Finance

Role of Budgeting in Planning, Control, and Resource Allocation Process in UAE Companies Financial Planning

Budget

Before understanding the key concepts of budgeting, it is important to understand the meaning of budget. A budget is used to make a documentation of the translation of plans into money. So, the amount of money that needs to be spent in the planned strategies of the company would lie under the budget of that company. These planned strategies include the expenditure that a company incurs and also the income that the company predicts to make. So, in other words, a budget helps one to make an estimation of the amount of money that would be required for the company to handle the projects undertaken by it. It must also be understood that a budget is not made permanently. There are conditions under which a company can make changes in the budget and go as per as the needs of the market. As for example, if a company sees that the use of computers is not as had been planned in the budgeting; it would either replace it with something or not make any investment at all in the field. This is where the utility of controlling comes into the picture. Other than this a budget is also significant from other perspectives. If one talks about the resource allocation, budget has an equally important role to play in it. The reason for the same is that let’s say that a company has budgeted that it can afford a certain amount of power supply for a certain project that is conducted in a village. Under the conditions, the amount of human resource that would be required to carry out the project can be determined from the budget itself. Normally a budget is of three types. They have been mentioned as follows:

Survival Budget: This form of budgeting is important in the boundary conditions. It estimates the minimum resources so as to complete a particular project. So, if a company has a look at the survival project, there is one obvious analysis that can be done. This is that under the most optimistic of the situations, the resources allocated would be sufficient. There would be very little margin of error under the conditions.

Guaranteed Budget: This budget is formulated when there is a guarantee of a particular amount of income at the time of formulation of budget. So, when a budget is made from this perspective, this income is taken into consideration. If somehow, the debtors are not able to provide the income that the company used as guarantee before making the budget, it would have to switch over to the survival budget formation.

Optimal Budget: The third form of budget is the optimal budget. This budget is used under the conditions when there is extra money in the company accounts or else the company feels that it could raise extra money from the market. So, if the position of the company is good then this form of budgeting can be applied. As for example if we consider a very famous company in the infrastructure sector, Emaar, we would find that the company has the ability to raise a lot of extra capital from the market. So, Emaar can hope to use it in utilizing the money to plan a few more interesting projects like it had made the longest mall in the world and the tallest tower in the world. Both these projects were outcomes of an optimal budget made by the company.

Budgeting Responsibilities

Owing to the circumstances under which a budget is fruitful, the organizations should be highly selective in handing over the responsibilities of making the budget. There are a few pre-requisites of making a budget. They are as follows:

The concerned employee should have a clear understanding of the company’s values, strategies, and plans that lie in the near future.

The employees must know the importance of cost-efficiency and cost-effectiveness.

Also, the concerned employee must have knowledge about the resources that would be used to generate and raise funds.

The above pre-requisites are essential for the company if they have the motive of using budgeting in the planning, controlling and resource allocation purposes.

So, it is generally recommended that a company has a budgeting team that has an optimal size so as to prevent any discrepancy with the formation of the budget. Under all situations where the concerned members of the finance department have difficulties in planning the budget, they would have to consult the board of members for the same. For a situation like this to arise, the planning in the company must certainly have been wrong. So, we can see that the new planning would depend solely on the fact that budget allows the same to happen. Under all other conditions, the estimated plan would have to change. (Budgeting, 2010)

