Polytechnic University of the Philippines Lopez, Quezon Branch BUMA 011: OPERATIONS MANAGEMENT (TQM) FINANCIAL BUDGETING IN SMALL BUSINESSES Submitted by: LABHANAN, AIRA MAY A. LIBRANDA, KRISTOFFER O. MANCILLA, DANIELLA O. PANTE, KEREN KEZIAE. VILLAFLOR, CHARISSE B. VILLAMOR, KRISTINA CASSANDRA L. BSA21 ‘Submitted to: MR. JAYSON C. JUCOMTABLE OF CONTENTS I. Introduction I Current Observed State A. Operation of Small Businesses Based on Interview .. B. Current State of Small Business regarding Budgeting. C. Problems Encountered by Business about Budgeting 5 Ill. Proposed Action Plan... wd IV. Desired Outcomes... V. Evaluation and Control.. References ..........sscssssecesssee aL1 INTRODUCTION An efficient way for people, companies, and organizations to manage their financial resources is through financial budgeting which is a strategic planning process. A company's cash flow, costs, assets, and revenue may all be effectively managed with its help. Financial resource allocation for the purpose of achieving both short and long-term financial goals is the main objective of financial budgeting. In addition, it provides a comprehensive view of the enterprise's financial health by looking at income and spending across all of the company's main programs. When a business makes well-informed decisions based on a clear understanding of its financial circumstances, it may enhance its financial performance and meet its goals. According to Mustafa (2022), budgets are equally crucial for small enterprises as large businesses. At the very least, budgeting will allow an enterprise to keep track of their income and expenses. Many people are surprised to learn that simple budgeting can provide faster results than financial planning, forecasting, and other comprehensive processes. Having financial budget allows a small business to meet its financial goals, track debt management, conduct performance evaluations, prepare for emergencies, manage cash flows and allocate resources. The most significant benefit of keeping to a budget is that it encourages them to stay focused on their business goals. As a small firm, companies can use their budget to lead their action plan and position themselves to attain long-term objectives. These goals can be financial, strategic, or operational. They use budgets as a road map for tactical company planning. The most commonly used budgeting strategy is of course, financial budgeting. To achieve their financial objectives, small firms must have a comprehensive and realistic budgeting procedure. Dividing financial budget into daily, weekly, monthly, and yearly plans to ensure that they meet their periodic financial goals efficiently. This type of budgeting can assist a small business in meeting both immediate and long-term financial objectives. Budgets can be a great financial planning tool for new small businesses that do not have historical data. In reality, debt is a necessary component of any small firm. On the other hand, controlled and organized financial actions might help in managing the business debt. A useful financial instrument for precise resource allocation is a budget. A small enterprise can effectively manage business debts if the finances are in order. Additionally, they can use budgetary controls to properly design debt management plans. Despite the fact that many small businesses have little in the way of human resources, managers can assess staff performance through budgetary restrictions. Performance and operating budgets are two examples of these budgetary restrictions for manufacturing companies. For example, in a manufacturing business, establish budgets for manpower or volume. Comparing company profit to budgets is an excellent method to make the most of small business budgeting. Compare the revenue and expenditures for every budgetary period in detail. In this manner, you are assessing the business's profitability based on its operational efficiency.In real life scenario, most of us basically know how important it is to plan ahead for emergencies. Economic recessions, political unrest, pandemics, and other macroeconomic events are among the external market forces that small enterprises are especially vulnerable to. Financial budgeting will help it to allocate a regular percentage of income to emergency reserves to always have a safely net for savings without a need of borrowing. The lifeblood of the business which is called cash flow, can be tracked and managed with the use of cash budgeting. Small firms would find it difficult to continue with daily operations without cash budgets. The majority of small firms have tight cash flow. This implies that they must use their financial resources even more carefully. Making well-informed judgments about financing, working capital management, asset management, and investment can result from effective cash flow management. Small companies frequently lack sufficient resources. Maintaining a well-organized budget guarantees that you will never run out of the supplies you require to continue operating. For example, a tiny business with poor cash flow can nonetheless be profitable. The business can more effectively distribute these bottleneck resources by looking at your budget. To assist your small firm in achieving effective resource management in every department, implement budgetary controls effectively. Budgeting predicts incoming revenue, estimates existing available capital, and gives an estimate of expenditure. Businesses can verify that resources are accessible for projects that assist business growth and development by comparing results against expenditure by consulting the budget. The business owner may focus on cash flow management, cost reduction, profit improvement, and return on investment