Benefits: Controlling Finances; budgets allow a business to control expenditure, which would decrease the chance of over spending. It allows money to be specifically allocated to areas of the business which are in need of it.
Improving staff performance; people like being given reasonable and agreed objectives to work towards, they gain satisfaction from being trusted with responsibility, this motivational impact may encourage workers to keep within budgets.
Drawbacks; Depts. may compete for bigger budgets, but those who need the money may not get it.
Making cuts in the short-term to fit budgets may lead to long-term problems.
If targets are too ambitious and staff cannot achieve them, it may have a negative effect on motiviation.
For staff to gain motivation from using budgets, they must be involved in setting them up.
Variance is the difference between a budgeted figure and the actual figure achieved
Variance analysis is the comparison by an organissation of its actual performance with its expected budgeted performance over a certain period of time.
It can be either favourable or adverse.
Improving Cash flow
Causes of cash flow problems
Lack of planning
Poor credit control (bad debts)
Allowing too long to pay debts
Ways to improve cash flow
Increase cash inflows
Reduce cash outflows
Improving cash flow
Increasing cash inflows
Loan (short or longterm)
Sale of assets
Sale and leaseback
Measuring and Increasing profit
Profit and profit margins
profit= Total Revenue- Total costs
Gross Profit= Sales revenue- variable costs
Net Profit= Sales Revenue- Total costs
Gross Profit Margin (%)
sales revenue X 100
Net Profit Margin (%)
sales revenue x100