Role of Budgeting in Planning

Here we are taking the telecommunication giant, DU into account to understand the role played by budgeting in the planning process. It was only about a couple of years ago that the company introduced its new plan. This new plan was about introducing the pay-by-the second plan amongst the services of the company. This was done as per as the optimal budget plan of the company. DU had formulated a budget where it got the option of introducing a new facility with the extra money that it hand in hand. As the company analysis shows that DU was climbing the ladders of success even then, so this was certainly a major step in the making. Moreover, the funds that had been allocated in the budget were enough for the fact that the company could start this service any time it wanted. So, it chose the time when the nearest rival company Etisalat had screwed up its plans after introducing the Blackberry services. As an optimal budget is that which allows the time for starting a new investment, this was just the time and DU made the most of the opportunity. Today this plan is among the most revenue-fetching plans that the company had ever introduced in its services. So, budget played an extremely important role in the planning of this success of the firm. Had the company planned to use the extra money as a surplus or retained or reserve, it would never have been able to introduce this service. So, one can see the importance of making the right budget at the right time can help in planning for great successes in a company. There are other examples also where one can see the planning being aided by preparation of budget. The tourism department of Abu Dhabi was guaranteed of the fact that it would have a considerable amount of income from the flourishing tourism in the country due to the onset of some of the most peculiar activities in the country. Under the situation, the department used the guaranteed budget to enhance the cultural activities of the country. A number of museums have been renovated because of a planned budgeting under the guaranteed budget plan. The department had planned that with the money they would have from the already existing resources in tourism, it would evoke a cultural feeling in the country and its natives, It has been able to do it successfully as per as the statistics of the museums of the region are concerned. So, once again we see that budgeting has helped in planning of such an important landmark in the country.

As in general one can say that budgeting is about aiding a company to make plans for the future. It is that process where a company can be assured of the fact that it would have enough money so as to carry out the requisite projects. We are all acquainted with the fact that the world is about competition as of today. Every company needs to plan new projects so as to show its core competency. Under the conditions, no company can automatically start investing on its research and development. It has to come through a substantial degree of planning which could only be possible after the budget of the company allows it to do so. In all other situations it would finally have to terminate the services with an excess of demand or supply.

There are also other instances where a company can use the principles of budgeting in order to carry out its planning. This can be seen in the case of training. Every planning of training has to be supported by budget. This is one of the foremost criteria of training. There are a number of instances in the country where the Government is implementing programs like Emiritzation. If the budget of the company does not support such plans they would certainly not be executed. The loss can be huge under the conditions. The first case would be a monetary loss as an incomplete training would actually be of no used as it would be insufficient to fulfill the company’s criteria. If some small companies do place employees with an incomplete bit of training, it would make the company even smaller!

So, we can see how budgeting governs this chain of planning which of not executed in a suitable manner could bring about adverse results. (The Importance of Budgeting, 2010)

Role of Budgeting in Controlling

As in the case of planning, budgeting also has a special role to play in controlling of an organization. We have seen that a plan would simply lay the conditions of taking on a particular activity. What follows is its controlling in the implementation phase. Let’s say that a company wishes to promote its products or services in the trade fare of Dubai. This is one of the places where controlling comes into play with respect to budgeting. Dubai Trade Fare is one of those occasions when a number of companies use the best of means to promote their products. With an adequate amount of control, the companies would never be able to compete in the pool of so many. So, a budgeting has to be done to choose the HR and marketing department which would be responsible to control the scenario.

Without a proper budgeting in this respect, the company would make inefficient decisions and after a while, there would be no control over the promotional measures of the company.

There are also a number of chances where a company goes with leisure expenses. It does increase the value of the company for a particular period of time but after a while there has to be an end to it. Now, with a planned budget under the conditions, the companies would be able to restrict themselves from over-spending as the budget would not suit their expenditure. This requires the company to make a survival budget. As we can see a survival budget would certainly take care of the budgeting requirements of the company. If the employees are aware of the fact that they would not be able to complete their respective projects with the type of expenditure they are doing, they would certainly shift to other economic reasons. This way a company can also control the activities of the employees. Once a planned budget is produced the whereabouts of the employees can also be checked as they would be on a hire. The amount of time given to them in the budget would be fixed. If they are unable to finish their respective works in this stipulated time they would see the effect on their salaries or wages. So, this way, the company’s activities, employees, time and money can all be under control with the introduction of budget in the company’s financial plan. The company would certainly become more efficient if it works in a controlled manner. So, this would be for the mutual benefit of both the employees and the company as well. (Controlling a Budget, 2010)

