts on sales represent the total money that we take in on sales during the period. Gross receipts are based on our gross revenue, of course, but they also take into account when you receive payment. Dividend and interest income is the income that we receive from savings accounts and other securities.

    Meaning:

    The statement of cash flows is one of the financial statements issued by business and describes the cash flows into and out of the organization. Its particular focus is on the types of activities that create and use cash, which are operations, investments, and financing. Though the statement of cash flows is generally considered less critical than the income statement and balance sheet, it can use to discern trends in business performance that are not readily apparent in the rest of the financial statements.

    This is one of those amounts that are also reporting on the income statement and should be the same as long as we receive the money during the period covered by the cash flow statement. Invested capital is part of the owner’s equity in the balance sheet. Although it does not represent revenue from our business operations and would not be part of the income statement, it can be a source of cash for our company.

    Extra Knowledge:

    The statement of cash flows keeps track of the costs and expenses that incur for anything and everything. Some of the expenses appear in the income statement and some don’t because they don’t directly relate to our costs of doing business. These funds consist of the cost of goods produced, sales, administration, interest expense, taxes, etc. The cost of goods produced is exactly that, the cost incurred to produce our product or service during the period. Sales expenses are the same expenses that appear in an income statement except that paying off bills or postponing payments may change the amounts. On to the bottom half of the statement of cash flows which shows where the money is ending up.

    When the company’s cash reserves raise the money flows into one or more of asset accounts. The bottom half of the cash flow statement keeps track of what is happening to those accounts. This part of the statement consists of changes in liquid assets and net change in cash position. With cash flowing in and out of the company, liquid assets are going to change during the period covered by the cash flow statement. The items listed in this portion of the cash flow statement are the same ones that appear in the balance sheet. Raising the level of our liquid asset accounts has the effect of strengthening the cash position.

    Explanation of Statement of Cash Flows with Objectives
    Explanation of Statement of Cash Flows with Objectives, #Pixabay.

    Cash flow analysis:

    To properly construct a cash flow analysis, we have to look at three very important activities which are operating, investing and financing.

    • Operating activities are the cash components that are generating from the sales of the companies goods or products affecting the core business operation. These include the purchase of raw materials, production costs, advertising cost and even the delivery to customers.
    • Investing activities are straight forward items that report adjustments in the balances of fixed asset accounts like equipment, buildings, land, and vehicles. Investing activities include making and collecting loans and acquiring and disposing of investments and property, plant and equipment.
    • Financing activities are cash adjustments to fixed liabilities and owners’ equity. Cash increases when the company takes up a loan or raised capital when dividends are paid out, cash decreases accordingly. Financing activities involve liabilities and owner’s equity items. They include obtaining resources from owners and providing them with a return on their investments and borrowing money from creditors to repay the amounts borrowed.

    #Objectives of the statement of cash flows:

    There are a few main objectives of the statement of cash flows one of which is to help assess the timing, amounts and the uncertainty of future cash flows. This is one of the quarterly financial reports that publicly traded companies are required to release to the public. Because public companies tend to use accrual accounting. The income statements they release each quarter may not necessarily reflect changes in their cash positions.

    The statement of cash flows is very important to businesses. Because it helps investors see where the company can benefit from better cash management. There are many profitable companies today that still fail at adequately managing their cash flow. So it is important to be able to see where the weaknesses are to correct them.

    Conclusion of Objectives:

    In conclusion, the objectives are to explain why the statement of cash flows is very important for companies and people. That want to invest in a certain company. It shows how well a company manages its cash in-comings and outgoings as well as showing how profitable a company might be or become.

    It is a very clear document to understand so that we don’t fall victim to making a profit while still going broke. It’s also helpful for the companies finance department. So that they can see where the company stands to get more potential investors. It’s a great resource to look at to recap a company’s financial standing that most people can understand.

    What does Financial Statements mean?

    A firm communicates to the users through financial statements and reports. The financial statements contain summarized information of the firm’s financial affairs, organized systematically. Preparation of the financial statements is the responsibility of top management. They should prepare very carefully and contain as much information as possible.

    Two basis financial statements prepared for external reporting to owners, investors, and creditors are:

    Balance sheet:

    The balance sheet contains information about the resources and obligations of a business entity and about. Its owner’s interests in the business at a particular point of time. In accounting’s terminology, balance sheet communicates. Information about assets, liabilities and owner’s equity for a business firm as on a specific date. It provides a snapshot of the financial position of the firm at the close of the firm’s accounting period.

    Profit and loss account:

    The profit and loss account presents the summary of revenues, expenses and net income (or net loss) of a firm for some time. Net income is the amount by which the revenues earned during a period exceed the expenses incurred during that period.

    More information requires planning and controlling and therefore the financial accounting information is presenting in different statements and reports in such a way as to serve the internal needs of management. Financial statements are preparing from the accounting records maintaining by the firm.

    The various objectives of financial statements are:

    • To provide reliable financial information about economic resources and obligations of a business enterprise.
    • To provide reliable information about changes in the resources of an enterprise that result from the profit-directed activities.
    • Also, financial information that assists in estimating the earning potential of the enterprise.
    • To provide other needed information about changes in economic resources and obligations.
    • To disclose, to the extent possible, other information related to the financial statement that is relevant to statement users.
  • Financial Control: Meaning Definition Objectives Importance

    Financial Control: Meaning Definition Objectives Importance

    What does mean Financial Control? Finance Control has now become an essential part of any company’s finances. It refers to the systems implemented in place to trace the directed resources of an organization with timely monitoring and measurement. So, what is the topic we are going to discuss; Financial Control – Meaning, Definition, Objectives, Importance, and Steps. Hence, it is very important to understand the meaning of financial control, its objectives and benefits, and the steps that must be taken if it is to implement correctly.

