When a company's costs rise, so does its profit margin. As a result, the associated expenditures must be reduced as much as possible. When costs are low, profits are high. A budget is supplied to avoid under- or over-estimation of the relevant expense. An operating budget will provide predictions of how funds will be used in running activities that will benefit the firm in terms of revenue generation. Marketing, distribution, and administration are among the activities. They are cost centers that must generate revenue in order for the business to function. A capital budget includes all of a company's assets, capital, and liabilities. It shows the capital that is required to finance the activities of the enterprise. Therefore, the current assets must be more than the current liabilities for the company to avoid chances of being wound up. The business through the owners and the management is able to develop estimates that are a better tool for planning.
Operating budget
Operating budget
For the year ending 31st December
Revenue
Sales $ 400,000,000
Expenses
General operations $ 20,000,000
Human resource cost:
Recruiting $ 200,000
Salaries $ 20,000,000
Wages $ 10,000,000
Marketing:
Advertising on social media $ 2,000,000
Posters $ 1,000,000
Burners $ 500,000
Miscellaneous expenses $ 1,500,000
Surplus $ 344,800,000
Long-term assets
The capital budget entails fixed assets that will generate revenue for the business for a long period. Motor vehicles and plant and machinery are assets that will facilitate the achievement of the market share.
Motor vehicles are important assets that a business must have. The delivery vans are used to facilitate transportation of goods into the business premises and to the customers. In most cases businesses will offer transportation services as part of the after sales service. The services will attract more customers into the business and hence create traffic. This is the best strategy for a business to adopt for it to be able to keep customers for a longer period. Motor vehicles also facilitate movement within and outside the company. Employees are picked from their various residential and arrive at work on time. The company benefits from increased productivity because the workers will spend more time performing their functions as allocated. Vehicles will make work easier and achieving the long-term goal will be easier. Similarly, there are some of the expenses attributable to motor vehicles. Expenses such as fuel cost may increase depending on the distance covered. If no efforts made in return then the company may end up realizing losses. If the transport attracts more clients then company will make profit.
Plant and machinery is an essential asset in a company for production purpose. The quantity to be released to the market will depend on the capacity of production. When the demand in the market is met then there is a step made towards achieving the long-term goal. If the production is low measure should be taken to improve the production. New machinery can be purchased to increase production. Likewise, the costs will increase though they shall be recovered from the revenues collected.
Generally assets are of great value to a company. A business operating without assets cannot be considered as a going concern since it may not sustain its operations. For a business to remain in operation to perpetuity then the assets must be more than the liabilities.
