2 Operational Budgeting and Profit Planning ,Standard Costs and Performance Reports

8/13/2019 2 Operational Budgeting and Profit Planning ,Standard Costs and Performance Reports

1/15

Operational budgeting and profit planning ,standard

costs and performance reports

Student name

Student id

Professor's name

Table of contents

1


2/15

executive summary .3

introduction .3

an operating budget .6

benefits of a business budget.7

make time for budgeting.8

what your budget will need to

include.9

a feasibility study .10

conclusion .13

my recommendation.1

references.1!

Executive summary2


3/15

"hen you#re running a business$ it#s easy to get bogged down in day%to%day

problems and forget the bigger picture. &owe'er$ successful businesses in'est time

to create and manage budgets$ prepare and re'iew business plans and regularly

monitor finance and performance.

(tructured planning can make all the difference to the growth of your business. )twill enable you to concentrate resources on impro'ing profits$ reducing costs and

increasing returns on in'estment.

)n fact$ e'en without a formal process$ many businesses carry out the ma*ority of

the acti'ities associated with business planning$ such as thinking about growth

areas$ competitors$ cash flow and profit.

+on'erting this into a cohesi'e process to manage your business# de'elopment

doesn#t ha'e to be difficult or time%consuming. ,he most important thing is that

plans are made$ they are dynamic and are communicated to e'eryone in'ol'ed. (eethe page in this guide on what to include in your annual plan.1

INTRODUCTION

-n operating budget is the annual budget of an acti'ity stated in terms of udget

+lassification +ode$ functional/sub functional categories and cost accounts. )t

contains estimates of the total 'alue of resources reuired for the performance of

the operation including reimbursable work or ser'ices for others. )t also includes

estimates of workload in terms of total work units identified by cost accounts.

)n the nited (tates$ businesses along with state and local go'ernments di'ide their

budgets into two types2 the operating budget and capital budget. ,he operating

budget is used to keep track of maintenance operations$ salaries$ and interest

payments.

An operating budget

1http://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/

2http://en.wikipedia.org/wiki/perating!budget

3


4/15

A detailed projection of all estimated income and expenses based on

forecasted sales revenue during a given period (usually one year). It

generally consists of several sub-budgets, the most important one being

the sales budget, which is prepared first. ince an operating budget is

a short-term budget, capital outlays are excluded because they are long-term costs.!

- ,45)+- ()(( 5-) +4+

1. :e'iew your current performance against last year/current year targets.

. "ork out your opportunities and threats.

3. -nalyse your successes and failures during the pre'ious year.

. ook at your key ob*ecti'es for the coming year and change or re%establish

your longer%term planning.

!. )dentify and refine the resource implications of your re'iew and build a

budget.6. ;efine the new financial year#s profit%and%loss and balance%sheet targets.

7. +onclude the plan.

8. :e'iew it regularly % for e


5/15

)t outlines what you will spend your money on and how that spending will be

financed. &owe'er$ it is not a forecast. - forecast is a prediction of the future

whereas a budget is a planned outcomeof the future % defined by your plan that

your business wants to achie'e.

=),( >= - ()(( ;,

,here are a number of benefits of drawing up a business budget$ including being

better able to2

manage your money effecti'ely

allocate appropriate resources to pro*ects

monitor performance

meet your ob*ecti'es

impro'e decision%making

identify problems before they occur % such as the need to raise finance or

cash flow difficulties plan for the future

increase staff moti'ation

+:-,) - ;,

+reating$ monitoring and managing a budget is key to business success. )t should

help you allocate resources where they are needed$ so that your business remains

profitable and successful. )t need not be complicated. 4ou simply need to work out

what you are likely to earn and spend in the budget period.

egin by asking these uestions2

"hat are the projected salesfor the budget period? e realistic % if you

o'erestimate$ it will cause you problems in the future.

"hat are the direct costsof sales @ i.e. costs of materials$ components or

subcontractors to make the product or supply the ser'ice?

"hat are the fixed costsor o'erheads?

4ou should break down the fixed costs and oer!eadsby type$ e.g.2

cost of premises$ including rent$ municipal ta


6/15

tra'el and subsistence e


7/15

reduce by 10 per cent for each additional 0 per cent of sales$ how much will your

unit costs decrease if you ha'e a 33 per cent rise in sales?

Fake sure your budgets contain enough information for you to easily monitor the

key dri'ers of your business such as sales$ costs and working capital. -ccounting

software can help you manage your accounts.