    The Concept of Financial Control explains – their Meaning, Definition, Objectives, Importance, and finally Steps.

    Exercising financial control is one of the important functions of a finance manager. Also, It aims at planning, evaluation, and coordination of financial activities to achieve the objective of the firm.

    Meaning and Definition of Financial Control:

    Control of financial activities carried out in an organization to achieve the desired objectives. They also provide a set of rules and regulations about the financial management systems followed in an organization.

    All organizations have financial controls to ensure effective financial management. Also, Most organizations have financial controls to ensure that everyone is aware of procedures to follow and to ensure that there is a better understanding of each one’s responsibility.

    The concept of Financial Control: It is concerned with the policies and procedures framed by an organization for manag­ing, documenting, evaluating and reporting financial transactions of an organization. In other words, they indicate those tools and techniques adopted by a concern to control its various finan­cial matters.

    Objectives of Financial Control:

    The main objectives of financial control discuss below:

    1] Economic Use of Resources:

    As well as, They aim to evaluate and coordinate financial activities. This helps prevent leakage of funds and thus desired returns on investments can realize.

    2] Preparation of Budget:

    They help the management prepare the budget for a particu­lar department. Also, Budgets provide a basis to compare actual performance with standard performance.

    3] Maintenance of Adequate Capital:

    It shows the way to maintain adequate capital, i.e. proper implementation of financial control verifies the adequacy of capital, and hence the evils of over-capitalization or under-capitalization can avoid.

    4] Maximization of Profit:

    As well as they compel the management to procure funds from cheaper sources and to apply the said funds efficiently to lead to profit maximization.

    5] Survival of Business:

    A good financial control system ensures proper utilization of resources, which creates a sound and strong base for an organization’s existence.

    6] Reduction in Cost of Capital:

    They aim at raising capital from cheaper sources by maintaining a proper debt-equity mix. So, the overall cost of capital remains at its lowest.

    7] Fair Dividend Payment:

    Their system aims to distribute a fair and adequate dividend to the investors thereby creating satisfaction among the shareholders.

    8] Strengthening Liquidity:

    One of the important objectives of financial control is to maintain the liquidity of the firm by exercising proper control over different components of the working capital.

    9] Checking that everything is running on the Right Lines:

    Sometimes, it just checks that everything is running well and that the levels set and objectives proposed at the financial level regarding sales, earnings, surpluses, etc., are being met without any significant alterations.

    The company thus becomes more secure and confident, its operating standards and decision-making processes being stronger.

    10] Detecting Errors or Areas for Improvement:

    An irregularity in the company finances may jeopardize the achievement of an organization’s general goals, causing it to lose ground to its competitors and in some cases compromising its very survival.

    Therefore, it is important to detect irregularities quickly. Various areas and circuits may also identify which while not afflicted by serious flaws or anomalies could improve for the general good of the company.

    11] Increase in Goodwill:

    A sound financial control system increases the productivity and efficiency of a firm. This helps in increasing the prosperity of the firm in the short run and its goodwill in the long run.

    12] Increasing Confidence of Suppliers of Funds:

    The proper, they prepare the ground to cre­ate a sound financial base of a firm and thereby increases the confidence of investors and suppliers.

    Financial Control Meaning Definition Objectives Importance and Steps
    Financial Control: Meaning, Definition, Objectives, Importance, and Steps. Image credit from #Pixabay.

    Importance of Financial Control:

    Finance is important for any organization and financial management is the science that deals with man­aging of finance; however the objectives of financial management cannot achieve without the proper controlling of finance.

    The importance of financial control discuss below:

    1] Financial Discipline:

    They ensure adequate financial discipline in an organization by efficient use of resources and by keeping adequate supervision on the inflow and outflow of resources.

    2] Coordination of Activities:

    As well as they seek to achieve the objectives of an organization by coordinating the activities of different departments of an organization.

    3] Ensuring Fair Return:

    Proper financial control increases the earnings of the company, which ulti­mately increases the earnings per share.

    4] Reduction in Wastages:

    Adequate financial control ensures optimal utilization of resources leav­ing no room for wastages.

    5] Creditworthiness:

    As well as they help maintain a proper balance between the debt collection period and the creditors’ payment period; thereby ensuring proper liquidity exists in a firm that increases the creditworthiness of the firm.

    The Steps of Financial Control:

    According to Henry Fayol,

    “In an undertaking, control consists in verifying whether everything occurs in conformity with the plan adopted, the instructions issued and principles established”.

    Thus, as per the definition of Fayol’s, the steps of financial control are:

    1] Setting the Standard:

    The first step in financial control is to set up the standard for every financial transaction of the concern. Standards should be set in respect of cost, revenue, and capital. Also, Standard costs should determine in respect of goods and services produced by the concern taking into account every aspect of costs.

    Revenue standard should fix taking into account the selling price of a similar product of the competitor, sales target of the year, etc. While determining capital structure, the various aspects like production level, returns on investment, cost of capital, etc., should take into account so that over-capitalization or under-capitalization can avoid.