because of it. The foundation of any successful business is budgeting. It supports both financial management and planning for the company. Planning is pointless without budget control, and without planning, there are no company goals to pursue. M. CURRENT OBSERVED STATE Creating a budgeting process is the most effective way to keep your business and finances on track. Strategic planning makes a huge difference in the growth of your business. This allows you to focus your resources on increasing productivity, reducing costs, and increasing return on investment. In fact, many companies do most of the work associated with business planning, such as considering growth opportunities, competitors, financing, and products, without going through a formal process. New entrepreneurs can operate their businesses profitably and may not need financing. But when companies plan for the future, they have to pay for those plans. Budgeting is the most effective way to manage cash flow so that businesses can invest in new opportunities at the right time.A. Operation of Small Businesses Based on Interview Business Planning According to Mr. Howard Comintan, who graduated from the Polytechnic University of the Philippines with a Diploma in Accounting and Technology and is the owner of the business “Kuya How's Click Picks,” which offers clubhouse sandwiches, the first thing he does is business planning. The key benefit of business planning is that it allows you to create a focus for the direction of your business and provides targets that will help your business grow. It will also give you the opportunity to stand back and review your performance and the factors affecting your business. Improved clarity and focus, increased confidence in your decision- making, the capacity to make continuous improvements and predict problems, and solid financial information are all benefits of business planning. Furthermore, understanding your target market after determining which product would result in increased sales is crucial for business strategy. Collecting data and coming up with ideas about what you can offer the client that is different and will benefit them. Your business plan will specify how much money you will spend and how it will be financed. But it's not a prediction, either. A budget is a planned outcome of the future, as defined by your business's plan, as opposed to a projection, which is a prediction of the future. Price Costing Starting capital is one of the major needs for doing business. Based on our interview, Mr. Comintan said that he started with a capital of 2,000 to 5,000 pesos. Estimate, which includes all the expenses in materials, labor, and production. With 2,000 capitals, 28 sandwiches are made. He added that 2,000 pesos of capital multiplied by 40%, of which 20% is for return on capital and another 20% is for labor and service, including expenses and an emergency fund (e.g., a bulk order for which 50% payment is first made for assurance of availability), equals 800 pesos, which is his target income or profit. Additionally, his pricing of the product is determined by adding the capital of 2,000 and the target income of 800, which is equal to 2,800, then dividing by the number of sandwiches made in 2,000 pesos, which equals 100 pesos. There are instances where his target customers, like schools, have a 20%. consignment fee in the canteen; that's why he allotted 40% for the return. Pricing of 100 pesos multiplied by 20% equals 20 pesos, which is the consignment fee they are deducting from the product. 80 pesos will be his income, and 20 pesos will be the consignment fee in the canteen. In other internal communication, they are the ones who are responsible for the consignment fee that they want, which will be added to the selling price of the product that you gave. Another instance is by adding the consignment fee to the selling price, like, for example, 125 pesos. If the consignment fee for the canteen is 25 pesos, then 100 pesos is. your income. This is how small businesses operate when they decide to consign, according ‘to Mr. Comintan.Operation and Strategies Checking is the first thing Mr. Comintan does as he operates the business. Seasonal variation is one of the crucial points in determining how you will adjust your budget. One of the examples that he specified is Valentine's Day, when you can include chocolate in the product you are offering. It must be included in your budget as you adopt the celebration or keep up with the seasons, which you need to properly handle and think outside the box to be able to have good results that the customer will like and that will satisfy them, which gave him a hard time processing. Also, allow your customers to give feedback and know what to improve by accepting the negative feedback. He also stated that the preservation and storage of ingredients properly to avoid waste is important. In order to ensure the quality of the raw materials and ingredients, like, for example, planting lettuce, which is one of the main ingredients of clubhouse sandwiches, Ensuring that the product you offer is clean and assuring customers that itis of high quality. Especially the monitoring of all necessary details in your business. Those are some of the important things that you need to consider when you build a business and how you will budget the money to prosper your business. B. Current State of Small Businesses regarding Budgeting 1. Technology Acceptance A growing number of small firms are using technology to make budgeting procedures more efficient. Small business owners may more easily track spending, manage cash flow, and generate accurate budgets in real-time with the help of cloud-based accounting software, budgeting apps, and financial management tools. 