Manage

Finances
Within a
Budget

SITXFIN003
Elements

1. Allocate budget resources.

2. Monitor financial activities against budget.
3. Identify and evaluate options for improved
budget performance.
4. Complete financial and statistical reports.
Assessments
Assessment 1 - Validation

Assessment2 - Case study

Assessment3 - Variance Analysis

What is Budgeting?

 Budget is a financial document which anticipates the

future earnings and expenditure of a business
 Budgets are used by Owners, Managers, and other
employees as a guide for Future Business
 Bottom-Up Approach ensures that all staff are involved in
the preparation of budget, Which means they will work
harder to achieve the budget
 Budgets are set for Financial year
 In Australia - 1st July to 30th June
Benefits Of
Budgeting
– Budgets Provide Direction: Realistic targets are
set for the future, With out which, Management
and staff would no goals and lack of direction.

– Budgets Motivate Staff: Providing goals for staff

and involving them in setting those goals will
motivate staff to achieve them.
Benefits Of
Budgeting
– Budgets Co-ordinate Business Activities: Budgets look
at the business as a whole and ensure that the
activities of every department are co ordinated.

– Budgets help evaluate Business performance:

Evaluation can not be done Using actual data alone as
there is nothing to compare. Managers needs to be
able to compare it to the expectations of current time.
Size Matters
– In a Large Business such as a hotel, it
is likely that the owner does not
work at the establishment. A
management team will be employed
to ensure the smooth running of
business.
Size Matters
– In Medium Business, such as a busy
restaurant, or club, a management
team would exist but there would be
fewer layers of management than in
large business. An owner may work in
the business, but in management level.
Size Matters

– In Small Business, e.g. café, the

owner will probably work in the
business on a daily basis and be the
primary decision maker
Software will Help!

– Software such as;

– MYOB,
– Cashwhiz,
– Qicken,
– Spread sheets

– These are used to monitor & prepare

the budgets.
– Master Budget
– Cash Flow Budget
– Department Budget
– Wage Budget
– Project Budget
Types Of
– Events Budgets Budgets
– Sales Budgets
– Purchasing Budget
– Capital expenditure budget
External Factors
Impacting Budget
– Are things outside the business, over which the owner and
Management team have no control.

– They Include
– Legislation and Regulation
– Global Economy
– Market Trends
Internal Factors
Impacting Budget
– Internal factors are things with in the business that will
have an effect on the budget, which can be controlled by
management and the owner.

– They Include

Business Objectives
Management Restructure
Human Resources
New Projects
Discussion

– Budgeting

– Researching For Budget

– Preparing Budget

– Finalising Budget and Allocating Resources

– Monitoring and Reviewing Budget

Researching For a Budget

– Researching: Prior to a budget being

created, managers must conduct research
to ensure that the outcome of the budget
will accurately reflect the business
situation.
What to research?

– When researching a budget there are a number

of factors that should Considered.

– These include:
• The Historical performance of the business
• Competitors offerings and price levels
• Management View of the future
• Departmental views and issues
Sources of Data

Performance data from a previous period

This data is taken from the financial statements of
the previous periods, Particularly Profit and Loss
statements

Financial Proposals from key stake Holders

Business owners will have a vision of where they
want to take the business, both in short term and
long term.
Sources of Data

Financial Information From Suppliers

Suppliers are contacted by department head to
ensure the expenses Recorded in the budget will
reflect current pricing

CUSTOMER RESEARCH
It is important for any business to understand their
customers as this will Ensures Provision of service
applicable to the client
Sources of Data

COMPETIOR RESEARCH:
You will need to try to find out what products and
services your competitors Are offering, what their pricing
strategy is and their future plans, when ever possible.

Management Policies and Procedures:

There is a procedure and policy for the budget
preparation . Should discuss with management.
Preparing a Budget

When Preparing a budget it is

important to follow both
organisational and Accounting
procedures.
Budget
Components
Master Budget should be broken down into 3
components.
– 1. Operational Budget: Sets Revenue, expenditure
and profit targets.
– 2. Financial Budget: Looks at cash management of the
business and methods of Raising funds.
– 3. Capital Expenditure Budget(Capex): Provides for
purchase of property, plant and equipment and Other
assets required for long term running of business.
Preparing a Budget

 Preparing Draft Budget

 Communicating a Draft Budget
 Finalising Budget and Allocating resources
 Analysing Draft budget Feedback
 Completing final Budget
 Communicating Final Budget
 Communicating Resources allocated
Monitoring &
Reviewing
The budget should be compared to the actual
accounting results on a Monthly basis to ensure the
business in performing as Expected.

Every Revenue and expense item on P&L statement

for every Department should be compared to the
budgeted figures.

It is important to undertake further investigation into

budget Variances , whether they are over and under.
Preparing reports

– This is essential as it allows accurate decision to be made,

as well complying with Accounting regulations and tax
laws.

– All information available must be entered prior to

completing Financial statements, including any new or
unexpected Financial commitments which have come up
during a month.
Completing Reports

– Once the financial reports have been prepared, documents

should be compiled which includes a variety of reports. The
Reports included will depend on the size of the business.

– No matter how many of few reports included in the

document, It should be clear and concise and laid out in a
logical manner.

– The financial information pertaining to the business is

strictly Confidential.
Comparing Actual To
Budget

– Once the financial reports have been

completed, every general Ledger code
should be checked against budget and any
variances noted.
– Different business have different policies
about how much variance from budget is
acceptable.
Discuss Reasons for Budget Variance
Maximising Budget
Performance

– There are a variety of approaches to maximising the

budget. An often used approach is cut the expenditure as
much as Possible in order to minimise the cost.

– This often entails cuts to staff numbers, stationary and

other Expenses that are often seen as unnecessary.

– The danger with this approach is that the level of service

and Product quality can fall. It impacts the long term
viability of the business
Maximising Budget
Performance

– Alternative approach is to maximising the budget is to increase

Revenue.

– It is important to remember that simply increasing revenue Does

not necessarily mean an increasing profit.

– Should always consider the impact of variations in expense and

revenue on net profit.

– Revenue can be improved through relevant advertising and

Promotions such as happy hours & week end specials.
Reviewing Budget
 Variance Analysis
The Bentley Hotel

Budgeted room revenues

Room Type Total Projected/Forecasted Room Rate Available Projected
Rooms Occupancy days /Forecasted Revenue
Available per room type
King Suite 20 70% $575 31 $249,550

Actual room revenues

Room Total Rooms Actual Room Rate Jan Revenue per Variance %
Type Available Occupancy room type
King
Suite 20 65% $575 31 $231,725 $17,825 7.14
 Reviewing Budget

Budget must be reviewed on regular basis to ensure that

It is still relevant.

Factors such as price increases, significant downturns in

Customer numbers and changes in operations can mean the
Budget should be updated throughout the year.

In order to amend the budget should consider internal and

External factors which may have impact.
Budget Process
Thank
You
Questions?