    However, while setting up the standard, the basic objective of a firm, i.e. wealth-maximization, should take into account.

    2] Measurement of Actual Performance:

    As well as the next step in financial control is to measure the actual per­formance. For keeping records of actual performance financial statements should systematically prepare periodi­cally.

    3] Comparing Actual Performance with Standard:

    In the third step, actual performances compare with the pre-determined standard performance. The comparison should finish regularly.

    4] Finding Out Reasons for Deviations:

    If there are any deviations in the actual performance with the standard performance, the amount of variation or deviations should also ascertain along with the causes of the deviations. This should report to the appropriate authority for necessary action.

    5] Taking Remedial Measures:

    The last and final step in financial control is to take appropriate steps so that the gaps between actual performance and standard performance can bridge in the future, i.e. so that there is no deviation between actual and standard performance in the future. Read and share, Their Meaning, Definition, Objectives, Importance, and Steps in Hindi.

  • What is a Fixed Budget in Financial Management?

    What is a Fixed Budget in Financial Management?

    A fixed budget can be usefully employed when budgeted output is close enough to the actual output. A budget can define as a management tool that puts the managers in control of the financial health of the organization. How the manager manages the budget is key to their value. Budget facilities the planning and resource allocation and help to estimate, itemized, analysis, and examined the entire product and service that the organization offers to the customer. It is also important to note that budget levels should be determined based on what is likely to happen in the future rather than based on what has happened in the past. So, what is the question we discuss; What is a Fixed Budget in Financial Management? with Meaning and Definition.

    Here are explain the Concept of Financial Management topic of Fixed Budget with Meaning and Definition.

    The Chartered Institute of Management Accountants (UK), defines a fixed budget as the budget which design to remain unchanged irrespective of the level of activity actually attained. It is based on a single level of activity. A fixed budget performance report compares data from actual op­erations with the single level of activity reflected in the budget. It is based on the assumption that the company will work at some specified level of activity and that a stated production will be achieved. It suggests that the budget not adjusts when the production level changes.

    Introduction:

    The objective of the budget is to measure the financial structure of the organization and budget is a tool that forces management to be accountable in a structured and objective way. However, in practice, fixed budgeting is rarely used. The main reason is that actual output is often significantly different from the budgeted output. In such a case the budget cannot use for cost control. The performance report may be misleading and will not contain very useful information. For example, if actual production is 12,000 units in place of the budgeted 10,000 units, the costs incurred cannot compare with the budget which relates to different levels of activity.

    Since, in fixed budgeting, units overlook, a cost to cost comparison without considering the units may give misleading results. The performance report prepared under fixed budgeting merely discloses whether actual costs were higher or lower than budgeted costs. The fact that costs and expenses are affected by fluctuations in volume limits the use of the fixed budget. If budgeted costs compare with the actual costs at the end of the year, it will be difficult to infer how successful a business firm has been in keeping expenses within the allowed limits.

    Definition of Fixed Budget:

    A fixed budget, also called a static budget, is a financial plan based on the assumption of selling specific amounts of goods during a period. In other words, fixed budgets are based on a set volume of sales or revenues. This is an easy way for management to plan out expenses; and, operations when they assume that sales volume and total revenues will be a set amount during a period.

    “The Fixed budget are those that are drafted to remain the same regardless of the activity levels it actually attained.”

    Budgeting is a simple process of consolidating budget and adhere to them as closely as possible. It is a process that turns manager attitudes forward-looking to the future and planning; managers can anticipate and react accordingly to the potential problem before it arises. The budgeting process allows the manager to focus on the opportunities instead of figuratively. Budgeting aims to give management an idea of how well the organization is projecting the income goals and how well the organization managing the working capital.

    The budgeting exercise should able to increase the profit reduce inappropriate expenses; and, it also helps to expand the markets. To achieve the budgeting aim, the management needs to build a budgeting system. A budget system varies from organization to organization and it is not a unitary concept. The fundamental concept of the budget system involves estimating the future performance of the organization, comparing the actual performance to the budget; and, analyzing the deviation of the actual result against the budget. The factors that determine the type or style of an organization depend on the type of organization; the leadership style, the method of preparation, and the desired result.

    What is a Fixed Budget in Financial Management
    What is a Fixed Budget in Financial Management? Image credit from ilearnlot.com.

  • Why Financial Planning is Essential for the Success of any Business Enterprise?

    Why Financial Planning is Essential for the Success of any Business Enterprise?

    10 Key Importance of Financial Planning is very helpful to get you Success in the Business Enterprise. Why Financial Planning is very helpful? Because Financial Planning helps in diminishing the vulnerabilities which can be a deterrent to the development of the organization. Guarantees providers of funds to effortlessly put resources into organizations which provokes financial planning. Financial Planning supports development and expansion programs that support the long-run sustenance of the organization. So, the question discussed is – Why Financial Planning is Essential for the Success of any Business Enterprise?

    The Concept of Financial Management is explaining the Importance of Financial Planning with Tops 10 Key.

