unit 2 d3

UNIT 2 D3

Controlling and monitoring costs is extremely important in a business which means unmonitored budgets and costs can cause real problems for the business. A budget is an amount of money given to a business to spend on the business and the businesses needs and they cannot go over that amount of money, a budget is useful because it shows the business whether it is meeting its aims or where it isn't and the business can improve on those areas. The printing company are having financial issues therefore they are doing something wrong. One thing they are doing wrong is by spending over their budget, budget overruns. This is causing the business to spend more than it is initially budgeted and they are not controlling their costs well because they are not making any profit. This can have a huge impact on the staff because they the business may not have enough money to keep them employed which could lead to the staff being fired however, this will affect the business because they may not have enough staff to run the business which will affect the sales of the business because customers may not be satisfied with waiting for staff or equipment in store so they will use competitors. The business may have to replace or retrain staff because they clearly have a lack of professionalism and expertise. This may be an advantage to the business because they are new, fresh staff yet they may be unhelpful. 

Another short term problem the printing company are having from unmonitored costs and budgets is the adverse variance in the sales revenue. This can be caused for a variety of different reasons yet, the main reason is because the prices in the store are too high. By doing this, customers wont pay those prices and will go to the businesses competitors and use them instead, especially as this business is a small local company it should try and be cheaper than their competitors as it will encourage more local people in because it is local to them. This is due to the lack of management for costs because if they were monitored correctly then the business would have noticed the lack of sales and the increase of spending and would’ve changed something e.g. decreased the prices. 

Furthermore, there was extra money being spent on wages and training for the staff. This is a short term problem because new staff need training which is expensive and costs a lot of money as well as staff salaries and bonuses in some businesses. This mean that the printing company were losing money from spending all that money on the staff yet they weren't making more sales because they weren't spending money on improving the business. This could have been stopped or solved by monitoring the budgets and costs which the business did not do. This also could have been avoided if they spent more money on the research that would be used to make up the budget or by making staff more independent which will ensure they will spend less on training,

By having uncontrolled budgets, the printing company may need to get new suppliers yet this has a lot of risks one being that they may not be trustworthy and reliable therefore this will affect the business as they may not get stock in when they run out or they may not have the right staff if they are untrustworthy or mess up delivery times. The new suppliers may charge higher prices than their previous suppliers and this means that they had to change suppliers because they were spending too much and not making more yet they will have to pay more for their suppliers which is why not controlling your costs and budgets is a massive problem. The quality of equipment may be poor and this will affect sales because customers wont want to buy/use poor quality equipment and they will go to the printing companies competitors. 

Uncontrolled budgets and costs have severe implications for the business because they cannot find out how much progress the business is making and then they wont know what to change, what is going well and/or wrong. The business cant compare their costs and profits compared to their competitors and other businesses like theirs e.g. small local businesses because of this and the rivalry is high in the printing business especially being a small local business, yet they wont be able to compete if they don't control their budgets and costs correctly. If the printing company don't monitor this information then they will end up going bankrupt and their business will fail to be successful because of their poor lack of management to control their costs.

One long term problem the business may face is that sustained losses may lead to bankruptcy and the printing company may have to shut down which is the worst thing that could potentially happen. This will lead to loss of employment for all the staff in the business and potential loss of assets. By going bankruptcy this is a horrible problem to have because in the future they will have a poor credit rating which could affect them when they want to buy a property, car etc. This also has a massive social impact for the business owners and their family and friends, it can cause an extreme amount of stress and problems. This could be avoided by ensuring the business control their budgets and costs by having regular checks and solving any problems that occur yet if their are none they can constantly strive to find ways of improving the business. 

Additionally, the problem the business may face if they have unmonitored costs and budgets is risk of takeover, which is an extreme long term problem for the business. This is when another business saves your business and takes it over to dodge going bankrupt. Yet this comes with disadvantages being that the business will no longer be under your control, the business who took it over will have full control over it therefore they can make any decisions for the business meaning the staff be be fired and be unemployed. The owners will have lost their control over the business along with the business all together and their respect as owners because they are taken over.