Business Studies Unit 2

USING BUDGETS
Budget - an agreed plan establishing the policy to be pursued 

Benefits: 
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 

Drawbacks:
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:
Seasonal Demand
Overtrading
Over-investment in fixed assets
Credit Sales
Poor Stock management
Poor management of…