Financial control is the managing of an organizational expenses and costs according to the budget. This is the measure of the effectiveness in which the organization or branch controls its expenses and it’s usually expressed as how actual expenditures exceed or are below the budget. We usually have several financial control tools; however the budget is the main financial control tool (Sahay, 2013).
The budget is a set of integratedstrategies which give a quantitative description of an entity’s projected financial operations. It is used as a measure against which actual financial operating results are measured for finance allocation and to plan for the future.
Budgets provide managers with very crucial information that they use for making investing decision. The budget helps managers in planning for instance if an organization has a deficit budget the management is able to know by how much and hence make plans on how to finance the deficit. If the budget is a surplus, the management is also able to decide how to utilize the surplus funds (Bamberger, 2012).
Moreover a budget will assist the manager to make operating decisions as it helps them set limits as it helps them to decide how much money they should allow to go out monthly in accordance with income generation. Through this the management is able to know the types of expenses they incur and make efforts to do away with non-fixed expenses (Bamberger, 2012).
By the use of budgets the management is able to make financing decisions. This is done by tracking how much money the organizations spend annually or even monthly hence look for means to finance. Without a budget an organization wouldn’t know how much it needs to run its affairs (Bamberger, 2012).
Sahay, S. A. (2013). Financial control and transfer pricing.In Encyclopedia of Finance (pp. 783-794).Springer US.
Bamberger, M., Rugh, J., & Mabry, L. (2012).RealWorld evaluation: Working under budget, time, data, and political constraints. Sage publications.