Budget - an agreed plan establishing the policy to be pursued
Provide direction and coordination - ensures spending is geared towards the aims of the business
They motivate staff - Encouraged by responsibility and recognition gained from meeting budgets.
They improve efficiency
They assess forecasting ability - can help predict the future
Difficult to monitor fairly - must rely on the honesty of the budget holder in explaining a department's budgeting needs.
Allocations may be incorrect - unforeseen changes may mean the budget is not right.
Savings may be sought that are not in the interests of the firm - saving money to keep withing a firms budget may have disastrous long term affects.
Changes may not be allowed for when a budget is reviewed.
A budget should: Be consistent with the aims of the business, be based upon the opinions of as many people as possibly, set challenging but realistic targets, flexible.
Variance Analysis - the process by which the outcomes of budgets are examined and then compared with the budgeted figures. Reasons for any differences are then found.
Favourable Variance - when costs are lower than expected and revenue is higher than expected.
Adverse Variance - when costs are higher than expected or revenue is lower than expected.
IMPROVING CASH FLOW
Causes of Cash flow problems:
Over-investment in fixed assets
Poor Stock management
Poor management of…