D3 Report
Subject: Evaluate the problems that can be identified from unmonitored costs and
budgets using examples.
In this report, I will be evaluating the problems that can be identified from
unmonitored costs and budgets using examples.
Problems a business could encounter as a result of having a poorly controlled
budget and the potential consequences for the organisation
Bankruptcy
A business can go bankrupt as a result of having a poorly controlled budget because
if costs and budgets are not controlled within a business, then it means that the
business could be spending more money they can afford to. If a business is
spending more money than they can afford to, they will ultimately run out of money
to spend and most likely still have liabilities to pay. Because the business has run out
of money, the owner will not be able to pay his debtors back, so he will have to
declare bankrupt. A company that is bankrupt could use Chapter 11 of the
bankruptcy code to “reorganize” the business and attempt to become profitable
again. Reorganisation is a process which is in place to revive a bankrupt company. It
involves the restatement or assets and liabilities. It is an attempt to prolong the life of
a company facing bankruptcy through special measures and restructuring the
organisation to try and avoid the possibility of past situations reoccurring.
Filing Chapter 11 and reorganizing the company comes with advantages and
disadvantages. One advantage is that the company would continue operating and be
available to consumers for business in a strengthened financial position. Companies
can often stop the courts from selling assets which is needed for the company to
continue conducting business. Also, when filing for Chapter 11 bankruptcy, the
debtor would benefit from an automatic injunction of all lawsuits, repossessions,
bank levies and other collection activities. But, this process can be very complex and
time consuming, which means it is also going to be expensive. It can take years to
resolve and repay all the debts. Also, there is a time limit which the debtor has to
produce a reorganisation plan to return the company to profitability. They have 120
days, which can be difficult for the owners that led the company into bankruptcy.
Unlike Chapter 11, if a company has filed for Chapter 7 it means that the company is
completely insolvent. They have to stop all operations and would go completely out
of business. A trustee would be appointed to liquidate the company’s assets. The
money from the sales would be used to cover administrative and legal fees and pay
off any remaining debt.
Chapter 7 also comes with pros and cons. It is quicker and easier than both Chapter
11 and negotiating with multiple creditors outside of bankruptcy. It only requires one
court visit. Also, all of the company’s debts are fully discharged even if the company
has no money or assets to pay them, except for recent taxes and government
penalties. But, the court would appoint a trustee to manage the bankruptcy which
would feel invasive. The owner would have no say over the priority of asset sales, as
Page 1 of 3
Subject: Evaluate the problems that can be identified from unmonitored costs and
budgets using examples.
In this report, I will be evaluating the problems that can be identified from
unmonitored costs and budgets using examples.
Problems a business could encounter as a result of having a poorly controlled
budget and the potential consequences for the organisation
Bankruptcy
A business can go bankrupt as a result of having a poorly controlled budget because
if costs and budgets are not controlled within a business, then it means that the
business could be spending more money they can afford to. If a business is
spending more money than they can afford to, they will ultimately run out of money
to spend and most likely still have liabilities to pay. Because the business has run out
of money, the owner will not be able to pay his debtors back, so he will have to
declare bankrupt. A company that is bankrupt could use Chapter 11 of the
bankruptcy code to “reorganize” the business and attempt to become profitable
again. Reorganisation is a process which is in place to revive a bankrupt company. It
involves the restatement or assets and liabilities. It is an attempt to prolong the life of
a company facing bankruptcy through special measures and restructuring the
organisation to try and avoid the possibility of past situations reoccurring.
Filing Chapter 11 and reorganizing the company comes with advantages and
disadvantages. One advantage is that the company would continue operating and be
available to consumers for business in a strengthened financial position. Companies
can often stop the courts from selling assets which is needed for the company to
continue conducting business. Also, when filing for Chapter 11 bankruptcy, the
debtor would benefit from an automatic injunction of all lawsuits, repossessions,
bank levies and other collection activities. But, this process can be very complex and
time consuming, which means it is also going to be expensive. It can take years to
resolve and repay all the debts. Also, there is a time limit which the debtor has to
produce a reorganisation plan to return the company to profitability. They have 120
days, which can be difficult for the owners that led the company into bankruptcy.
Unlike Chapter 11, if a company has filed for Chapter 7 it means that the company is
completely insolvent. They have to stop all operations and would go completely out
of business. A trustee would be appointed to liquidate the company’s assets. The
money from the sales would be used to cover administrative and legal fees and pay
off any remaining debt.
Chapter 7 also comes with pros and cons. It is quicker and easier than both Chapter
11 and negotiating with multiple creditors outside of bankruptcy. It only requires one
court visit. Also, all of the company’s debts are fully discharged even if the company
has no money or assets to pay them, except for recent taxes and government
penalties. But, the court would appoint a trustee to manage the bankruptcy which
would feel invasive. The owner would have no say over the priority of asset sales, as
Page 1 of 3