2. Concentrate on Cash Flow Control Cash flow management is frequently given top priority by small firms when creating their budgets. Small business owners pay extra attention to cash flow predictions, keep an eye on receivables and payables, and put working capital optimization methods into practice because they understand how important it is to retain liquidity, particularly in unpredictable economic times. 3. Emphasis on Flexibility Small firms appreciate the significance of financial flexibility, especially in the face of unanticipated changes or disruptions. They may use rolling budgets or dynamic forecasting methodologies that allow for adjustments based on changing circumstances, such as changes in market conditions or regulatory changes. 4. Risk Mitigation Techniques Small firms are proactive in recognizing and minimizing financial risks through budgeting procedures. This may entail scenario preparation, stress testing, and the establishment of Contingency reserves to manage unforeseen issues such as income fluctuations, supply chain disruptions, or unexpected expenses.5. Strategic Investment Allocation Small business operators carefully manage resources to support strategic priorities and growth initiatives. They may prioritize investments in marketing and advertising, technological upgrades, personnel training, and product development in order to increase competitiveness and drive sustainable growth 6. Concentrate on Efficiency and Cost Control Small businesses prioritize operational efficiency and cost management in their budgeting efforts. They look for ways to improve profitability and maximize the value of limited resources by optimizing operations, reducing waste, negotiating better supplier terms, and eliminating superfluous expenses. 7. Integration of Sustainability Goals Small firms are increasingly including sustainability goals in their budgeting procedures. As part of their overall commitment to corporate social responsibilty, they may set aside funds for environmentally friendly activities, energy-efficient upgrades, trash reduction projects, or community engagement programs. 8. Challenges with Access to Capital Small enterprises may experience difficulties in obtaining external funding to meet their financial needs. This can limit their ability to invest in development possibilities, expand operations, or weather financial setbacks, needing careful planning and resource allocation within current restrictions. Overall, the current state of budgeting in small businesses reflects a dynamic and adaptive approach centered on leveraging technology, effectively managing cash flow, mitigating risks, strategically allocating resources, driving efficiency, and incorporating sustainability considerations into financial planning. C. Problems Encountered by the Business about Budgeting Rising Market Prices. Inflation affects daily budgets as there are higher costs of materials needed to produce products. All budgets are set based on costs. As prices rise and uncertainty increases, financial concerns become more pressing. An increase in price leads to a decrease in sales as consumers choose other products or stop buying the product. However, your business may be missing out on additional revenue opportunities by paying more. It all depends on the customer. The perception of value and how much you are willing to pay. In addition, inflation affects capital budgeting analysis. This affects the future cash flow of the project by increasing profits and costs. There is also a partial increase in interest rates. That is, the market value of the capital used is included at the discount rate. Inflation is one of the main reasons small businesses struggle to plan and budget for the future. With rising prices and the rising cost of goods and services, it can be difficult for small business owners to determine operating costs and make accurate financial projections. Inflation affects everything from property costs to labor costs, making it difficult for small business owners to forecast costs and allocate resources appropriately. This makes it harderto stay competitive and profitable. In addition, small businesses often have limited financial resources and do not have the resources to deal with sudden price increases. This can lead to a cycle of uncertainty that prevents owners from investing in new opportunities or expanding their operations. Shelf life of Raw Materials(Wastage/Spoilage of perishable goods).Perishable commodities pose the distinct risk of unsold products expiring with no residual value, resulting in the loss of the entire investment and opportunity. On the other hand, even when durable items are considered non perishable, their value might drop over time due to gradual degradation or obsolescence. According to Mr. Comintan, budgeting can be influenced by ingredient waste and spoiling since you will have to acquire more supplies that are out of your budget if you do not properly store those ingredients and do not choose what is best for your production. The sustainability of raw materials and the potential for waste or deterioration of perishable goods can have a significant impact on corporate finances in a variety of industries, particularly manufacturing, agriculture, food processing and retail. The severity of damage or waste can affect the price of a product for sale. If they are damaged or unusable before processing or sale, the unit cost of the rest of the goods will increase. Companies need to think carefully when setting budgets to ensure accurate cost forecasts and cost strategies. In addition, waste or deterioration of perishable raw materials can lead to unexpected costs and price increases. If companies do not adequately consider adverse risks when