For this assignment, I will be evaluating the problems that arise when business owners do not monitor their costs and budgets correctly and by evaluating this problem I will be able to identify the consequences the business can face if the budgets and costs are not effectively managed.
When the costs are not effectively managed effectively it can lead the business into debts. If the costs are not managed the business will spend more money than they will have to spare. This will also lead to some work equipment not being maintained or replaced and this can have a negative effect on the business. One problem the business will face will be that they will not be able to pay their employees right since the business will be trying to pay off their debts using all the money that can be spared. For most companies if unmonitored costs are not paid annually and are not budgeted effectively it could lead into debt. One way a business can avoid this is if the owners plan and budget for costs that might not be expected because the business can suffer from a large debt from not planning for the unexpected.
Another aspect the business will need to monitored will be the sales sector since they can be used to identify cash flow problems or if any products has difficulty in being able to sell. If the problems are identified it becomes easy for the company to find solutions. One other problem that can arise in relation to unmonitored sales figures will be that the business will not know how far to push themselves in order to maximize their profit. When a business has a sales target, they know how much profit they will make from meeting their target which will enable the company to get extra money to spend on other areas. Also, if the sales figures are monitored it will enable the management to see the department that are doing well and those who aren’t. The departments which are earning the most could be awarded and could in turn make other departments work harder and more effectively bringing the business more profit in.
Another aspect of a business that must be monitored is profits since it is the main aim of every business. When profits are not monitored businesses can end up overspending as they will not know how much money they will be making as compared to the amount they are spending. Also, when profits are not monitored businesses will have no idea how much money they will be needing to cover their production costs and to make a profit of their products. Profits need to be managed for businesses to be able to expand and grow to gain more income however if the business doesn’t know how much they are making annually they can’t know how much they need to make to be able to expand.
One of the biggest problems will be costs not being monitored as they can build up and cause more problems such as debt. Again, if there is no cost control within the business it can become very easy for a business to go over budget. The business could end up running out of money and will not be able to complete certain projects within the business leaving their investments mute. By losing investments the business would be forced to take out a loan which will again add up to the original costs. It is the biggest problem because when a business doesn’t monitor its costs it prevents them from expanding and generally moving their business along as they would be too busy trying to cover all of the overspends within their costs.
After researching, I have found a few ways to stop start-up businesses to avoid budgeting and break even problems. To avoid break even problems I have found out that too avoid break even figures from being too high and encountering other problems, it is recommended for businesses to shop around for less expensive supplies as well as raising your sales prices. For budgeting, I found out that for start-up business, they should establish all their possible expenses and even budget some money aside for any problems that may occur that aren’t covered under the other categories. I suggest for small businesses looking to not encounter any unexpected problems is to definitely set money aside for such problems as these problems can lead the business to bankruptcy and debt.
In conclusion, the best way I have found for new businesses to avoid having budgeting and break even problems in the future is to budget for everything even if the business doesn’t think it needs to be budgeted for. If businesses don’t budget for the unexpected problems much worse than debt can occur. Businesses should cover anything from insurance to wages and sick pay through budgeting as it could cost them their business.