Building a Sustainable Budget for a Profitable Company
All managers concentrate on increasing profitability when their company is expanding. This can carry on until managers determine that the business is starting to turn a sufficient profit. At such a point, there is a temptation for managers to build on newfound efficiencies to make biased budgets that favour their short-term interests (Brewer et al., 2022). Some budgeting mistakes managers are tempted to make at this point include failing to acquire vital software and underspending on staff to increase short-term profits.
Instead of wasting hard-earned cash, managers of a company making phenomenal profits should stick to a strict budget and ensure sustainability. When a company makes high profits, it is an indicator of financial success, but that does not mean that it should not be sufficiently strict in financial management. Having a strict budget helps a company navigate changing economic fortunes and restore investor confidence.
Management greed may influence managerial budget decisions in different ways. One of the profound impacts of management greed on budgeting is focusing on short-term profits over long-term sustainability (Haessler, 2020). In this case, managers may focus on cutting expenses that would have gone a long way to support the organization’s sustainability, including cutting staff salaries to improve short-term profits. Quality investment is also negatively impacted by greed. Greedy managers may deliberately aim at cost-cutting with the objective of improving profits (Zweni, 2017). Essential business areas like the training of employees, investment in product development, and quality control receive minimal budgets. As a result, the reputation and performance of a company is undermined in the long run.
Additionally, greedy managers emphasize executive compensation and may alter budgets to attain that objective. When there is an emphasis on executive compensation, other critical areas, such as employee salaries, investment in development, and employee benefits, suffer (Bolton et al., 2006). If employees feel that top executives receive extravagant compensation at their expense, they may lose morale, negatively affecting productivity. In the same breath, greedy managers ignore corporate social responsibility since they see it as a cost. However, such a move may negatively impact the profitability of a business in the long run.
References
Bolton, P., Scheinkman, J., & Xiong, W. (2006). Executive compensation and short-term behaviour in speculative markets. The Review of Economic Studies, 73(3), 577-610.
Brewer, P. C., Garrison, R. H., & Noreen, E. W. (2022). Introduction to managerial accounting. McGraw-Hill.
Haessler, P. (2020). Strategic decisions between short-term profit and sustainability. Administrative Sciences, 10(3), 63.
Zweni, A. G. (2017). Factors affecting management of budgets at a department in the Western Cape government, South Africa (Doctoral dissertation, Cape Peninsula University of Technology).
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Question 
Unit 5 DiscussionUnit 5 Discussion
Is it important for a company to follow a strict budget even though they may be experiencing phenomenal profits? Do you think that there will be a bias towards greed when creating the budget for this company? Explain.
How does management greed influence budget decisions?
Building a Sustainable Budget for a Profitable Company
Please consider each of the questions separately in this post. It is important for you to understand the value of the budget as a blueprint for the business – even in times of exceptional “good news”.
It is also important to consider the role of greed within the budgeting process of the firm. Perhaps you might want to think about the budget as a communication to employees about what ownership and management believe is its focus.
You might even want to see if any other of the exceptional “bad boys” in the business.