    Financial planning the plan need for estimating the fund requirements of a business and determining the sources for the same. It essentially includes generating a financial blueprint for the company’s future activities. No matter how accurately you keep track of your income and expense, failing to plan your business’s finances can lead to unnecessary interest payments, lack of capital during critical periods, and eventual legal problems. Using a few basic budgeting, forecasting, and tracking techniques, you can maximize your profit potential. A financial advisor can help you understand how your current decisions will affect the options and choices available during your Business Enterprise to create perfect Financial Planning.

    Importance of Financial Planning:

    The following 10 Key Importance of Financial Planning here below are; Why Financial Planning is Essential for the Success of any Business Enterprise? Its need is felt because of the following reasons:

    It Facilitates the Collection of Optimum Funds:

    Financial planning estimates the precise requirement of funds which means avoiding wastage and over-capitalization situations.

    Helps to Face the Eventualities:

    It tries to forecast various business situations. On this basis, alternative financial plans prepare. By doing so, it helps to face the eventual situation in a better way.

    It Helps in Fixing the Most Appropriate Capital Structure:

    Funds can arrange from various sources and use for the long-term, medium-term, and short-term. Financial planning is necessary for tapping appropriate sources at an appropriate time as long-term funds generally contribute by shareholders and debenture holders, medium-term by financial institutions, and short-term by commercial banks.

    Helps in Investing Finance in Right Projects:

    The financial plan suggests how the funds are to allocate for various purposes by comparing various investment proposals.

    Helps in Operational Activities:

    The success or failure of the production and distribution function of a business depends upon the financial decisions as the right decision ensures a smooth flow of finance and smooth operation of production and distribution.

    There are several platforms that help businesses make the right financial decision and simplify operational activities. You can read more about such service providers and get a quote to help your business progress with expert guidance.

    The base for Financial Control:

    Financial control may construe as the analysis of a company’s actual results, approached from different perspectives at different times, compared to its short, medium, and long-term objectives and business plans. All financial activities keep under complete control with the help of financial planning. Under it, standards of financial performance are set.

    Actual performance compared with the standards so set. Deviations and their causes trace and corrective measures are taken. Financial planning acts as the basis for checking financial activities by comparing the actual revenue with estimated revenue and the actual cost with an estimated cost.

    Helps in Proper Utilization of Finance:

    Finance is the lifeblood of business. So financial planning is an integral part of the corporate planning of the business. All business plans depend upon the soundness of financial planning. In equipment and tool rental companies, utilization is the primary method by which asset performance measures and business success determine. In basic terms, it is a measure of the actual revenue earned by assets against the potential revenue they could have earned.

    Helps in Avoiding Business Shocks and Surprises:

    By anticipating the financial requirements financial planning helps to avoid shock or surprises which otherwise firms have to face in uncertain situations. The proper provision regarding shortage or surplus of funds is made by anticipating future receipts and payments. Hence, it helps in avoiding business shocks and surprises.

    Financial planning helps in deciding the debt/equity ratio and deciding where to invest this fund. It creates a link between both decisions. The separation of financing and investing decisions is one such important concept. It is important because we have to make a very important adjustment based on this principle. That adjustment is the fact that we do not subtract interest costs while calculating the cash flows that a project will generate.

    This is different from accounting where we stood used to subtract the interest costs to calculate our income. So here we must remember that we have to exclude interest costs from our calculation. It helps in deciding where to invest and from where the required funds will make available. Under it, the mix of share capital and debt capital make in such a manner that the cost of capital reduces to a minimum.

    Helps in Coordination:

    In the organization, there are many individuals, groups, and departments. They perform many different activities. Coordination means integrating these activities for achieving the objectives of the organization. Coordination is done to achieve the objectives of the organization, Coordination is a process.

    It helps in coordinating various business functions such as production, sales function, etc. The organization of the different elements of a complex body or activity enables them to work together effectively. It helps in coordinating various business activities, such as sales, purchase, production, finance, etc.

    Financial planning relates present financial requirements with the future requirement by anticipating the sales and growth plans of the company. Also, it makes effort to link the present with the future. Doing so helps to minimize the risk of future uncertainties.

    Helps in Avoiding Wastage of Finance:

    In the absence of financial planning, wastage of financial resources may take place. This arises due to the complex nature of business operations, such as excessively over-or underestimation of finance for a particular business operation. Such a type of wastage can be avoided through financial planning.

    Why Financial Planning is Essential for the Success of any Business Enterprise
    Why Financial Planning is Essential for the Success of any Business Enterprise? Image credit from #Pixabay.
  • Financial Planning: Steps, Elements, Advantages, Limitations

    Financial Planning: Steps, Elements, Advantages, Limitations

    Financial planning is an important part of financial management. It is the process of determining the objectives; policies, procedures, programmes, and budgets to deal with the financial activities of an enterprise. Financial planning reflects the needs of the business and is integrated with the overall business planning. Proper financial planning is necessary to enable the business enterprise to have the right amount of capital to continue its operations efficiently. So, what we discussing is – Financial Planning: Steps, Elements, Advantages, Limitations.

    The Concept of Financial Planning explains their key points into Steps, Elements, Advantages, and Limitations.

    Financial planning involves taking certain important decisions so that funds are continuously available to the company and are used efficiently. In this article we Discuss; Financial Planning: Steps of Financial Planning, Elements of Financial Planning, Advantages and Disadvantages of Financial Planning, Limitations of Financial Planning, and Process of Financial Planning.

    Steps in Financial Planning:

    Financial planning involves the following steps:

    These are:

    • Set-up Financial Objectives.
    • Financial Policies.
    • Procedures, and.
    • Flexibility.

