Fantasy Meets Reality Strategic Planning and Budgeting Capital vs Expense Presented by: Jarmila Pencikova Manager, Accounting Osler, Hoskin & Harcourt LLP

Fantasy or Reality?

Budgeting *Analysis *Terminology *Operating Budget *Capital Budget *Budgeting for Projects *Reporting Osler, Hoskin & Harcourt LLP

IT Spending Analysis - by type of expenditure (capital, operating) - by category (salaries, consulting, etc) - per partner - per lawyer - staff member - % to revenue Osler, Hoskin & Harcourt LLP

Capital vs Expense Capital Expenditures/Assets are the tangible or intangible properties that meet certain criteria. Tangible properties:land, building, equipment Intangible properties:software Osler, Hoskin & Harcourt LLP

Capital Expenditures/Assets Criteria -held for use in the provision of services, for admin purposes, etc. -acquired to be used on a continuing basis -not intended for sale in the ordinary course of operations -have a value and useful life (normally more than 1 year) Osler, Hoskin & Harcourt LLP

Capital Expenditures/Assets Categories -Hardware -Software -Equipment -Furniture -Leaseholds Improvements -etc. Osler, Hoskin & Harcourt LLP

Prepaid Expenses Expenses over a certain limit (set by the Firm) that cover period of more than 1 month are usually expensed over the period they cover. Examples:Equipment Maintenance Software Maintenance& Licenses Insurance Osler, Hoskin & Harcourt LLP

Budget Summary of the expected financial consequences of the organization/units short-term operating activities. Focus on 2 types of Budgets: - Operating - Capital Osler, Hoskin & Harcourt LLP

Operating Budget Find out how many people will be hired in the new year throughout the Firm impact on your operating expenses (computer leases, number of IT people required to support it, etc.) Osler, Hoskin & Harcourt LLP

Operating Budget Find out what the Firms business plan is (expansion, merger plans, office relocation) impact on your operating expenses (computer leases, number of IT people required to support it, etc.) Osler, Hoskin & Harcourt LLP

Operating Budget *For known expenses (amount & timing), budget the amount in appropriate month. *For general expenses budget 1/12 of the annual amount in each month. Osler, Hoskin & Harcourt LLP

Operating Budget You can prepare budget based on: -events (involves more than 1 account) -individual accounts Osler, Hoskin & Harcourt LLP

Visit to another office -How many days? -How will I travel there? -Whats the purpose of the trip? Types of expenses: * Accommodation * Travel (incl. airfare, train, mileage, parking & taxi) * Meals * Long Distance Calls Osler, Hoskin & Harcourt LLP

Attending a Conference Conference Attendance -Registration -Airfare/Train/Bus -Meals -Hotel -Taxi -Car Rental -Other (parking, long distance calls, gas, etc.) Osler, Hoskin & Harcourt LLP

Attending a Conference end of August Registration & AirfareMay/June Meals, Hotel & otherAug/Sept Tip:Dont forget to convert foreign currency amounts into your local currency! Osler, Hoskin & Harcourt LLP

Maintenance Contracts Equipment/Software Maintenance & Licenses Annual Contract where cost < Prepaid Limit -budget full amount in the appropriate month Annual Contract where cost > Prepaid Limit -budget 1/12 of the annual cost for each month of the year Osler, Hoskin & Harcourt LLP

Equipment Maintenance Example:Existing $60,000/year for period July 2002 to June This cost will go up to $90,000/year for period July 2003 to June Budget for 2003: $30,000 for Jan to June 2003 ($5,000/month) $45,000 for July to Dec 2003 ($7,500/month) $75,000 total for 2003 Payment in $90,000 in July Osler, Hoskin & Harcourt LLP

Capital Budget You can prepare budget based on: -Asset category -Project Osler, Hoskin & Harcourt LLP

Budgeting by Asset Category List individual categories and budget within each category: *Specific amounts for specific items *General amount for unknown items Osler, Hoskin & Harcourt LLP

Capital Project *One or more capital expenditures with or without related operating expenses. *Budget is prepared for each Project. *Each Project will have its own Capital Project number. Osler, Hoskin & Harcourt LLP

Budgeting for Capital Projects *Show the cost for the entire life of the Project (if more than 1 year) broken down by each fiscal year. *Budget by Asset Category within each Capital Project. Osler, Hoskin & Harcourt LLP

Budgeting for Capital Project Each Project may have 2 types of expenditures: * Capital(Hardware, Software, Equipment, Furniture) * Operating(Consultants fees, Travel, Training cost, etc.) Osler, Hoskin & Harcourt LLP

Budgeting for Capital Project How and where do you enter the budget numbers? - in Excel - in your accounting software How do you report on your variances? Osler, Hoskin & Harcourt LLP

Budgeting for Capital Project Set up each Project as a department in your accounting software and record every expenditure (capital or operating) under this department. Advantages: - easy to record - easy to keep track of - easy to report on Osler, Hoskin & Harcourt LLP

Reporting *Listing of all Projects *Statement per Project summarized by expense category Osler, Hoskin & Harcourt LLP

Suggested Reading or Talking? Osler, Hoskin & Harcourt LLP Speak to your CFO/Controller

Contact Information Jarmila Pencikova Manager, Accounting Osler, Hoskin & Harcourt LLP First Canadian Place, P.O. Box 50 Toronto, Ontario M5X 1B8 Canada

Questions Osler, Hoskin & Harcourt LLP