The primary benefit of budgeting are:
- It requires all levels of management to a plan ahead and to formalize goals on a recurring basis.
- It provides definite objective for evaluating performance at each level of responsibility.
- It creates an early warning system for potential problems so that management can make changes before things get out of hand.
- It facilitates the coordination of activities within the business. It does this by correlating the goals of each segment with overall company objectives. Thus, the company can integrate production and sales promotion with expected sales.
- It results in greater management awareness of the equity’s overall operations of external factors, such as economic trends.
- It motivates personnel throughout the organization to plan objectives.
A budget is an aid to management; it is not substitute for management. A budget cannot operate or enforce itself. Companies can realize the benefits of budgeting only when managers carefully administer budgets.
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