    Now, explain each one;

    Set-up Financial Objectives:

    The financial objectives of a company should be clearly determined. Both short-term and long-term objectives should be carefully prepared. The main purpose of financial planning should be to utilize financial resources in the best possible manner. There should be an optimum utilization of funds. The concern should take advantage of the prevailing economic situation.

    Financial Policies:

    The financial policies of a concern deal with procurement, administration, and distribution of business funds in the best possible way. There should be clear-cut plans of raising required funds and their possible uses. The current and future needs for funds should be considered while formulating financial policies.

    Procedures:

    The procedures are formed to ensure consistency of actions. The procedures follow the formulation of policies. If a policy is to raise short-term funds from banks, then a procedure should be laid to approach the lenders and the persons authorized to initiate such actions.

    Flexibility:

    The financial planning should ensure proper flexibility in objective, policies, and procedures so as to adjust according to changing economic situations. The changing economic environment may offer new opportunities. The business should be able to make use of such situations for the benefit of the concern. A rigid financial planning will not let the business use new opportunities.

    Elements of Financial Planning:

    Financial planning involves the following steps or elements:

    These are:

    • Objectives.
    • Capital Requirements.
    • Kinds of Securities to be issued, and.
    • Policies.

    Now, explain each one;

    Objectives:

    For effective financial planning, it is essential to clearly lay down the financial objectives sought to be achieved. The financial objectives should be based on the overall objectives of the company. The objectives of financial management may be set up in the areas, namely, investment, financing, and dividend.

    Capital Requirements:

    Capital is required for various needs of the business. The separate assessment is to be made of the requirements of fixed and working capital. Fixed capital is needed for acquiring fixed assets such as land and building, plant and machinery, furniture, etc. It is blocked for a long time. Working capital is required for holding current assets like stock, bills receivable, etc. and cash for meeting day-to-day expenses in running the business.

    Kinds of Securities to be issued:

    A company can issue equity shares, preference shares, and debentures to raise long-term funds. The types and proportion of securities to be issued should be properly determined.

    Policies:

    Financial planning leads to the formulation of policies relating to borrowing and lending, cash control and other financial activities. Such policies will help in taking vital decisions for the administration of capital and achieving coordination in financial activities.

    Advantages and Disadvantages of Financial Planning:

    These are the advantages of financial planning; It will set out clearly the money that you need to put together to start the business and then to run it for a period. It will help you to obtain funding if you need it. It will help prevent you from going into a business that will not be successful. Highlight periods where your business may need extra financial help. Inspire confidence in lenders and banks that you may have to approach for finance. It will help you to spot problems early so you can make plans for the necessary solution. For example, it will highlight whether you are holding too much stock or whether your collection is less than it should be or that you will be short of cash at a particular time.

    These are the disadvantages of financial planning; It can be a costly process because you will need the assistance of your accountant or financial adviser. It can take a lot of time, A financial plan merely forecasts and accounting.

    Limitations of Financial Planning:

    Some of the limitations of financial planning are discussed as follows:

    These are:

    • Forecasting.
    • Changes.
    • A Problem of Coordination, and.
    • Rapid Changes.

    Now, explain each one;

    Forecasting:

    Financial plans are prepared by taking into account the expected situations in the future. Since the future is always uncertain and things may not happen as these are expected, so the utility of financial planning is limited. The reliability of financial planning is uncertain and very much doubted.

    Changes:

    Once a financial plan is prepared then it becomes difficult to change it. A changed situation may demand a change in financial plan but managerial personnel may not like it. Even otherwise, assets might have been purchased and raw material and labor costs might have been incurred. It becomes very difficult to change a financial plan under such situations.

    A Problem of Coordination:

    The financial function is the most important of all the functions. Other functions influence a decision about the financial plan. While estimating financial needs, production policy, personnel requirements, marketing possibilities are all taken into account.

    Unless there is a proper-co­ordination among all the functions, the preparation of a financial plan becomes difficult. Often there is a lack of coordination among different functions. Even indecision among personnel disturbs the process of financial planning.

    Rapid Changes:

    The growing mechanization of the industry is bringing rapid changes in the industrial process. The methods of production, marketing devices, consumer preferences create new demands every time. The incorporation of new changes requires a change in financial plan every time.

    Once investments are made in fixed assets then these decisions cannot be reversed. It becomes very difficult to adjust a financial plan for incorporating fast-changing situations. Unless a financial plan helps the adoption of new techniques, its utility becomes limited.

    Understand the Process of Financial Planning:

    Following decisions are included in financial planning or process of financial planning is as under:

    Objectives:

    In the first stage, financial objectives of the organization are determined. Financial objectives of an organization may be of two kinds:

    • Short-term: It includes the maintenance of adequate liquidity in the organization,
    • Long-term: It includes the procurement of adequate finance from different sources so as to increase the efficiency of the organization.
    Policies:

    In the second stage of financial planning, financial policies are determined so that financial objectives could be achieved. It includes capitalization policy, capital structure policy; fixed assets management policy, dividend policy, working capital management policy, credit policy, etc.

    For instance, in respect of capital structure, the policy of the company may be to depend on equity share capital in the initial years; regarding distribution of dividend, the policy may be to keep the rate of dividend low in the initial years, regarding credit sale the policy of the organization may be to sell goods on credit to creditworthy customers alone.

