Since Money Cares is an investment organization, the fiduciary responsibility lies with the organization. It has an ultimate obligation to safeguard investor’s money. Erratic and sporadic spending without proper regulation or monitoring will detrimentally affect the company’s financial status. The final effect may be that the company may become bankrupt and eventually shut down.
One potential risk facing Money Cares is the company risk which normally occurs when companies make bad or ineffective business decisions. The bad decision made by the company in this case is overspending and lack of monitoring which could have a serious effect on the continued existence of the business. The company risk inadvertently gives rise to another risk and this is the credit risk. It has already been established that the company is overspending on non-essential aspects. The company is funded by the investor’s money and this money is supposed to be used effectively. Failure to do this may result into a situation where the company is unable to repay the investor’s credit. The other potential risk that the company faces is the loss of both future and current investors. If investors become aware of misspending patterns of Money care, they may chose not to invest money in this company.
For the company to succeed, it must take several corrective measures. The paramount measure should be the formulation of a brand new operating budget. This should be followed by the formulation of a proper control and monitoring system to check the alignment of the budget stipulations and the actual operating patterns and costs of the company. The company should make sure that it safeguards the investor’s money and none is misappropriated.
The company’s most vulnerable areas are its stock prices and liquidity state. The company’s stock prices are hugely dependent on the performance of a company. The performance of a company is similarly influenced by a variety of factors with budgeting being one of them. Improper budgeting may lead to a drop in the company’s performance, a factor which will play itself out in the stock market where the company’s stock prices fall. The company’s liquidity is dictated by a company’s current fixed assets. The company has taken no effort to affirm its fixed assets and is in fact overspending on non essential areas. This may significantly affect its liquidity ratio.
The main asset of the company’s is the investor’s equity. This is a liquid asset that must be safeguarded at all costs since it is in fact the backbone of the company.
An analysis of the budgeting process of Money Cares Investment Corporation reveals that money is being overspent in the transportation, marketing supplies and the provision of hospitality services. The spending on these sectors should be re-evaluated and proper spending patterns effected.
Apart from reviewing the areas of the company where the most money is being spent, the mananagement should conduct a complete overhaul of the current budgeting activities. It is crystal clear that the current budget is flawed. If it is not changed, the company could land in massive financial troubles. In order to regulate budgeting activities, the company should establish a budgeting division which should be charged with the role of formulating plausible budgets as well as effective budgetary control and monitoring systems. This will ensure that the company’s financial matters including spending are regulated.
References
Dayanada, D. (2002). Capital budgeting: Financial appraisal of investment projects. Cambridge, UK: Cambridge University Press.
Vitez, O. (2012, September 12). Business Investment Risks | Chron.com. Retrieved August 23, 2013, from http://smallbusiness.chron.com/business-investment-risks-725.html