)n'ol'e the right people

)t#s best to ask staff with financial responsibilities to pro'ide you with estimates of

figures for your budget % for e: ;, ") ; ,> )+;

"rojected cas! flo#%your cash budget pro*ects your future cash position on a

month%by%month basis. udgeting in this way is 'ital for small businesses as it can

pinpoint any difficulties you might be ha'ing. )t should be re'iewed at leastmonthly.

Costs% typically$ your business will ha'e three kinds of costs2

fi


8/15

( 4>: ;, ,> F-(: 5:=>:F-+

)f you base your budget on your business plan$ you will be creating a financial

action plan. ,his can ser'e se'eral useful functions$ particularly if you re'iew your

budgets regularly as part of your annual planning cycle.

4our budget can ser'e as2

an indicator of the costs and re'enues linked to each of your acti'ities

a way of pro'iding information and supporting management decisions

throughout the year

a means of monitoring and controlling your business$ particularly if you

analyse the differences between your actual and budgeted income

enchmarking performance

+omparing your budget year on year can be an e


9/15

sing up to date budgets enables you to be fle


10/15

4ou should always follow the links to more detailed information from the

rele'ant go'ernment department or agency.

-ny reliance you place on our information or linked to on other websites will

be at your own risk. 4ou should consider seeking the ad'ice of independent

ad'isors$ and should always check your decisions against your normal business

methods and best practice in your field of business.

,he websites operators$ their agents and employees$ are not liable for any

losses or damages arising from your use of our websites$ other than in respect of

death or personal in*ury caused by their negligence or in respect of fraud.

A feasibilit% stud%

- feasibilit% stud%is an e'aluation and analysis of the potential of the proposed

pro*ect which is based on e


11/15

"ash #udget

MANUFACTURE CO has the following

collection pattern2

)n the month of sale2 !0K

)n the month following sale2 7K

)n the second month following sale2 0K

ncollectible2 3K

"ash #udget

MANUFACTURE CO

.udgeted charge sales are as follows2

L- 00$000

=. !0$000

F-:+& 6$000

-5:) 60$000

11


12/15

"ash #udget

.udgeted +ash :eceipts

for the Fonth nding F-:+& 31$ 013

-ugust sales2 ;& 6$000 & !0K ;&13$000

Luly sales2 ;& !0$000 & 7K 67$!00

Lune sales2 ;& 00$000 & 0K 0$000

,otal ;& 39$!00

"ash #udget

+ash .udget

for the Fonth nding F-:+& 31$ 013

.udgeted receipts ;& 39$!00

.udgeted disbursements 68$380

et increase in cash ;& 171$10

12


13/15

#udgeted $tatement of %ncome

MANUFACTURE CO .udgeted )ncome

(tatement

for the Fonth ending -ugust 31$ 01(ales ;& 19!$000

ess cost of sales 7!0$00

Gross margin DH 119!$000

>ther e


14/15

,he key benefit of business planning is that it allows you to create a focus for the

direction of your business and pro'ides targets that will help your business grow. )t

will also gi'e you the opportunity to stand back and re'iew your performance and

the factors affecting your business. usiness planning can gi'e you2

a greater ability to make continuous impro'ements and anticipate problems

sound financial information on which to base decisions

impro'ed clarity and focus

a greater confidence in your decision%making

for e


15/15

References

'(!ttp)**###+infoentrepreneurs+org*en*guides*budgeting(and(business(

planning*

(!ttp)**en+#i-ipedia+org*#i-i*Operating.budget

3%http2//www.businessdictionary.com/definition/operating%budget.html

%http2//www.cliffsnotes.com/more%sub*ects/accounting/accounting%principles%

ii/budgets/operating%budgets

!%http2//classes.bus.oregonstate.edu/spring%07/ba/FanagementK0-ccounting

K0+hapterK00.htm

15
http://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/http://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/http://en.wikipedia.org/wiki/Operating_budgethttp://www.businessdictionary.com/definition/operating-budget.htmlhttp://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/budgets/operating-budgetshttp://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/budgets/operating-budgetshttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%2020.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%2020.htmhttp://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/http://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/http://en.wikipedia.org/wiki/Operating_budgethttp://www.businessdictionary.com/definition/operating-budget.htmlhttp://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/budgets/operating-budgetshttp://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/budgets/operating-budgetshttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%2020.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%2020.htm

Date post:	03-Jun-2018
Category:	Documents
Upload:	sameh-salah
View:	218 times
Download:	0 times

2 Operational Budgeting and Profit Planning ,Standard Costs and Performance Reports

Documents