Role of Budgeting in Resource Allocation

A company’s success is highly dependent on the resource allocation. This has to be done optimally so as to complete a certain project. The law of economics suggests that a company has the least resources and has to make the most of it. So, only an appropriate resource allocation would help this happen. This would be in terms of human resource, raw materials, equipments, money, time and all other attributes that take for making a project successful. Here again, the budgeting of the company plays an important role to play. The reason for the same is that in all the sectors that have been talked about here, only a planned budget could decide the maximum a company can afford. Let’s say that ADNOC has the plan of staring a new subsidiary. Under the conditions, it would have to make a budget where the company could allocate the amount of human resources in order to make this happen. Not only this, there are a series of activities that would have to be done in the process. Much of the time, there would be two processes going on and at times even one. So, a planned budget would estimate the amount of money that the company can afford throughout the process. Based on this, the processes would have to be allocated in a manner where the company can make the best use of the human resource available. If ADNOC has 200,000 AED for the purpose, and there are 10 slots, rather than allocating 20,000 AED per slot, the company would have to see the priorities of each slot. If a particular slot requires double the number of processes than the others, the resources would have to be allocated accordingly for the same. Now this can only be possible with an appropriate amount of budgeting. If the budget of the company does not allow double resource allocation for a particular slot because of other activities, then the company would have to come up with other alternatives. Had there been an inability of a budget, the company would allocate double resources and finally land up with none available for a process that has little requirement. So, we can see that even the process of resource allocation requires budgeting to a large degree.

Talking about the company Emaar, as per as the organizational size of the company, there has to be a proper budgeting done. The reason for the same is that every department requires an adequate amount of human resource and funds. If the company’s budget for a particular project is 200 million AED, the company would also have this budget divided into different departments. Every department would have to use only the allocated funds to support its human resource and all other requisites prior to conducting the project. If the construction department spends so much that the company is not able to use any funds for its advertisement, in this world of competition, even a company like Emaar would have to bow down to others in the league. There are so many options that people have for residents that promotion under forced conditions could change every profitability ratio of Emaar. So, here again we see the hierarchy that could be affected because of the inappropriate use of resources that would result from the non-availability of a budget that could suit the purpose. (The Basic Budgeting Problem, 2010)

Conclusion

So, one can see that a budgeting process has a number of utilities in the projects of a company. This could be from the perspective of planning, controlling or resource allocation. Every company has the desire to be at the top. Finance has a special role to play in the same. Te steps of laying down an appropriate budget are as follows:

Firstly, the concerned person should lay down all the places of investment with respect to a particular project.

Next, make an estimation of the unit cost of every product that would be manufactured in the process.

Next, analyze the resources that would be sufficient to provide for the unit costs found.

Next make a proper budget format so that it is clear to all the departments and they the amount of allocation for them in all the respects.

It is also advisable to make notes so as to be able to explain the budget better.

Next, it is required to take a feedback on the budget so as to see whether it is applicable to all the departments or not. If not, then it would have to be re-planned.

Finally, make the final documentation so as to be able to help in planning, controlling and resource allocation as has been suggested earlier.

With all the above processes followed, a company can afford to perform all the financial activities in its respective projects. It must be remembered that only a systematic design of budget as has been concluded could be used for the mentioned cause.

financial planning

Why Do You Think Financial Statements Are Required to Be Prepared Using the Same Standards? Financial Planning

Financial statements are prepared in accordance with what? What governing bodies set accounting standards? Why do you think financial statements are required to be prepared using the same standards?

Financial statements are considered to be means of communication as it communicates the financial performance of company to its stakeholders. It is also being used as basis for comparing its performance with its competitors, industry and to see its position in industry. Comparison can be made if all prepare financial statements by following some standard rules of preparation of financial statements. If uniformity is there then it will be easier for stakeholders to understand financial statements. These statements are used by a variety of internal and external users including stockholders, investors, creditors, regulators, employees and senior management.

These statements information needs depends upon the kinds of decisions the user want to make. The users are interested to know how firm is doing in terms of its profitability, its financial position and its overall capacity to meet obligations and expectations of stakeholders. In other words users of financial statements are interested in earning power of the company.

To be more precise Creditors like to see earning power which will show estimated future earnings of the company. If earnings are good it shows that the repayment capacity of the firm will be good. Based on such kind of analysis creditors will decide to supply merchandize on credit basis.

