This is not subject & concept of budget & Finance. This is an essence of planning & Budgeting of finance in an organization with help of an example.
Financial Planning & Budgeting helps to monitor the expenses & resources of a business based on monitory values.
If we are not planning a proper finance requirement, We may go to bankrupt.
We are planning a budget for Office Maintenance. Last year we spent Rs.10000/- for Office maintenance. Based on our current cost of living & index, we are planning a budgeted amount for office maintenance. Accordingly we are allocation finance i.e. we are making a finance plan for such expense.
At the year end, we are doing a variance analysis for budget & Actual spent amount.
Variance will show how we spent actual comparing to our previous year and how our financial plan exceeded. We can do an inquiry to concern department to check whether any misuse of finance allocated for the department is happened.
Based on the financial tools, Budgetary control, Trend analysis, comparison statement for previous year & current year and budget vs actual, Ratio analysis & Formula of financial management, we can track the financial worthiness of the transactions.
Additionally the inefficiency of the department personnel to spend an excess amount for an expense can be tracked and controlled.
Directly we can not question a person based on a simple physical monitoring.
This financial plan can track back the transactions & inquire the reason for excess spending and control them.
Financial, spending inefficiency & misuse of office cash & Steeling of property can be tracked by doing an analysis with Financial plan.
If a spending on use of vehicle consumes more cost & reduces the profit, we can do a financial plan on this and control the expense.
Simple logic each drop of water forms a big lake over a period. If you don't plan for water management, we can not see any lake, pool, etc like a water sources for future.
Same logic for business regarding the Finance.
Thanks and Regards,