    Procedures:

    In the third stage of financial planning, financial procedures are determined. Procedures are clearer than policies. In case of a procedure, it is laid down in what order a job will be performed. For instance, the decision regarding depending on equity capital in the initial years of the company is a policy but the different steps taken to procure equity capital fall under the category of financial procedure.

    Similarly, credit sale is a policy but prescribing the sequence of action to be taken in case of non-realisation of payment on time, is a financial procedure.

    Financial Planning Steps Elements Advantages Limitations
    Financial Planning: Steps, Elements, Advantages, Limitations. Image credit from #Pixabay.

  • Financial Planning: Meaning, Definition, Objectives, and Importance

    Financial Planning: Meaning, Definition, Objectives, and Importance

    What is Financial Planning? Financial planning is an important part of financial management. A financial plan is an estimate of the total capital requirements of the company. It selects the most economical sources of finance. It also tells us how to use this finance profitably. The financial planning gives a total picture of the future financial activities of the company. It is the process of determining the objectives; policies, procedures, programmes, and budgets to deal with the financial activities of an enterprise. Financial planning is also known as capital planning. So, what we discussing is – Financial Planning: Meaning, Definition, Objectives, and Importance.

    The Concept of Financial Planning explains their key points into Meaning, Definition, Objectives, and Importance.

    In this article we Discuss; Financial Planning: Meaning of Financial Planning, Definition of Financial Planning, Objectives of Financial Planning, Need for Financial Planning, and the Importance of Financial Planning. Meaning and Definition: Financial planning reflects the needs of the business and is integrated with the overall business planning. Proper financial planning is necessary to enable the business enterprise to have the right amount of capital to continue its operations efficiently.

    Financial planning involves taking certain important decisions so that funds are continuously available to the company and are used efficiently. These decisions highlight the scope of financial planning. The financial plan is generally prepared during the promotion stage. It is prepared by the Promoters (entrepreneurs) with the help of experienced (practicing) professionals. The promoters must be very careful while preparing the financial plan. This is because a bad financial plan will lead to over-capitalization or under-capitalization. It is very difficult to correct a bad financial plan. Hence immense care must be taken while preparing a financial plan.

    #Definition of Financial Planning:

    Financial planning, also called budgeting, is the process of setting performance goals and organizing systems to achieve these goals in the future. In other words, planning is the process of developing business strategies and visions for the future. It’s big picture stuff. Financial Planning is the process of estimating the capital required and determining its competition. It is the process of framing financial policies in relation to procurement, investment, and administration of funds of an enterprise.

    #Objectives of Financial Planning:

    Financial planning is done to achieve the following two objectives:

    To ensure availability of funds whenever these are required:

    The main objective of financial planning is that sufficient fund should be available in the company for different purposes such as for the purchase of long-term assets, to meet day-to-day expenses, etc. It ensures timely availability of finance. Along with availability financial planning also tries to specify the sources of finance.

    To see that firm does not raise resources unnecessarily:

    Excess funding is as bad as inadequate or shortage of funds. If there is surplus money, financial planning must invest it in the best possible manner as keeping financial resources idle is a great loss for an organization.

    Others Financial Planning has got many objectives to look forward to:

    • Determining capital requirements; This will depend upon factors like the cost of current and fixed assets, promotional expenses and long-range planning. Capital requirements have to be looked with both aspects: short- term and long- term requirements.
    • Determining capital structure; The capital structure is the composition of capital, i.e., the relative kind and proportion of capital required in the business. This includes decisions of debt-equity ratio- both short-term and long-term.
    • Framing financial policies with regards to cash control, lending, borrowings, etc.
    • A finance manager ensures that the scarce financial resources are maximally utilized in the best possible manner at least cost in order to get maximum returns on investment.

    Financial Planning includes both short-term as well as the long-term planning. Long-term planning focuses on capital expenditure plan whereas short-term financial plans are called budgets. Budgets include a detailed plan of action for a period of one year or less.

    #Need for Financial Planning:

    The following financial planning below are:

    • Determine the financial resources required to meet the company’s operating programme.
    • Forecast the extent to which these requirements will be met by internal generation of funds and the extent to which they will be met from external sources.
    • Develop the best plans to obtain the required external funds.
    • Establish and maintain a system of financial control governing the allocation and use of funds.
    • Formulate programmes to provide the most effective profit-volume-cost relationships.
    • Analyze the financial results of operations, and.
    • Report facts to the top management and make recommendations on future operations of the firm.

    #Importance of Financial Planning:

    Sound financial planning is essential for the success of any business enterprise. It will provide policies and procedures to achieve close coordination between the various functional areas of business. This will lead to the minimization of wastage of resources. Management can follow an integrated approach to the formulation of financial policies, procedures, and programmes only if there is a sound financial plan.