These statements are important for creditors since the accounting information showed in financial statement will help them to evaluate the risks of granting credit or lending money. If they come to conclusion that, risk is low then they will definitely provide credit and vice-versa.

The common rules or set of standards are called as Generally Accepted Accounting Standards (GAAP) which will indicate how These statements or reports need to be prepared. These standards work as a guidance for preparation and following methods of accounting to be followed by all.

Accounting process works on two basic assumptions. These assumptions are monetary unit assumption and the economic entity assumption. The first assumption i.e. monetary unit assumption indicates recording only monetary transactions of business whereas the second assumption says that economic entity can be any organization or unit of a society. This assumption gives emphasis on differentiation of owner and entity.

In U.S. these set of rules or standards are issued by Financial Accounting Standards Board (FASB). Countries outside U.S. use standards issued by International Accounting Standards Board (IASB).

Accounting Homework Help er Answered this diligently.

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5 Reasons to Purchase an Indexed Universal Life Insurance Policy Financial Planning

As a financial planner, I feel like Indexed Universal Life insurance is one of the most misunderstood and underutilized tools and asset classes in the market today. I believe that this is because of the newness of the product itself. Indexed Universal Life(IUL from here on out) has only been around for a little over 15 years. Because of this, most financial advisors don’t fully understand it. IUL’s came around after they received their education and set their practices. Thus, individuals aren’t learning from experts, but rather, they rely on media pundits for any information on these programs. In an effort to further educate you, and promote a wonderful product, I give 5 reasons to buy an IUL.

The first great reason to have an IUL in your retirement portfolio is the fact that these products provide minimum guarantees. Unlike placing your funds directly into the market, these funds are protected from the market. They earn interest in a unique way. Interest is credited based on the performance of a chosen index. Rather than being invested in the actual market, you merely receive a portion of the index return. Again, the worst-case scenario is that you earn 0% in a given year. You can never lose money due to market fluctuations. Each year that you do earn interest, that interest is locked in and becomes part of the principal amount guaranteed to not be at risk to the market. What a great way to plan for retirement. This system of guarantees also removes the risk of retiring at the wrong time, when your account value is low due to market losses. It also prevents catastrophic damage to your retirement due to losses in the early years of your retirement.

In addition to the downside protection, these products can perform very well; often times outperforming the market returns seen in a typical investment portfolio. So you don’t have to give up a good return to find a safe haven for your retirement nest egg.

The second great reason for purchasing an IUL is the tax-free death benefit.

Life insurance is often used as a tool in estate planning. It is treated favorably by the IRS tax codes. Often, the funds coming from a death benefit from a life insurance policy are passed on to beneficiaries income tax free. Indexed Universal Life is no different. It becomes a wonderful tool to pass on assets tax free. Unlike other retirement options, such as a 401k, the assets held in an IUL pass on without taxes and give you immediate access to the funds, unlike assets held in real estate. It is also very typical, due to the death benefit common in all life insurance policies, that the death benefit will exceed the accumulation value of the account, meaning you not only leave more to your beneficiaries by paying less in taxes, but also because of the higher death benefit.

The third great reason for looking at an IUL is for the incredible supplemental retirement income that can be generated from it. What if you could put an unlimited amount of money into a Roth IRA, pay taxes on the principal now and have an income generated, tax free, for your retirement, and you could even access it early if you wanted? That would be an incredible deal, right? Well, it exists. It’s called an IUL. You can create a tax-free income through these IUL’s without having to worry about the timing of the market. Rather than rolling the dice of where the tax brackets fall out over your lifetime, why not draw at least part of your income through a program that allows you to fund it limitlessly, and not have to worry about paying taxes on the gains?

This is achieved through policy loans. It’s a new concept, but hear me out. Through a policy loan, you are able to draw out an income from your IUL tax free. Everyone always asks me “what if tax laws change?” Valid question. In theory, it is possible that the laws change and these funds do become taxable, but that would be odd. The government doesn’t tax our loans, only the asset by which the loan is guaranteed. Think for example of your car loan… you pay a property tax on that auto, but you don’t have to treat the loan from the bank that you used as income because it wasn’t income, you have to pay it back. These policy loans function the same way.

