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Assignment 3 - Budgeting V2
Assignment 3 - Budgeting V2
Purpose of Budgeting
Firstly, Adams business Is a Jumbo Furniture business by him using this specific tool
it will help people and his business to get what he wants from his business to get
what they want by planning. The reason why budgeting because it’s a process of
setting targets for spending and revenue over a future period of time. Adam would
consider using these in situations such as forecasting start-up costs for a new
business, introducing a new product or building an extension to a factory, and
forecasting sales revenue. The main purpose Adam would use budgeting because is
to ensure that the business is in control of its revenue and expenditure so that he
makes a profit. Adam should set his budget carefully, ideally using financial
information from the previous year as guidance. Then any future predictions about
revenue or costs must be considered, based on market trends. Ideally the budget
Adams sets should be realistic, achievable and challenge all the staff to do their
best.
Stefile and his brother have been talking about whether they should use budgets in
their business. Stefile thinks he should but his brother says they are a waste of time.
Adam knows that his brother’s laundrette business will get into financial difficulties if
he doesn’t start budgeting. To help convince his brother about the importance of
budgeting he asks you to produce a fact sheet that sets out firstly the purpose of
budgets and secondly explains how budgetary control is used.
Overheads (lighting and heating, rent and rates) -Managing expenses is a key
for business success, and overhead costs play a pivotal role in realizing
favourable profit margins. Almost all companies have some form of overhead
consisting of specific categories of indirect expenses. This will come along
with his expenses, as they both need to understand to pay it on time and not
to come up along with overdrafts on their financial documents, expenses for
this will come up with gas and electricity, rent, and business rates or loans.
Budget Control
Adams business
Budget control is important for Adams business because it controls his finance on his
expenditure if he is overspending on his expenses and does not have any money
left. For this, Adam should investigate the reasons for his overspending, and should
be resolved, and find an alternative source of income that could be used to cover his
overspending. There are various areas where Adam could be overspending in his
business that could be due to cost of goods or services, insurance, or utility bills.
When the point comes that Adam is in a risk of overspending, he should take
positive action to this, this will include of doing a spreadsheet, and calculate how
much income of revenue is coming including salary, wages, and tips. Also by leaving
money to the side for utility expenses that can be paid on time. Finally, also leave
money for his savings that can be used for future plans, and test his budget that it all
fixes up. Adam should consciously check on if money is inflowing rather than
outflowing. When Adam has putted extra money for any unexpected costs, it shows
that this can be used for emergency to pay his bills and any other sort of expenses.
By this, it shows that no overdrafts will occur on his finance documents. By Adam
planning for future investments, it shows that he can improve his business
performance and meet customer demand, and increase his profit margin. When
Adam starting a new investment he should be aware of any depts. occurred and
through his financial documents to see if his other financial documents are accurate,
also if Adam regularly assesses his performance against the plans and targets he
has set, he is more likely to meet his objectives. It can also signpost where and why
he is going astray. When Adam making plans it shows that, he can make
discussions with investors, potential buyers, and banks of his business, regular
review is good for him
Adam brother uses this finance tool of budget control to compare his actual
income estimation and how much they have actually budgeted, and it has not
exceeded. Adam will particularly budget on different sources in his business
such as for sales, purchases, advertising, labour and utilities. It is important
for him to spend his money wisely on his business because if he spending
over it will cause him a risk of money that has been loss due to that particular
factor he has spent on.In addition, if the business is not running successfully
it shows that it is effecting the budget on how much he has actually spent on.
The business performance needs to go completely well which means he needs
to attract more customers, to increase profit margin and can save for future
planning. By this it shows that he will have to use a lot of promotion channels
to get his product more known in the market. Adams brother should improve
the quality of his product or service that it meets customer satisfaction. In
other terms meaning being successful is that the business has a check up on
his expenses and financial documents. From ding budget control it allows
both business owners to identify early problems and risks that are going to
occur in the business. For instance, if they are losing out on customers it
shows that they won’t be able to present new product to his potential
customers and customers won’t be able to operate in the business. If the
business is losing sales, it shows that money won’t be flowing to pay external
resources. Also when businesses have too many competitors is shows that it
can be difficult as they have similar ideas and they have a much easier chance
of attracting customers more than Adams. Adam and his brother should
consider decreasing their expenditure and try increasing their revenue which
means more money to inflow. As we can see that this unwanted expenditure
shows firstly that their business is not doing well progress, expenditure
should be done on items that are necessary to raise customer awareness.
John has asked you to complete a budget variance table below and explain what
the results show..
Purchases
(Raw £18,500 £22,500
Materials)
The similarities Adam and his brother have on their business is that they both use
promotion and marketing in order to promote their business and they both also have
over heads for budgeting. For them to use promotion and marketing activities it
shows that the business can get a wider approach and reach out to their customers
because their business isn’t unfortunately running well. When both business owners
have overheads it shows that they have ongoing expenses as Adams brother’s
expenses are much higher for consumption of heat and electricity used by the
machines.
Adam and his brother have both set out an efficient budget.
They both need see their budgetary control every month to see if their
business is not overspending.
Differences: Adam and his brother do different type of business trade.
The difference is that Adams first need to create budget of his business as for his
brother his business is running for needs to quit long therefore for he doesn’t need to
set budget he just need to control the budget.
A variance is the difference between a budgeted, planned, or standard cost and the
actual amount incurred/sold. Variances can be computed for both costs and
revenues.
Adam has also asked to do a budget variance table for him. The result I have is not
quite good enough.
Budgetary control refers to how well a manger control his budget to monitor and
control all his cost and exploitation in limited period. Adam owns a manufacturing
furniture business whereas his brother owns a service business. Budgetary control in
a business helps the owner to control over all the aspects which will help them to
increase their sales and reduce their excess amount of expenditure which is
beneficial for their business.While on the other hand, budgetary control will be used
to check previous performances and allow him to identify if the business can be
improved.Adam than can take appropriate decision for example making his expenses
lower. Budget control will also allow Adam to pay his bills on time, as well as planning future
investment. Also, Adam can use budgetary control in certain way like to change his
raw material supplier in order to reduce the cost of it or he could pay the staff on
commission which will help him to improve his budgets.
Adams brother’s business: As that Adams brother’s business runs a service it is essentially
important that that his laundrette business is running successfully because if his business is
not running successfully his business will be in danger and if he tries to buy new products or
equipment to prevent the danger he might overspend it which will again cause his business
in danger. Budget control helps Adams business as well as his brother business to identify
any early problems, for example losing customers, having to many competitors and
overspending on expenditure. In addition, Adams brother budgetary control will be different
and somewhat similar because his business doesn’t need any staff but at the same he need
machinery (washing machine, tumble dryer) to run his business and he also need insurance
for the machines and the shop to cover up the damages. The overheads (electricity and
heating) to run machines. Adams brother can buy his washing material in bulks for discount
or he could lease the machinery with the insurance which will reduce excess output for
insurance.
From analysing the budget table of Adams influence of his financial decisions he has
made for his business.