Budgeting is a critical activity that goes a long way in determining the success of any business whether big or small. Through budgeting, business entities can plan appropriately how the resources available will optimally be used to maxims on profit while reducing expenditure. Without proper planning, it becomes difficult for any business to a line its operations to meet the business goals. Budgeting is entirely a management function that aims to ensure good utilization of available resources while minimizing losses and wastage. Through budgeting, small businesses can establish their operational limits and what needs to be done if they have to expand. In coming up with a budget, a firm has to evaluate itself to ensure the budget reflect what the company can achieve (Flory, et al. 2012). Budgeting can be done yearly, semi-annually or at a specified period as the enterprise may wish to. Budget is aimed at ensuring that all resources involved in the production are utilized and accounted. Best budgeting practice helps a business b e able to monitor how it's growing and how its resources are being utilized. This paper seeks to discuss the ethical consideration a small business observes during its budgeting process.
Ethical considerations in budgeting for cash flow
Without the proper movement of money within small business, it becomes difficult for the firm to meet its administrative cost. Considerable amounts of money may also be lost along the process of money flowing between various persons in the business. Conflicts and misuse of the fund are most likely to occur in a situation where the company has not established clear channel for cash flow. Many small businesses lack clear means of cash moving. This is a potential source of loss of pay. Checks and balances need to establish to create control mechanism that can track the movement of money without causing interference among the various departments or individuals in a firm. While promoting accountability, checks and balances help instill professionalism on the manner in which money for the business is handled.
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Collections and disbursement of cash should be efficient to avoid causing unnecessary delays in making purchases or making payments (Santosuosso, 2012). Business with an excellent reputation of clearing their obligations in time develops good relations with their creditors and customers making the business grow as projected. Prompt billing also ensures the firm manages its cash flow and has enough cash to meet its daily expenditures without delays that might affect the operations of the business. Improved cash flow is always to the advantage of the firm.
Ethical consideration in growth forecasting
Growth is always among the top most desires of small business. The increase of a business is never automatic, and the business has to work tirelessly to make it grow. Various factors may affect the growth trajectory of any firm. Budgeting is a critical aspect in growth forecasting that if appropriately utilized small businesses can achieve growth with ease. To ensure a company's resources is encouraging growth, it is important to use correct information in developing the growth plan. Many small firms use assumptions on their budgeting and thus make them have a wrong impression about their ability and opportunities to grow. In planning for the future, the budget should factor essential elements of the economy such as a fall or rise in prices of products of the firm, decline or rise in demand and supply. According to Philip and Costa (2007), the data used to do the forecasting should be correct and valid.
Professionals should be involved in forecasting and budgeting process to ensure the budget helps a small firm plan for growth and implement the growth plan. It is unethical to have people with no enough knowledge about a business making and recommending a plan for business (Santosuosso, 2012). The commitment to achieve growth should also be seen in the budget having enough resources allocated to grow initiatives.
Ethical Considerations in Risk Management
Risk management is critical in reducing the amount of capital spent on handling risk related issues and accidents. Budgeting involves setting aside resources that will be used for future activities. Some of the activities are always certain while other not (Philip & Costa, 2007). To avoid risk related to personal injury, it is important a small firm budget for the purchase of safety tools and equipment’s and avails all personal protective equipment for its workers. The budget should also contain funds specifically set aside to help the business meet certain unforeseen occurrences. The budget should have enough amount of money to provide services such insurance cover to both its people and equipment.
Conclusion
The importance of ensuring a small business follows all the required steps in making and implementing its budget cannot be over emphasized. Ethics are what define and make a business stand out from the rest. With proper ethical standards, implementing the budget becomes easier. Many small firms are adopting a code of ethics to help them streamline their budgeting activities so as to survive the current dynamics of the business world. The above ethical consideration is examples of the many ethical practices currently in existence. Small businesses need to develop their code of ethics which will guide their internal operations such as budgeting. Budgeting is a critical business planning and management activity with the potential to determine the success or failure of business organizations.
References
Flory, S. M., Phillips Jr, T. J., Riedenbach, R. E., & Robin, D. P. (2012). A multidimensional analysis of selected ethical issues in accounting. Accounting Review , 284-302.
Philip, L. D., & Costa C, A. B. (2007). Transparent prioritization, budgeting and resource allocation with multi-criteria decision analysis and decision conferencing. Annals of Operations Research , 154(1), 51-68.
Santosuosso, P. (2013). Integration of Ethical Values into Activity-Based Budgeting. International Journal of Business and Management , 8(20), 1.