Diversification is the fourth reason to purchase an IUL. Since the bulk of your retirement funds are probably in taxed deferred savings accounts, like traditional IRA’s and 401k’s, IUL’s can provide a diversification, not only in asset class, but also in the tax treatment of the account. We typically believe in diversification and have been taught that since our high school years, yet we all have our retirement in the same types of vehicles. All are tax-deferred time bombs with minimum distribution ages and minimum distribution requirements or maximum contribution amounts controlled by the government and current economics in the USA. We are all typically in a blend of stocks and bonds, crossing our fingers that when that day comes to retire, we are up, not down. Hopefully we’ve picked well, though we be uneducated as can be, and yet we bank on this as our retirement program and a whole industry has built itself around it. Amazing that we’ve heard this same concept preached for over 2 decades and we’re still drinking the kool-aide. I’m not going to tell you to not drink, just try a different flavor for a minute. It should be noted that when taxes go up, and they inevitably will, you will pay taxes on those funds that are in taxed deferred accounts. This can hurt the value of the dollars you have saved in those accounts. There is also a little thing called an RMD. Required Minimum Distributions are what the federal government requires us to withdraw from our retirement accounts, based on our age, as a percentage of our account balance. There is always the possibility of these percentages increasing so the taxes can be collected on these funds. This could also cause you to withdraw funds you don’t need. An IUL gives you a great hedge against these potential tax issues.

Finally, the fifth reason to purchase an IUL is because they allow you to work towards becoming your own banker. Have you ever found it odd that you borrow money from a bank even though you have money in the bank? I have. Most IUL’s have loan provisions allowing you to borrow from and pay back your life insurance. The nice thing is, by doing this, you pay yourself the interest rather than the bank. You continue to have a retirement fund that is growing and you aren’t losing years’ worth of interest to the bank. Think of all the interest you have paid for credit cards, auto loans, your mortgage, etc. You can borrow yourself the money instead and you don’t have to worry about the approval process at the bank. Many business owners feel that term insurance is the only type of life insurance for them because they don’t want to tie up their money. This is a false assumption. The funds “tied up” in life insurance are not locked up, but rather, provide more access to funds than most investment opportunities. The funds can be borrowed and replaced with relative ease, making it a wonderful program for creating your own personal banking system.

One final little bonus is that your IUL is permanent insurance, as long as it is built correctly and you fund it properly. You’ll likely have lifetime coverage, even after stopping your premium payments and taking withdrawals. Long after your term insurance is gone, you’ll still have a death benefit to leave those you love.

For these reasons, along with many others, indexed universal life insurance is a great way to help fund your retirement. It is not perfect for all situations, and it is always wise to consult your advisor before purchasing any retirement funding program. That being said, there are five reasons you should give your advisor a call and find out if an IUL is right for you.

financial planning

Registered Disability Savings Plans (RDSPs) Explained Financial Planning

RDSP stands for Registered Disability Savings Plan. The RDSP works as a Canadian savings plan similar to the Registered Education Savings Plan (RESP). To be eligible for an RDSP, an individual must qualify for the Disability Tax Credit, and be under the age of 60. The disabled individual who receives the funds invested in the RDSP is called the beneficiary.

Contribution to a disabled individual’s RDSP can be made by anyone with written permission from the plan holder. The plan holder can be the disabled individual (if they are of legal age, and are legally able to enter into a contract), a legal parent, a guardian who the beneficiary has authorized to act on his/her behalf, or a public agency that is legally authorized to act for the beneficiary.

Contributions to the plan can be made until the year in which the beneficiary turns 59. There is an overall lifetime limit of $200,000 on the contributions that can be made to a plan, but there is no annual limit on the amount that can be contributed.

