Budgets
- Created by: Izzie
- Created on: 09-05-17 16:25
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- Budgets
- Forecasts or plans for the future finances of a business
- Budgets can be....
- Income
- Target set for the amount of revenue to be achieved in a set time period
- Informed by market research & sales forecasts
- Informs predicted cash inflows in the cash flow forecast
- Expenditure
- Limit placed on the amount to be spent in a given time period
- Informs predicted cash outflows in cash flow forecast
- Can be split by departments
- Profit
- Target set for the surplus between income & expenditure in a given time period
- Will be used in decision making regarding products to include in business portfolio & if cuts need to be made
- Income
- What is the purpose of them?
- They provide quantifiable targets that can be shared with interested parties against which actual outcomes can be measured
- Helps with planning & forecasting to inform decision making
- Motivates budget holders due to increased responsibility
- Types of budgets
- Historical Figures
- Setting budget based on past year's
- Can be adjusted in line with actual outcomes
- Zero Based
- Setting a budget of zero
- Time consuming but flexible & can reduce waste
- Historical Figures
- Variances
- Difference between actual income, profit or expenditure & the figure budgeted
- Adverse = a variance bad for the business
- Expenditure higher than budget
- Income/profit lower than budget
- Expenditure higher than budget
- Favourable = a variance good for the business
- Expenditure lower than budget
- Income/profit higher than budget
- Expenditure lower than budget
- When interpreting them you must firstly identify the cause, secondly consider variance effect, thirdly look for a solution
- Causes
- Action of competitors or suppliers
- Change in economy
- Internal inefficiency
- Internal decision making
- Internal inefficiency
- Change in economy
- Action of competitors or suppliers
- Solutions
- Change budgets
- Train staff to increase sales
- Reward staff to motivate them
- Change suplier
- Reward staff to motivate them
- Train staff to increase sales
- Reallocate budgets
- New marketing tactics
- Review product portfolio
- New marketing tactics
- Change budgets
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