This paper discuses budgets, ethical considerations, and other relevant information Guillermo must consider.
The current budget for Guillermo Furniture Store has some serious flaws due to an imbalance between income and expenses. In the business world in order for a company to succeed in the long run its income or revenues must exceed its expenses. Guillermo has options available to him, but many of these options require radical change for Guillermo. Two options are to acquire a competitor or to merge with another company. The acquisition of a new firm has to be analyzed based on the budget of the company. The buyer has to have enough capital available to make the purchase. Merging with another competitor can help reduce overhead costs. A potential downside of merging is inefficiencies associated with organizational culture conflicts. The employees from the different business entities have different ways of doing business. Guillermo does not like the time commitments and loss of independence associated with these two options.
Budgets are useful accounting tools that can help managers make important decisions. Businesses that do not use budgets can fall victims of misspending and cash shortages. Operating budgets are typically created to forecast the income and expenses of companies for the next year. When managers are dealing with strategic decisions in the long term they use budgets for longer periods of time. Techniques such as time series and regression models can be useful for forecasting purposes. The use of budgets can help managers determine how to implement process improvements to reduce cost. A budget can help a manager determine when the income of a company is insufficient to cover its expenses and make a profit. A budget can also be used by managers to determine when to buy equipment and machinery. If a company makes an above normal profit during a month it can invest more money on equipment. In