    The important benefits of financial planning to a business are discussed below:

    • Financial planning provides policies and procedures for the sound administration of the finance function.
    • Financial planning results in the preparation of plans for the future. Thus, new projects could be undertaken smoothly.
    • Adequate funds have to be ensured.
    • Financial Planning helps in ensuring a reasonable balance between outflow and inflow of funds so that stability is maintained.
    • Financial Planning ensures that the suppliers of funds are easily investing in companies which exercise financial planning.
    • Financial Planning helps in making growth and expansion programmes which helps in long-run survival of the company.
    • Financial planning ensures required funds from various sources for the smooth conduct of business.
    • Uncertainty about the availability of funds is reduced. It ensures the stability of business operations.
    • Financial planning attempts to achieve a balance between the inflow and outflow of funds. Adequate liquidity is ensured throughout the year. This will increase the reputation of the company.
    • Cost of financing is kept to the minimum possible and scarce financial resources are used judiciously.
    • Financial planning serves as the basis of financial control. The management attempts to ensure utilization of funds in tune with the financial plans.
    • Financial Planning reduces uncertainties with regards to changing market trends which can be faced easily through enough funds, and.
    • Financial Planning helps in reducing the uncertainties which can be a hindrance to the growth of the company. This helps in ensuring stability and profitability in concern.

    Finance is the life-blood of the business. So financial planning is an integral part of the corporate planning of the business. Financial Planning is the process of framing objectives, policies, procedures, programmes and budgets regarding the financial activities of concern. This ensures effective and adequate financial and investment policies. All business plans depend upon the soundness of financial planning.

    Financial Planning Meaning Definition Objectives and Importance
    Financial Planning: Meaning, Definition, Objectives, and Importance. Image credit from #Pixabay.

  • Importance, Advantages, Limitations of Business Forecasting

    Importance, Advantages, Limitations of Business Forecasting

    Importance of Forecasting in Business – As we know Business forecasting is an act of predicting future economic conditions based on past and present information. It refers to the technique of taking a perspective view of things likely to shape the turn of things in the foreseeable future. As the future is always uncertain, there is a need for an organized system of forecasting in business. Define, Business Forecasting is the calculation of probable events, to provide against the future. It, therefore, involves a ‘look ahead’ in business and an idea of predetermination of events and their financial implications as in the case of budgeting. So, what we discussing is – Importance, Advantages, Limitations of Business Forecasting in Business.

    The Concept of Financial Management is explaining Business Forecasting for Business, in points of Importance, Advantages, and Limitations.

    In this article, we will discuss Business Forecasting for Business: First Importance of Business Forecasting, then basic Advantages of Business Forecasting, after that main Advantages of Business Forecasting, and finally discussing Limitations of Business Forecasting. Let’s start discussing:

    Importance of Business Forecasting:

    The following key points show the growing importance of business forecasting:

    These are:

    • Plan Formulation.
    • Estimation of financial requirements.
    • Smooth and continuous working of a concern.
    • The correctness of management decisions.
    • Promotion for new business.
    • Success in business.
    • Co-Operation and coordination, and.
    • Complete Control.

    Each one Explanation:

    Plan Formulation:

    The importance of correct forecasting is apparent from the Key role it plays in planning. It should not go unaccounted that forecasting is an essential element in planning since planning premises include some forecasts. There are forecast data of a factual nature having enormous implication on sound premises. Undoubtedly, forecasting is a prelude to planning and indeed it is the foundation on which planning takes place.

    In fact, planning under all circumstances and in all occasions involve a good deal of forecasting, i.e. appraising the future in the light of existing conditions and environment. Forecasting and planning are closely related. Adequate planning, no matter whether it is overall or sectoral, short-term or long-term, largely depends on forecasting.

    Estimation of financial requirements:

    The importance of forecasting can’t ignore in estimating the financial requirements of a concern. Efficient utilization of capital is a delicate issue before the management. No business can survive without adequate capital.

    But adequacy of either fixed or working capital depends entirely on sound financial forecasting. Financial estimates can calculate in the light of probable sales and cost thereof. How much capital needs for expansion, development, etc., will depend upon accurate forecasting?

    Smooth and continuous working of a concern:

    “Forecasting of earnings” ensures smooth and continuous working of an enterprise, particularly to newly established ones. By forecasting, these concerns can estimate their expected profits or losses. The object of a forecast is to reduce in black and white the details of working of a concern.

    The correctness of management decisions:

    The correctness of management decisions to a great extent depends upon accurate forecasting.

    “Administration is essentially a decision-making process and authority has responsibility for making decisions and for ascertaining that the decisions made are carried out. In business, whether the enterprise is large or small, changes in conditions occur; shifts in personnel take place, unforeseen contingencies arise. Moreover, just to get the wheels started and to keep them turning, decisions must be made.”

    This shows that the decision-making process continues throughout the life of the concern. Forecasting plays an important role in various fields of concern. As in the case of production planning, management has to decide what to produce and with what resources. Thus forecasting considers an indispensable component of the business because it helps management to take correct decisions.

    Promotion for new business:

    Forecasting is of utmost importance in setting up a new business. It is not an easy task to start a new business as it is full of uncertainties and risks. With the help of forecasting the promoter can find out whether he can succeed in the new business; whether he can face the existing competition; what is the possibility of creating demand for the proposed product etc.

    After discovering the business opportunity, he will see the possibilities of assembling men, money, materials etc. The success of a business unit depends upon as to how sound is the forecasting? Proper forecasting will help to minimize the role of luck or chance in determining business success or failure. A successful promoter is also the prophet of economic conditions.

    Success in business:

    The accurate forecasting of sales helps to procure necessary raw materials based on which many business activities undertake. Accurate sales forecasting becomes the basis for several other budgets. In the absence of accurate sales forecasting, it is difficult to decide as to how much production should be done.