budgeting, they may underestimate investment costs. This can erode profit margins and reduce financial stability. It can also disrupt cash flow, especially for businesses with tight margins. If we need to write off damaged inventory or write off unsaleable inventory, we may have difficulty meeting other financial obligations, such as payments to suppliers, service providers or debts. Unexpected disruptions can disrupt production schedules and lead to production inefficiencies. If raw materials are not available or must be replaced at short notice, production delays, increased downtime and higher labor costs can occur. These issues can have a negative impact on productivity and profitability. Seasonal Variations. For many businesses, sales fluctuate throughout the year due to seasonal demand. For example, retail industries often see increased sales during the holiday season, while tourism industries experience peak seasons during certain months. When creating your budget, you need to account for these fluctuations in income to ensure you have enough funds to cover your expenses during slow periods. Certain costs may also vary seasonally. For example, extreme weather conditions can increase your utility bills (for example, if you have higher heating costs in the winter or higher cooling costs in the summer). Businesses may also experience higher costs associated with marketing and inventory management during busy periods. You will need to adjust your budget to account for these variations. Additionally, retailers and manufacturers often need to adjust inventory levels to seasonal demand. This can impact cash flow and may require additional budgeting for inventory procurement and storage costs. Seasonal changes can make managing cash flow difficult, especially for businesses with inconsistent revenue. Budgeting is important to ensure you have enough money to cover your expenses during a recession without relying too much on debt or loans. Individuals and businesses may need to set aside funds for seasonal events or activities, such as vacations,holiday celebrations, and annual maintenance. These costs should be factored into your budget so they don't strain or become a financial burden. This may affect your tax obligations. For example, business tax rates differ during peak and off-peak periods. Understanding and planning for these changes is critical to effective fiscal and budget management. As Mr. Comintan discuss the importance of an emergency fund, also increasing the importance of maintaining an emergency fund or emergency reserve. Unexpected events or downturns during the off-season can affect your finances, so it's important to have a buffer to cover unexpected expenses or financial losses. Limited Resources. Small firms frequently struggle to manage cash flow, particularly when resources are limited. Budgeting is critical for ensuring that adequate funds are set aside to cover essential expenses such as rent, utilities, wages, and inventory purchases while preserving a healthy cash reserve. It may have limited access to external sources of finance, such as loans or investments, making it difficult to fund expansion plans or cover unanticipated expenses. This limited access necessitates smart budgeting in order to maximize available resources and prioritize spending effectively. Itis also necessary to strike a balance between the need for growth and the necessity for financial stability. Due to limited resources, they may be forced to choose between investing in growth possibilities and remaining profitable. Rent, utilities, and equipment expenses are generally expensive in relation to revenue. Because of limited resources, it is difficult to meet these fixed expenditures while still investing in other vital areas such as marketing, product development, and employee training, Lack of Financial Expertise. Budgeting entails deciding how to best allocate limited resources. Individuals without financial competence may find it difficult to prioritize spending, resulting in poor resource allocation and missed possibilities for growth or savings. Chances were passed up. Financial knowledge is frequently accompanied by access to specialist tools, software, and resources that aid in budgeting and financial management. Individuals without financial competence may not be aware of how to utilize these tools efficiently or may not have access to them at all, complicating the budgeting process. Furthermore, cost control is an important part of budgeting, but it necessitates a thorough understanding of financial indicators and analysis. Individuals without financial competence may find it difficult to identity areas where expenses might be lowered or optimized, resulting in wasted resources and decreased profitability Aside from that, small business owners may lack the financial experience and resources necessary to effectively establish and manage complex budgets. This can result in erroneous estimates, ineffective resource allocation, and missed opportunities to save money or generate revenue. Investing in financial education or obtaining advice from financial professionals can help small businesses address these issues. Many small business entrepreneurs start their businesses without any formal finance or accounting training. They may be experts in their sector or field, but they may not have undergone financial management training. They frequently focus on building their products or services, and they may prioritize skills linked to their core strengths over financial knowledge. As a result, individuals may be lacking the information and abilities required to handle their funds properly.Uncertain Cash Flow. Budgeting entails properly allocating resources to achieve both short- and