Good Business Plan On Manage Budgets And Financial Plans
The data available in the budget sheet may be presented in a systematic manner by using graphical representations. The categories identified and their representation in the graph over different terms of the year can be given as:
Income Projections for 12 terms for three years.
Expense projections for 12 terms for three years:
Net profit Projections for 12 terms over three years
Meeting Minutes of Financial Discussion:
Agenda of the Meeting: Evaluation of budget for 12 terms over three years: 2012, 2013 and 2014
The meeting for the assessment of the prepared budget was successfully conducted, and the following discussions and decisions were decided.
The evaluation of the budget was carried out along with the financial manager to determine whether the budget was realistic, achievable and accurate.
The budget was found to be up to the mark in most of the parts, except for a few terms where the profit seems to be rather lower, and expense budgeting seems to be higher. The reasons for the same were explained. The reasons for other fluctuations were also considered and summarized as:
Admission peak seasons gather a good amount of revenue and thus the profit is higher in 2012 in admission seasons. However, in off seasons expected crowd may not be pulled.
Over the years, the number of customers taking the service will increase and so will the agent commissions and other costs applicable to the firm. This explains why at some terms the profits may be higher and why at other terms the profit is low.
After the reasons and assessments had been discussed, the responsibilities and time frame for the fulfillment of those responsibilities was prepared:
Based on the meeting and the role defined for the above-mentioned personnel, we could argue that there are certain changes that can be made to the budget plan prepared. The summary of the modifications, the responsible person and the time frame may be given as:
A contingency plan is done to keep the resources safe in case any unforeseen contingency arises, or there is a situation of crisis. The contingency plan could be seen in two folds:
Contingency 1: When the competition grows, and the number of students enrolled in our Company cannot be maintained:
Find other sources of attracting students, like reducing prices, giving unique courses and having an alliance with the competitors, to collaborate and share the student inflow. The profit revenue of the Company may be used to do the same.
Contingency 2: When the costs of the Company rise above the revenues:
Cut down on costs that may not be compulsory, even if necessary. Some costs on marketing may be cut, and the additional benefits to employees may be stopped. One other trick may be introducing a modified course and allowing limited seats with a high fee so as to cover the costs and enter into differentiation.
In case the expected number of students goes to half of the above-mentioned amount, the correct step to take would find new markets. We may go to other nearby areas or in the periphery of the town, to find prospective clients who would want to take the courses that we offer. It will require additional marketing and operating expenses, however, that can be retrieved from the profit reserve that we have from the previous terms. Another way to tackle this could be reducing the number of courses being offered. This way we can reduce costs and specialize in the limited courses that we are offering. The wages and promotion costs would also go down.
2. A. Review and Planning Committee:
The meeting for the review and planning is set to work on the changes as suggested in the previous part. The identified planning as per the changes identified above is:
- The fee structure for Advanced Diploma is set to be $10,500 and in promotional campaigns the additional benefits of advanced diploma over the diploma course is to be correctly communicated.
- The number of students for the different terms is to be changed, which shall be done after the survey on market demand in different terms is carried out.
C. Tools Used to Manage Budget:
Part 3: Variance Report for the year ended 30 June 2014
According to the completed variance report, the variance for accounts receivable, accrued expenses, accounts payable and prepaid expense seems to be favorable while the variance of cash balance, inventory, and accumulated profit looks to be unfavorable. The accounts receivable is seen less in actual than in the budget. This shows that the company is effectively collecting its receivables. The company is carrying out its operation without paying in advance. This amount can be used for other purposes. So, the prepaid expense variance is favorable. Accounts payable and accrued expenses are both favorable. The company is not paying its creditors on time. It is good to hold payables and accrued expenses because these items are interest-free. The company will be able to manage and finance its working capital effectively by holding the payables for a certain time, and it won't have interest cost. So, company will be able to reduce its interest expenses.
The cash balance is less than the budgeted. This means that company is using its cash for many purposes without maintaining the budgeted level. This might create a problem of liquidity. So, it is unfavorable. The company is holding too much of the inventory, which means that company's capital is tied up in its inventory. Even though, it is good to hold inventory, but holding too much of the inventory is costly as it increased holding and storing cost. The company is losing its investment opportunity by spending too much in inventory. Since the accumulated profit is less by $800, it is unfavorable.
Preparing cash variance report is very important for the control purpose. Knowing the variance on time will help the management to take the control measure. If the actual expense is exceeding the budgeted figure, then it becomes imperative for the company to take the control measure on time. Cash variance report is very important for identifying the problems and taking the control measures on time.
Cash flow problem occurs when the company faces the problem in paying its debts as and when it becomes due. There can be several reasons for this problem. Over-investment in the inventory or bulk purchase of inventory can cause the cash flow problem. Holding too much of the inventory is always a cost for the company (Riley, 2012). Providing too much of the credit will also cause the cash flow problem because the company won't have sufficient money to pay for its creditors if it does not collect money from its debtors on time. Similarly, seasonality nature of business is also a cause of cash flow problem because the company will face the problem in managing its revenues and expenses during off-seasons. During off-seasons, the company won't have sufficient revenue to pay for its debts.
Part 4 Review and evaluate financial management processes
The effectiveness of the cash budget management was discussed with the board, and the following deductions were made:
- The preparation of cash variance report has been particularly effective in identifying the loopholes in the whole budget plan.
- The control has been effective as unfavorable costs can now be diverted, and the favorable costs may be well utilized.
The terms relevant in this procedure were:
Fixed Costs: The costs which do not fluctuate with the level of output are the fixed costs.
Variable Costs: The costs which vary as per the level of output are the variable costs.
Cost accounting: The management of cost centers and revenue of those centers to allocate costs of different functions is cost accounting.
Cash budget is the statement of estimates prepared to know about the total cash inflows and total cash outflows over a specified period. In simple terms, the cash budget is the estimated statement of company's total cash inflows and outflows. Cash budget is very important for the business because it is a tool to access whether or not the company will have sufficient cash balance to finance its operations. It is also important to know if the company has too much of cash left to be used. Using the cash budget, the company can decide its credit policy. If the company can easily meet its operation with flexible credit policy, then it can extend the credit period. If the company will have a problem in meeting its cash requirement, then company can decide to adopt strict credit policy.
The method used for the monitoring of budget will be cost monitoring. It will help recognize cost centers and also control them when they seem to exceed their specified limits.
For the coming year, monitoring mechanisms to be used to ensure better controlled and more efficient financial management process. The owner expects a price increase for his products. Calculate the new budget for the coming year.
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