    Thus, to a great extent, the budgets of other departments depend upon the compilations based on the sales forecasts and the accuracy of these budgets also depends upon the correctness of sales forecasting. Thus, the success of a business unit depends on accurate forecasting by the various departments.

    Cooperation and coordination:

    Forecasting is not one man’s job. It needs proper co-ordination of all departmental heads in a company. Thus, by bringing the participation of all concerned in the process of forecasting, team spirit and co­ordination automatically encourage.

    According to Henry Fayol,

    “The act of forecasting is of great benefit to all who take part in the process and is the best means of ensuring adaptability to changing circumstances. The collaboration of all concerned leads to a united front, an understanding of the reasons for decisions and a broadened outlook.”

    Complete Control:

    Forecasting provides the information which helps in the achievement of effective control. The managers become aware of their weaknesses during forecasting and through implementing better effective control they can overcome these weaknesses.

    Basic Advantages of Business Forecasting:

    The following Advantages of Business Forecasting basically understand:

    • By forecasting regularly, it forces you to continually think about your future and where your business is headed. Also, This will allow you to foresee changing market trends and stay ahead of your competition.
    • Keep your customers satisfied by providing them with the product they want, when they want it. The advantage of forecasting in business will help predict product demand so that enough product (or staffing) is available to fill customer orders particularly if demand is seasonal.
    • If you expect to apply for a loan or line of credit, your financial institution will likely ask you to provide them with forecasting reports with your submission.
    • Forecasting can give you the intelligence to anticipate a downturn in sales and plan for it. Likewise, it can alert you to periods when you can expect an increase in sales and you can organize additional staffing ahead of time.
    • If you can’t measure it, you can’t improve it. Setting goals alongside your business forecast allow you to track your progress and plan your operations that are aligned with what you want to achieve.

    Main Advantages of Business Forecasting:

    The following Advantages of Business Forecasting below are:

    These are:

    • Create Own a New Business.
    • Your Business Formulating Plans.
    • Based-Business Estimating Financial Require.
    • Facilitating Managerial Decisions.
    • Mostly Quality of Management.
    • Encourages Cooperation and coordination.
    • Control Better Utilisation of Resources, and.
    • Finally get Success in Business.

    Here are Explain each:

    Create Own a New Business:

    While setting up a new business, several business forecasts are required. One has to forecast the demand for the product, the capacity of competitors, expected share in the market, the amount and sources of raising finances, etc. The success of a new business will depend upon the accuracy of such forecasts. If the forecasts are made systematically, then the operations of the business will go smoothly and the chances of failure will be minimized.

    Your Business Formulating Plans:

    Forecasting provides a logical basis for preparing plans. Also, It plays a major role in managerial planning and supplies the necessary information. The future assessment of various factors is essential for preparing plans. In fact, planning without forecasting is an impossibility. Henry Fayol has rightly observed that the entire plan of an enterprise is made up of a series of plans called forecasts.

    Based-Business Estimating Financial Require:

    Every business needs adequate capital. In the absence of correct estimates of financial requirements, the business may suffer either from inadequate or from excess capital. Forecasting of sales and expenses helps in estimating future financial needs. Also, The plans for expansion, diversification, or improvement necessitate the forecasting of requirements of funds. Proper financial planning depends upon systematic forecasting.

    Facilitating Managerial Decisions:

    Forecasting helps management to take correct decisions. By providing a logical basis for planning and determining in advance the nature of future business operations, it facilitates correct managerial decisions about material, personnel, sales, and other requirements.

    Mostly Quality of Management:

    It improves the quality of managerial personnel by compelling them to look into the future and make provision for the same. By focussing attention on the future, forecasting helps the management in adopting a definite course of action and a set purpose.

    Encourages Cooperation and coordination:

    Forecasting calls for some minimal effort on the part of all and. thus, creates a sense of participation. Also, It is not one man’s or one department’s job. No department or person can make its forecasts in isolation.

    There should be a proper co-operation and co-ordination among different departments for setting proper forecasts for the business as a whole. So, the forecasting process leads to better co-operation and co-ordination among people of various departments of the organization.

    Control Better Utilization of Resources:

    Forecasting ensures better utilization of resources by revealing the areas of weaknesses and providing necessary information about the future. Also, Management can concentrate on critical areas and control more effectively.

    Finally get Success in Business:

    Success in business, to a great extent, depends upon correct predictions about the future. Systematic forecasting ensures the smooth and continuous working of the business. By knowing the future course of events in advance, one could always face the difficulties in a planned manner.

    Limitations of Business Forecasting:

    In spite of many advantages, some people regard business forecasting,

    “As an unnecessary mental gymnastics and reject it as a sheer waste of time, money and energy.”

    The reason for the same lies in the fact that despite all precautions, an element of error is bound to creep in the forecasts and we cannot eliminate guesswork in forecasts.

    It is also felt that forecasting is influenced by the pessimistic or optimistic attitude of the forecaster. It may not be possible to make forecasts with pinpoint accuracy. But, it still cannot undermine the importance of business forecasting.

    The management should first make use of statistical and econometric models in making forecasts and then apply collective experience, skill and objective judgment in evaluating the forecasts. Further, the forecasts should be constantly monitored and revised with the changed circumstances.

    Importance Advantages Limitations of Business Forecasting to Business
    Importance, Advantages, Limitations of Business Forecasting to Business. Image credit from #Pixabay.