long-term financial objectives. However, unpredictability in cash flow can lead to poor resource allocation, since organizations and people may not know how much money they can afford to spend on different expenses or investments. Budgets use projected cash flow to meet expenses. When cash flow is unclear, organizations or people are more likely to experience cash shortages, which occur when they do not have enough liquidity to satisfy necessary expenses such as payroll, rent, of utilities. This can result in financial hardship, missing payments, and sometimes even bankruptcy. It may also inhibit businesses and people from exploring investment opportunities or growth strategies. Without faith in their ability to create continuous revenue or get funding, they may be hesitant to make long-term commitments or investments in their businesses or personal life. Uncertain cash flow makes it difficult to construct precise budgets. Without a clear understanding of when revenue will be received and expenses will be incurred, correctly forecasting cash flow and planning for future financial needs is impossible. Competitive Market. Businesses in a competitive market may be under pressure to cut their pricing in order to remain competitive. This has a direct influence on budgeting because it reduces profit margins and necessitates cost-cutting efforts to sustain profitability. Furthermore, competing for clients in a congested marketplace frequently necessitates the investment of marketing and advertising resources. Budgeting for these expenses is critical to ensuring that sufficient monies are provided to efficiently attract and retain clients. To set themselves apart from competition, firms may need to invest in product quality, branding, and customer service. These efforts may result in additional costs that must be accounted for in the budget. Businesses may also struggle to maintain good profit margins as a result of price pressure and higher costs. This can limit the amount of money available for investment in growth projects and other strategic goals. Labor and Overhead Cost (and other expenditures). Labor and overhead expenditures must be factored into every budget. Wages, salaries, perks, and payroll taxes for employees who produce goods or provide services are all considered labor costs. Overhead costs are indirect expenses such as utilities, rent, maintenance, and administrative expenses that are required for business operations but not directly related to production. Even though they do not generate income, overhead costs have a significant impact on a company's bottom line. Businesses must pay their overhead expenditures with a percentage of their monthly sales. However, your expenses remain constant regardless of your income. The bigger your overhead, the more it will reduce your profits. Miscalculations in overhead costs might also result in errors when pricing your items or services. If you do not adequately consider your overhead into the manufacture of your product, one of two things can happen: you will price it too low, resulting in a loss of profit, or you will price it too high, resulting in delayed inventory turnover. Estimating future labor and overhead expenses necessitates a thorough grasp of previous performance, market conditions, and business expectations. Inaccurate projections might result in budgetary blunders and financial difficulties.lll. | PROPOSED ACTION PLAN Money is the lifeblood of the business whether small- or big-time company. Similar with how the government system works, in order to operate and function, they must raise revenue to defray the nation’s necessary expenses. In business, therefore we shall not be aware only with how we utilized the capital and focus on marketing product and gaining revenue, instead we must dig deeper and look on all of the aspect of the company that may contribute or impact the business when it comes to finances of the entity such as competitive market, fluctuating demand, control of labor and overhead expenditures, cash flows, market prices, and utilization of limited resources. Objective: To provide an action plan that aims to improve financial performance and long- term sustainability of small businesses through detailed financial planning. + Generate financial forecast by use of historical data - understanding trends based on past sales, operational cost, and any relevant historical record will be used to forecast cash flows for the subsequent period. For a more accurate forecasting and financial budgeting as well as tracking financial position, the business can invest in some user- friendly accounting software or multi-talented application if the cost of acquisition can be covered by funds and the benefits derived from it will outweigh the cost. As was previously mentioned, seasonal fluctuations and limited resources are two of the challenges faced by small businesses. For this reason, accurate seasonal forecasting is essential to inventory management since it enables us to adjust inventory levels and guarantee that the company has adequate supplies or inventory to continue operating. + Develop a comprehensive budget that outlines the forecasted cash flow for subsequent years - this plan should cover methods to control both spending and generating revenue, obtaining additional support from loans or any other funding sources to supplement the budget as well as allocating adequate funds to handle unexpected situations while achieving targeted financial objectives. When developing budgets for small businesses, itis crucial to establish realistic financial targets as it will be used as one of the bases of budgeting. These objectives should encompass boosting revenue, or effective cash flow management, and minimizing