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Budgeting for a Start-up Company
Budget to Implement for a Start-up Company
Starting a company can be a daunting task if not well planned. Creating a budget is an essential task for a start-up company and it can help one understand where the business is going and if it is on the right track. The accountant helps in giving financial information that helps managers, tax authorities, investors and others in making decisions about resources allocation in the budget.
A budget should be realistic and accurate for a certain company depending on its goals (Banham, 2009).It helps explain how a company will utilize its resources to attain its goals. The main aim of this paper is to explain a budget to implement in a start-up company that will help it reach its financial forecast.
Although budgeting is indeed more work, it pays off with many benefits. Some of these benefits include price setting, capital and credit procurement, flexibility, and forecasting. A master budget involves linked budgets of production costs, sales, purchase, and income. In the management of a company, it serves as the controlling and planning tool. It has two components, the financial and operational budget.
A business plan is a guide to owners, investors, and managers as a business starts and through its growth in different stages. Apart from a start-up plan, there exist several forms of business plans, which include internal, strategic, feasibility, operations business, and expansion plan (Livingstone, 2013).
Budgeting for a Start-up Company
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A manufacturing company is a company that converts raw materials to finished goods. The consumer buys the finished goods directly or another manufacturing business uses them for making a different product. For the purpose of this paper, a bakery will be the manufacturing company. Value chain is a series of activities that add value to a company. The bakery company value adding activities are of two types, these include primary and support activities. The activities in the primary type include,
- Inbound logistics, this will entail the receiving of raw materials.
- Operations, this is the manufacturing stage which involves conversion of wheat into baked items.
- Outbound logistics will help in the distribution of the baked goods to consumers.
- Marketing and sales, this will involve identifying customer’s needs and generating sales for the company.
- Services, this activity will provide after sales support services for the consumer.
The secondary activities will be in four categories, which include human resource management, business infrastructure, technological development, and supply chain management. Business infrastructure activity will involve organization of structure, culture, and control systems. Human resource management will involve employee’s recruitment and training. Technological development activity will entail having information technology to support the value chain and the company. Supply chain management will entail purchasing materials, equipments, and suppliers for the company (Hornyak, 2008).
Budgeting for a Start-up Company
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An operating budget is the analysis of asserts, expected costs, and predicated income over a specific period. This type of budget will be appropriate for the bakery company. The budget must account for factors such as material coast, production, labor cost, sales, manufacturing costs, and administrative expenses. The budget is manageable on a weekly, monthly, or yearly basis.
The operating budget also provides a way for a company to estimate its immediate future expenses and revenues. Several reviewing steps are necessary in ensuring the company attains its goals, these steps include, review of business goals against performance, review of budget variance, and access issues associated with budget overages (Livingstone, 2013).
The idea behind benchmarking is to make ensure that its services, products, and practices are the best against their competitors. Four benchmarking process will be utilized in the bakery company these includes,
- Process benchmarking this demonstrates how top bakery companies accomplish specific task that earn them success. Interviews, site visits, and research are ways of obtaining information.
- Performance metrics this involves use of qualitative measures as the reference for comparisons.
- Strategic benchmarking this identifies winning strategies and lessons that have enabled top bakery companies to be successful.
- Financial benchmarking involves a financial analysis of the bakery comparing it with top performers in order to assess the company’s competiveness.
Budgeting for a Start-up Company
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Benchmarking has several benefits, which includes, clarity of specific areas of opportunities, set performances expectations, and enable monitor and manage company’s performers (Hornyak, 2008).
Cost accounting involves collecting, analyzing, summarizing, and evaluating numerous alternatives to help managers take the most suitable course of action in the management of the company. The bakery will implement process costing as its type of costing systems. Process costing is a system that allocates direct and indirect cost for the manufacturing process. It assigns goods in large amounts.
The system is important since it will help the company keep track of the expenses in the production and distribution of goods. For example, the company may produce large number of bread but they may sell in small quantities, therefore it is necessary to allocate total product costs to units of product. One of the challenges that the company will face due to this system are costs errors.
Process costing does not allocate direct costs to individual goods leading to cost errors. This leads to increase in production cost thus increase in consumer product price. The company will implement the value chain analysis to overcome the problem that will help reduce the non-production cost thus creating the greatest possible value and price for consumers (Banham, 2009).
Budgeting for a Start-up Company
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For a start-up company to be successful it needs to draft a well-planned budget. This budget determines the success or failure of a company. By using this vital tool, one is able to track company’s expense, asserts and revenue required to keep the company growing. It may also help the company identify problems before they arise and be able to solve them. Therefore, a budget is like a roadmap for a company.
References
Banham, R. (2009). Better Budgets. Journal of Accountancy , 40-63.
Fearon, C. (2010). The Budgeting Nightmare. CMA Managment , 100-112.
Hornyak, S. (2008). Budgeting Made Easy. Management Accounting , 25-40.
Livingstone, J. L. (2013). The Portable MBA in Finance and Accounting. Accounting , 83-95.
Budgeting for a Start-up Company
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