If the business does not control its costs, then it may result in the company going into debt. This would be because of factors such as; danger of cash flow (crisis), not being able to pay their suppliers which would then have a negative affect and would mean that staff would not get paid. Debt is the lack of monitoring budget/costs and this could potentially result in Signs R Us going bust.
Another factor that would have a negative effect on the company would be their inefficiency this could be through the company’s bad use of resources such as staff, this meaning that the staff are not being put to use well enough or that the staff are not being trained properly. Additionally, the company may not be using their physical resources to the best of their capabilities so the staff do not have sufficient resources to use; this may also be the case with the company’s technological resources with regards to how well they work and if they are able to use them. An insufficient company means that the work being done is not to a high standard and that the company is not able to function properly due to lack of preparation or effort gone in to improve the company.
Moreover, the company needs to make sure that they have a good reputation so that they can continue to trade and do business with their suppliers. A company needs a good reputation so they can afford to buy and sell their goods because if not the suppliers might not trade with them and the customers might stop buying from them.
In addition, it is important that the company is able to prevent any wastage from occurring within the business. This means that they have to be aware of how much money they are spending and making. Wastage could occur through staff stealing stock and it going unnoticed meaning that the company then loses money and is not able to make a much profit. It also means that the company should be aware of the environment and how they treat their business as it is important for them to save money.
The businesses budget should be divided into the expenses and any overhead production costs. The business’ overhead costs are things such as operating expenses such as phones, insurance, marketing and rent. If the business does not know their overhead and production cost, then they will not be able to set optimum prices. This is important because whereas production costs will often decrease with each unit produced the overheads will not.
Another reason why it is important for the company to control its costs is because if the business is not able to budget then they may end up with not enough cash or too little credit to be able to pay their bills. The business might overestimate how much money they have to pay their bills and not be able to afford to pay them; by the business recording how much money they have then they will be able to afford to keep making profit and enough money to not go bankrupt.
If the company fails to monitor its costs, then it could lead to failure and in extreme cases bankruptcy making the business go bust.
Signs R US has been able to do well with regards to their budgetary control because they were able to save money in certain areas and maximise their profits. To some extent the company was able to stick to their budget so some of their budgetary skills were favourable; this was because they may have over budgeted for what had actually happened.
The variance that the company had was an even distribution of both favourable and adverse because throughout July-September their financial gain was not always constant. Budgets are good for the company because it means that they are able to estimate any future gains and whether or not they will have a positive impact on the company. The adverse variances had occurred mainly during the loan repayments and other factors that would have made the company a debtor whereas the favourable variances had occurred when the company was the creditor.
In July, the company had a total of one variance and one adverse impact on their overall profit. The favourable variance was with the advertising and social media; this means that means that the company is able to save money as they had overestimated how much this would cost them. The adverse variable came with their loan repayment, this would have a negative effect on the company because this means that they underestimated how much it would cost them to repay a loan and so they lost money (a total of 50).
In August the company had a total of 5 variances; 3 of these were adverse and only two were favourable. They lost 200 when budgeting for their advertising/social media costs and lost 200 with their materials. They also lost 300 with their wages and salary budget. This has a negative affect because their adverse variances are more than their favourable ones. The company lost more money because they did not budget properly. The company would have seen the positive outcome of July and not been wary of the outcome for August. However, this did not have a bad impact on their profits because they were able to make back the money.
Finally, in September the company had a total of 4 variances; two were adverse and one was favourable. The company was only able to save 50 from their loan repayments. The company then lost money from their total costs (-100), wages and salaries (-200) and then from their materials (-250). This means they made very little profit that month. Overall the company was able to make profit (especially during the July-August period) although they were not always successful when sticking to their budget so there were some adverse effects with these results.
Signs 4 us would benefit from budgetary control because it allows them to be able to afford expenses within the company such as; paying their staff, any purchases that need to be made e.g. materials / workshop rental. The company would also benefit from a budget because it enables them to be able to advertise their products so they can continue to operate in a successful way.
Moreover the company would benefit from a budget because it means that they can afford to repay any loans and a budget also means that they are able to see where they can save money and where they are able to spend more money if necessary.
Furthermore, the company would benefit from having a budget because it helps them with organisation skills and help keep the company afloat and prevent them from going bust.