expenses. Furthermore, one must identify necessary costs such as funding inventory procurement and equipment acquisition while also covering daily operating expenses since typically small firms struggle with limited funds that inhibit their ability to invest adequately in these areas.Adopting financial policies - these are the rules or principles or the business’ accounting and financial practices. It includes financial management practices, promoting long-term and strategic thinking, and managing risk to financial condition as well as defining the boundaries of employees. Furthermore, it incorporates strategies relevant to the execution of regular financial reporting and tracking the performance of the business and recognizes any monetary issues _ immediately Strategic financial advisory - hiring an accountant or any financial consultant provides professional support and guide in dealing with the finance of the business such as expense approval, cash control, and to make certain that economic implications are taken into consideration in all business choices. Furthermore, they can use their skills, to help enterprise manage its taxes and make sure that the enterprise follows relevant policies. Overall, accounting consulting services leverage data analytics to extract valuable insights that can identify areas of improvement as well as growth opportunities. Boost Operational Efficiency - this involves putting strategies into place to improve sales and revenue-generation such as expanding product lines, modifying pricing policies without compromising the quality of the product or services, and collaborations, particularly for small manufacturing business which can help them attract potential customer. More customer means more revenue. Allocation of funds to improve marketing and promotional activities - since we are in modern age, the utilization of various marketing channels to deliver a particular message to the target audience such as social media platform particularly Facebook and Tiktok is very useful and strategic for they will be needing data only to reach potential customers and advertise product. Business should concentrate on gaining customers’ loyalty through exceptional service and making targeting efforts. Continuously monitor financial performance and adjust the financial plan if necessary - regularly monitoring the financial plan to determine any variances or deviations from the actual performance to the expected/budgeted plan and make adjustments that recognize the variances caused by the changes in the market, economic conditions, and business performance. 10IV. DESIRED OUTCOMES Data Accuracy Data accuracy is a measure of how closely information corresponds to the objects or events being recorded. it is an indicator of information quality and data integrity. Data accuracy is considered as a measure of how accurately information is gathered, used, and complied with. For records to be a reliable provider of details and to enable analysis derivations of insights, data accuracy is crucial. Consistency and reliability requirements are met by records and datasets that maintain high levels of information validity, allowing them to be utilized for a variety of applications and decision-making processes. In small businesses, some owners and managers tend to encounter risk of data inaccuracy such as data misinterpretation, duplicate records, inaccurate data sources, incomplete, and inconsistent data, outdated information, subjectivity and bias, and poor data entry practices. These can be eliminated, however, with a comprehensive approach. Businesses use data controls in accordance with best practices for managing information and data management to overcome drawbacks and capture possibilities presented by high data accuracy. These include putting in place guidelines for data quality, regularly auditing data, and funding training for employees. By incorporating data quality standards into procedures and systems, a holistic approach to accuracy of data lowers errors that affect every aspect of the business. Technology plays a significant role in this, particularly when combined with a dedication to comprehending the complex nature of data accuracy and the variables around it. Flexible Budgeting Approach In general, flexible budgets are those that may be modified to account for anticipated unpredictability as revenue and expenditure variations occur throughout the span of the financial year. Businesses start by deducting expected fixed costs, or at the very least, expenses they expect to keep constant during the year. They then permit variable expenses to vary, thereby periodically evaluating costs and making adjustments in actual time. Because of this, businesses are able to adjust to changing needs over the year, such as an upsurge in demand for goods or services or a seasonal increase in labor expenditures. Although they take some creativity and time to account for possibilities, flexible budgets help firms adjust to shifting external circumstances. The flexible budget approach becomes an essential tool for businesses seeking to manage uncertainty and maximize financial performance in today's dynamic and unpredictable business environment. Organizations can arrive at better judgments, adjust to changing conditions, and gain more control over their resources by integrating flexibility in budgeting. The flexible budget strategy continues to be an essential component of sound financial management for organizations as they grow and encounter new difficulties. It allows for flexibility, in a business world that is constantly changing. crAllocation of Appropriate Resources The practice of allocating and managing resources to achieve an organization's strategic planning objectives