Government Grants & Bonds

A unique feature of the RDSP, and something it has in common with an RESP, is that contributions made are matched by the government of Canada. This comes in the form on the Canada disability savings grants (CDSG) and the Canada disability savings bonds (CDSB). The CDSG and CDSB can received until the year in which the beneficiary turns 49.

The CDSG has a lifetime limit of $70,000. An individual can receive up to $3,500 of matching grants, with a contribution of $1,500. The schedule for matching, for the year 2010, can be found at this CRA link: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rdsp-reei/cdsg-eng.html.

The CDSB has a lifetime limit of $20,000. The bond does not require contributions to be made. The schedule, for the year 2010, can be found at the previously posted link.

Grants and bonds received in any of the ten preceding years of the following events must be repaid to the government:

  • the RDSP is voluntarily closed
  • the plan is deregistered
  • a Disability Assistance Payment (DAP) is made from the plan
  • the beneficiary is no longer eligible for the Disability Tax Credit
  • the beneficiary dies

Is an RDSP Better than a TFSA or an RRSP?

In some cases, a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP) may be more lucrative than an RDSP. This is due to the fact that individuals receive a tax break when withdrawing from a TFSA and when contributing to an RRSP. There is no such tax break for an RDSP, which instead has the grants and bonds, which the other plans do not.

RDSPs are also more restrictive than TFSAs in when and how you can withdraw the funds within the plan. A reliable financial planner would perform calculations based on the grants, bonds and tax considerations, to see which plan is the most beneficial.

Conclusion

RDSPs are a great alternative for disabled Canadians, although they are not the only option. One must weigh the pros and cons of all savings plans, considering factors such as rate of return and the accessibility of invested funds.

Still, RDSPs are a great option for family members of disabled individuals, who would like to set up a trust for their disabled relative, and the grants and bonds can be lucrative to a low-income taxpayer.

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Event Planning Facts Financial Planning

Event Planning or management is most probably similar in analogy to planning a typical birthday party, where the preparations need to be set up in the most effective ways. However, there are more intimate details in event management that needs to be paid close attention to.

Nowadays, the term Event manager seems to refer to an easy yet sophisticated and chic profession. Yet in actuality, there are consequences and accountabilities that are attached to this classy title of being a service provider. The name suggests the job profile of an event manager involves organizing a special affair. Concepts have to be visualized, planned, budgeted, and executed in events that are often highly regarded such as fashion or beauty shows, concerts, corporate seminars, exhibitions, wedding celebrations, theme parties, product launching, etc.

What is good about this career and its gaining popularity is the minimal requirement for financial investments, yet it allows the planner to be independent and flexible. Personal traits, character and attitude are of more importance in event planning. The planner of events must possess a real passion in holding or conducting affairs, they need to be organized and able to work in flexible and often extended hours. Although this exciting career among the younger generation may have been seen as a sensational one, it also demands a substantial amount of hard work and effort. Perfection is a major quality that must be achieved in any event management and therefore requires a great quantity of patience, good communication skills and comprehension to be practiced by an event manager. Duties must be discharged with efficiency, challenges must be confidently faced and situations must be given due attention and reaction. Team spirit, leadership and organizational skills are as well required in event planning. Every detail no matter how minute must be paid close attention to.

There are also courses available to be taken by anyone who decide on taking a career in event planning. Eligibility courses usually requires to have a bachelor’s degree in any discipline but most preferred are management-related fields, social sciences, liberal arts and humanities. Individuals who are of interest simply have to finish these courses that are offered in many academic institutional and universities. Short term certificates as well as post graduate MBA courses may also be taken. Major areas of principles and techniques must also be mastered to effectively perform and execute the duties of an event planner. These principles include public relations, organizational development, communication and implementation.

Training and experience also contribute in becoming an adept and qualified event manager. While at school, the aspirant may work as an event staff personnel for sporting festivals and leagues. If there are local music shows to be held, assist in the preparation. Internships also play a major role in molding a successful planner.

Upon completion of qualifying courses, the event planner can join established companies in event planning or they may choose to set up and start their own business. Employment are available from corporate and public sectors, government agencies, tourist agencies, hotels, banks and other financial institutions, private consultancy firms etc.

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