For RTWMTC, budgeting is important since it will allow the company to plan its expenditures. It will allow for a balance between the capital and recurrent expenditures. This will ensure that the company maintains growth in a balanced manner hence avoiding illiquidity or insolvency. The other reason is that the budget will allow this company to manage its financial information and also review it on a real time basis. This will be achieved by maintaining an automated budgeting system which will ensure that the company makes timely and right expenditure decisions (Besley & Brigham, 2008). Thirdly, it is a means of measuring performance. In this case, spending less than the budgetary allocation will imply RTWMTC is performing below the set plan.
The budgeting process for RTWMTC should involve the company directors, departmental heads and the accountant. The role of the company directors is their insights into any capital expenditures and strategic decisions that impact on the cash flow (Foley, 2009). The departmental heads will provide any ideas they have on the entire budget based on the needs of their respective departments. On the other hand, the accountant will provide an evaluation of the budget in light of the funds available.
Failure to prepare a proper budget for RTWMTC will increase its finance expenses due to funds shortage. This is because RTWMTC will be forced to take extra credit which will be available at an interest. The second possible outcome is hindering of operations. It will occur since the company will not have the required funds to carry its activities for instance marketing (Kathy, 2012). Therefore, RTWMTC will not have smooth operations and its overall profitability may decline.
Besley, S., & Brigham, E. (2008). Essentials of Managerial Finance. Mason: Thompson South Western.
Foley, E. H. (2009, December 14). The Budgeting Process. Retrieved from http://www.nonprofitaccountingbasics.org/reporting-operations/budgeting-process: http://www.nonprofitaccountingbasics.org
Kathy, A. (2012). The Effects of a Poor Budget Process. The New York Times, 75-78.