is known as resource allocation. Allocating resources involves managing tangible assets, like equipment, to maximize the utilization of soft assets, like human capital. Allocating resources entails balancing conflicting demands and goals while choosing the optimal course of action to make the most use of scarce resources and yield the most return on investment. Businesses have to first determine what they want to achieve, such as higher income, increased productivity, or enhanced recognition of the brand, before they can begin the resource allocation process. After that, they have to determine what resources are required to do it. Allocating resources as efficiently as possible is essential to running a small business successfully. Small businesses can employ risk management, innovation, investment priority setting, and financial discipline to deploy resources in a way that maximizes efficiency, accomplishes strategic goals, and promotes sustainable growth. Small firms can successfully handle problems, seize opportunities, and lay the foundation for long-term success with strategic planning and decision-making. Estimated Sales One important method for determining whether your business idea has the potential to succeed as a real company is to estimate sales. To put it simply, determining the extent of your company's market will provide you crucial data. Such information will then guide your current decisions and assist you in building your company over time. A company's capacity to succeed and remain competitive depends on its estimated sales, which also acts as a guide for financial planning, scheduling of resources, performance assessment, and strategic choices. Businesses may predict market trends, take chances, and efficiently handle obstacles by using precise sales estimations. This allows them to position themselves for development and profitability in a dynamic business environment. Estimated sales continue to be extremely significant since businesses are always transforming and adapting to new economic conditions. This emphasizes how vital estimated sales are to the efficiency of enterprises. Tracked Revenue and Expenses Being financially aware of where your money is coming from and going out is one of the most crucial reasons to keep track of your business's revenue and expenses. Every business aiming to expand and thrive has to have a solid understanding of revenue and expenses. Businesses can improve their decision-making on the distribution of resources, investment in new growth prospects, and cash flow management by monitoring and projecting revenue. For businesses of every kind and sector, tracked revenues and expenses are the basis of financial stability. The benefit of well managed revenue and expenses becomes even more noticeable, emphasizing their role as vital tools for promoting competitiveness, and success over the long run. 2V. EVALUATION AND CONTROL Budgeting serves as the cornerstone of ensuring financial stability, achieving long-term and short-term goals, and driving sustainable growth. Hence, it is important to consider the following in creating an improved-quality budget plan: Goal setting and planning Setting clear financial goals and identifying key priorities can help the business. optimize resource utilization and maximize efficiency. It will serve as the entity’s benchmark for evaluating progress and financial performance. Through comparing the budgeted targets with the actual results, it can help us analyze certain adjustments in terms of pricing and costing of our products and take corrective actions to align with the desired outcomes in revenue targets, expense limits, and profitability thresholds. Canvassing and negotiations Initiating contact with the market to collect a wide range of data related to your product will serve as the foundation for creating an accurate budget plan. It is pivotal in start- up business to have valuable insights into the market conditions, pricing trends, and competitive dynamics of the industry in order to make informed budgeting decisions related to sales projections, pricing strategies, and resource allocations. Outsourcing alternatives will help in exploring different options, comparing the prices and quality of raw materials, and taking advantage of cost-saving opportunities such as buying in bulk orders or through online media platforms with relatively lower prices, in which the business can optimize expenses and align them with budgetary constraints. Negotiating favorable terms, discounts, and payment arrangements with the direct suppliers can also help reduce the costs of the products. Investing in quality and upgrades Through leveraging high-grade improvements in the quality of materials and equipment that the business uses, it will open up opportunities for competitive advantage in the constantly evolving business environment through enhanced performance and productivity. It will also help in mitigating possibilities for waste, damaged goods, and unsalable products. Businesses could utilize the first-in, first-out method (FIFO), especially for perishable goods, in order to avoid spoilages that incur additional expenses for the business. Cash flow management and resource allocation Costing and pricing directly impact revenue generation. It is important to accurately determine the cost of the goods or services, including labor and overhead costs, and be able to set prices that will generate a satisfactory profit margin. Hence, utilizing cost-volume-Profit analysis (CVP analysis) will be useful in understanding how changes in sales volume, prices, and costs affect their bottom line in order to make informed pricing and allocation decisions. Implement cost controls and operational efficiency Adherence