Question

Julian and Marcus sit down to discuss the organizational goals and objectives for the business. Julian explains that this is important because once Marcus has a plan, they can determine what types of financing Marcus may need for the business. Once the goals and objectives are set, they begin to work on a budget. This is the first year that the business is in operation, so they can’t draw on any numbers from previous years. They’ll have to use a(n) _______ budgeting approach.

a. Incremental
b. Zero-based
c. Flexible
d. Strategic

Answer 1

Julian and Marcus should use a zero-based budgeting approach for their new business, as it allows for a structured financial start with no prior data. This approach aligns with their organizational goals and paves the way for future investment opportunities.

Step-by-step explanation:

Julian and Marcus will need to use a zero-based budgeting approach since this is the first year that the business is in operation and they cannot draw on any numbers from previous years. In zero-based budgeting, every expense must be justified for each new period, starting from a "zero base," without reference to prior spending levels. This budgeting method is particularly useful for new businesses as it ensures that funds are allocated efficiently based on current needs rather than historical expenditures.

Through understanding organizational goals and objectives, Marcus will be better prepared to make sound and purposeful financial decisions, ensuring personal economic success. Creating a budget is a crucial money management tool that aligns with achieving organizational goals and securing the necessary financing for the business. This disciplined financial planning contributes to the firm's capacity to attract financial capital from outside investors like bondholders and shareholders, as the business grows and its strategies begin to prove profitable.

Answer 2

The type of budgeting approach that Julian and Marcus will have to use is a zero-based budgeting approach, which requires justifying and approving each expense starting from zero.

Step-by-step explanation:

The type of budgeting approach that Julian and Marcus will have to use, since it is the first year of operation for their business and they can't draw on any numbers from previous years, is a zero-based budgeting approach.

Zero-based budgeting is a method where each expense must be justified and approved for each new budget period, starting from zero. It requires a thorough examination of all expenses and a justification for why they should be included in the budget.

This approach will help Julian and Marcus to carefully evaluate their expenses and ensure that every cost is necessary for the achievement of their goals and objectives.