Introduction of Budget and Budgetary Control 

Budgeting for business organisations refers to a mechanism of predicting expenses and revenues that are used by numerous business or non-business organisations. Organisations plan the process for a specific period considering multiple factors that may influence the budgeting scheme of the company. Budgeting refers to a roadmap that is intended to determine the future sales and costs of an organisation for a specific period. Financial departments of an organisation are responsible for preparing financial statements, including budgets for organisations (Schick, 2014). Budgeting helps the organisations to stay within the financial resources to make any business decision. Budgeting plays a crucial role to provide the executive's control over business operations in business organisations.

There are four basic types of budgeting that organisations can consider while making projections regarding their budgets. The budgeting types may also depend on the size and phase from which organisation is passing. The four types of budgeting include. Incremental budget, zero-based budget, base budgeting, and activity-based budgeting. Incremental budgeting refers to a process of budgeting in which previous year's budget is considered as a benchmark to develop future budgets by adding or lessening particular figures and projections.

On the other hand, a zero-based budget is the opposite of an incremental budget. In a zero-based budget, all the figures are reset to zero before preparing a new budget for the organisation. The base budget is prepared for the organisations to record just the most essential expenses, and any other costs above base projections would be discarded. This type of budget is made by the organisations that seem to struggle in finances. Activity-based budgeting is prepared by mostly mature organisations. Activity-based budget records all the expenses that may occur during the production activities. The activity-based budget takes into considerations all the aspects and factors that may cost the business through different operational or functional activities (Cuganesan and Donovan, 2011).

Preparation of Budget of Budget and Budgetary Control 

In the first year of operation, too many small companies have started and struggled. A small enterprise struggles for several reasons. The reasons may include lousy branding, poorly-designed business strategy, poor pricing policy, a poorly developed product, and many more reasons can be the cause of a failure. An inadequate company budget is one of the most important causes of the failure of a particular small business. If organisations look forward to a profitable company, creating a financial budget for a company is very critical. A budget retains oversight of the organisation's finances so that the organisation does not over-spend and debt its business. Debt can be difficult to remove, mainly if the cash flow is not natural to get out of debt.

The first step in preparing the budget must be a research to find out every possible expense over the next fiscal year. Organisations must examine the costs so that unexpected spending does not throw business off balance. It is evident that the unpredictable risks make it impossible for companies to meet their targets. If an organisation sets a budget based on a specific cost and later comes to know that the expenses have exceeded over time, then the organisation must sacrifice its profits to compensate the charges that were not projected during the budget planning. In that particular scenario, the organisation must consider the ways to increase the sales and profits to compensate for the amount spent in the form of expenses to keep the business stable in the market. An organisation must take into considerations both types of expenses, for instance, fixed and variable costs while preparing the budget (Sandalgaard and Bukh, 2014). Fixes expenses include the expenses that are fixed and cannot be changed by changing the operational activities of a business. On the other hand, variable costs are those expenses that can be altered with any change of the organisation's operational activities.

The organisation needs to excel in estimating how much revenue will come from its business operations over a weekly, quarterly and annual cycle. Many collapsed companies arise due to profits not being measured or overestimated and the resulting rise in costs. What is relevant about sales forecasting is that businesses base their forecasts on actual data. Unless the framework to achieve its priorities is in operation, the organisation cannot create revenue-based estimates. Company managers must focus their projections on their market efficiency. Consequently, the organisations must base the projections over actual and real growth of the business that is likely to occur over a specific period.

The gross profit margin is a sign of a business' financial health. Gross margin income is the cash left around once the companies have paid the expense of doing business (Ezzamel, Robson and Stapleton, 2012). For example, an organisation could produce sales of 1,000,000 Omani Riyals but not be in debt at year-end because its costs outweigh the income the business generated. That is because an organisation does not know how much the organisation pays to run the business operations. A business may be spending money on goods and services that have little outside, costing the organisation money to impact its business operations. Therefore, to explore which costs can be minimised, businesses need to examine organisational activities and processes in detail.