to the planned budget ensures that the expenditures that the business will incur remain within the budgetary limits set. It will help in eliminating unnecessary expenses and reducing the overall operating cost. Through close monitoring of expenditures and Benforcing spending limits, the entity will be able to reduce the possibility of budget overruns and ensure that the costs are incurred judiciously and align with revenue generation. Enhancing operational efficiency also allows the business to optimize resource utilization and improve profitability. Organize a comprehensive financial analysis Through analyzing historical financial data, industry benchmarks, and historical trends, businesses can develop a realistic budget plan, revenue forecast, and expense projections based on the current market conditions that will generate the business an adequate “return on capital” and not a mere “return of capital." It also allows the business to make strategic decisions and monitor their performance against the industry and the business's own performance over the prior years. By comparing financial ratios and percentages, profitability margins, and efficiency metrics, businesses will be able to pinpoint the areas that seek improvement or potential vulnerabilities and be able to take corrective measures in order to adopt industry-leading practices and maintain a competitive edge in the market. This will also help us assess and ensure whether the business has sufficient cash and liquid assets to cover liabilities, operational expenses, and short-term obligations. Assess the accuracy of revenue projections Accurate revenue forecasting serves as the foundation for financial planning and budgeting, as it helps provide critical inputs in establishing sales targets, allocation decisions, and aligning spending with profits. Through this, businesses can minimize inefficiency, reduce costs, and improve operational agility, as it will be helpful in anticipating the cash flow needed, managing liquidity, and driving sustainable revenue growth. Foster adaptability to changes With the complexities of the market's dynamic environment, it is crucial to take an adaptable approach, such as constantly adjusting financial budgets, strategizing to capitalize opportunities, and incorporating contingency plans, in order to ensure that our budget is aligned with our strategic objectives and market realities. This enhances the business’ resilience, sustainability, and ability to achieve long-term success by enabling the business to navigate economic downtums, market disruptions, or other unforeseen challenges effectively through constant monitoring and updating of budgets in light of changing market fluctuations, performance metrics, and strategic priorities to ensure that the financial plan remains relevant, realistic, and achievable. Consult financial advisors for expert guidance The lack of financial knowledge is one of the major reasons small businesses fail to solidify their position in the market. By leveraging the specialized knowledge, experience, and expertise of financial advisors, they could provide customized budget plans and solutions that tailor the specific needs and circumstances of the business to align with their objectives. and financial capabilities in order to minimize financial risk. Financial experts can provide holistic insights into financial trends, market dynamics, and industry benchmarks, which will be useful in determining growth opportunities and navigating uncertainties with greater confidence. 14References: AccountingTools,2023.https://www.accountingtools.com/articles/the-problems-caused-by- budgeting. htm! Banks, 2018. https://wif.com.awimportance-budgeting-business/ Beers, 2022. https:/www.investopedia.com/articles/pf/08/small-business-budget.asp Bookkeeping Services, 2023. https ://www.perfectbalancebooks.net/blog/the-importance-of- iracking-income- ns Cabrera,2022.https://www.sm| for-small-businesses/ Cote, 2022. https://online.hbs.edu/blog/postimportance-of-budgeting-in-business FasterCapital,2023. https://f ital. com/content/How-Overhead-« Inf Budgeting-Decisions.html FasterCapital,Article 25. https://fastercapital.com/startup-topic/seasonal-fiuctuations.htm| GoForth Institute, 2022. httos://canadianentrepreneurtraining.convhow-do-you-estimate- sales-in-a-small-business/ Hempler,2023.https://www.linkedin.com/pulse/comprehensive-guide-budgeting-small- businesses-eric-hempler-3xbmce?trk=public_post_main-feed-card_feed-article-content Jenkins,2022. https ://www.netsuite.com/portal/resource/articles/inventory- management/perishable-inventory.shtml 15,Leonhardt, 2022.https: stay-on-budget-when-prices- increase/amp/?amp_gsa=1& _js_v=a9&usqp=mq331AQIUAKWASCAAgM%3D#amy =From%20%251%24s8aoh=1 707808292354 7&referrer=https%3A%2F%2F www.google.co m&share=https%3A%2F%2Ffortune.com%2F2022%2F03%2F 10%2Fhow-to-stay-on- budget-when-prices-increase%2F Lutkevich, 2022. htips://www.techtarget.com/searchcio/definition/resource-allocation#t Mustafa, 2022. https://www.forbes.com/sites/forbesbusinesscouncil/2022/02/07/why-your- small-business-needs-a-budget/?sh=630faa6e1233 O'Brein, 2022. httos:/www.netsuite.com/portal/resource/articles/financial- management/flexible-budget.shtml#: Original document, Budgeting and business planning, © Crown copyright 2009 Source: Business Link UK (now GOV.UK/Business) October 1,2028.https//m.infoentrepreneurs.org/en/quides/budgeting-and-business-planning/ Sailpoint, 2023. https://www.sailpoint.convidentity-library/data-accuracy/# ‘Smith, 2022._https://www.bench.co/blog/accounting/business-budget Symson,Blog and Articles.https://www.symson.com/blog/the-12-biggest-pricing- challenges#:~ :text="%20A%20price%20increase%20may%20result,and%20what%20the) %20will%20pay 16