Consequently, organisations must define a clear set of objectives that are intended to be accomplished by budgeting and planning. The organisations must consider all the factors that may influence the costs and expenses to be safe from additional costs and expenses in future to operate within budgeting realistically. The organisations must also consider the realistic sales and revenues to make accurate projections against the costs an organisation must bear during the production process. The final phases of budgeting include the monitoring of operational activities. Business executives must observe and monitor the activities involved in the production process to check the authenticity of budgeting. It is far better to control the expenses at the instance of their occurrences than to have negative impacts of adverse spending at the end of the fiscal year (Bryer, 2014). Like other business planning and strategies, an organisation can adjust the budgeting planning during the fiscal year to prevent from financial issues and difficulties.

Static and Flexible Budget

The static budget refers to budget planning that is not flexible in nature. In other words, the static budget may include the costs and expenses that cannot be changed according to actual costs and expenses. If the circumstances of production activities change, the organisations cannot ascertain expenses and costs in the static budget. A static budget is generally prepared considering all the expenses as fixed costs. Consequently, a static budget is usually fixed in its nature. Static budget remains the same regardless of the factors that may influence the fees and expenses of production activities of an organisation.

The above per-forma of static budget suggests that the costs and expenses for Mr Ali would be around 8950 Omani Riyals for the next fiscal year. The static budget calculates the costs and expenses within a fixed approach regardless of any change in circumstances.

On the other hand, a flexible budget is opposite to static budget. Flexible budgets are allowed to be adjusted according to business circumstances. An organisation can ascertain particular costs that occurred out of the projections. The flexible budget gives business organisations with an opportunity to adapt according to business circumstances. The approach of a flexible budget is more realistic than the static budget as in real-world it is complicated to stick with a single plan. On the other hand, a flexible budget considers all the operational costs as variable costs and the expenses and costs can be modified to judge the ongoing business performance (Wong, 2006).

The above table provides a flexible budget for Mr Ali for his business. It is evident from the budget that Mr Ali would have more liberty by a flexible budget as he can adjust the changes in his budget according to the business circumstances.

Recommendations of Budget and Budgetary Control 

An organisation must measure the production costs and expenses to keep the business profitable. Budget control is a framework that helps business executives in setting spending limits for business. Budget control is planning that helps the business managers and executives to define the expectations of a business. Through budget control business managers and owners can make critical business decisions to enhance the profitability of the company.

Budgetary controls provide business managers and owners with insights that would help them in reducing the costs of productions. Eventually, the business will be more profitable and cost-efficient than without budget control mechanisms. Budget control does not only provide control over finances, but budget control can also give the managers and executives with the control of the entire business (Jacobs, 2005). Business managers can spot the weak areas of business and thus make important decisions to improve that specific area that needs improvement. Consequently, budget control plays a crucial role in maximising profits and revenues for an organisation by minimising the costs and expenses of production.

References of Budget and Budgetary Control 

Bryer, A. R. (2014) ‘Participation in budgeting: A critical anthropological approach’, Accounting, Organizations and Society, 39(7), pp. 511–530. doi: 10.1016/j.aos.2014.07.001.

Cuganesan, S. and Donovan, J. (2011) ‘Investigating the links between management control approaches and performance measurement systems’, Advances in Management Accounting, 19, pp. 173–204. doi: 10.1108/S1474-7871(2011)0000019014.

Ezzamel, M., Robson, K. and Stapleton, P. (2012) ‘The logics of budgeting: Theorization and practice variation in the educational field’, Accounting, Organizations and Society, 37(5), pp. 281–303. doi: 10.1016/j.aos.2012.03.005.

Jacobs, J. F. (2005) ‘Budgeting and Budgetary Control’, SSRN Electronic Journal. doi: 10.2139/ssrn.400120.

Sandalgaard, N. and Bukh, P. N. (2014) ‘Beyond Budgeting and change: A case study’, in Journal of Accounting and Organizational Change, pp. 409–423. doi: 10.1108/JAOC-05-2012-0032.

Schick, A. (2014) ‘The metamorphoses of performance budgeting’, OECD Journal on Budgeting, 13(2), pp. 49–79. doi: 10.1787/budget-13-5jz2jw9szgs8.

Wong, K. L. (2006) ‘Financial management’, in Professional Housing Management Practices in Hong Kong, pp. 123–142. doi: 10.5005/jp/books/10677_12.