1. BUDGETING FOR PLANNING & CONTROL
Introduction to Budgeting

2. After studying this topic, you should be able to:
LEARNING OBJECTIVES
After studying this topic, you should be able to:

3. LEARNING OBJECTIVES
Discuss budgeting & its role in planning, control and decision making.
Allocate budget resources
Monitor financial activities against budget
Identify and evaluate options for improved budget performance
Complete financial/statistical reports
Prepare budget information and prepare and finalise budget
Monitor and review budget

4. QUESTIONS TO THINK ABOUT
Do you budget?
Explain why you do, or do not.

5. DO YOU BUDGET? Personal budget or family budget
All sources of income are identified and expenses are planned with the intent of matching outflows to inflows
Budget constraint = we are restricted to spend no more than its total resources

6. LEARNING OBJECTIVE
1) Discuss budgeting & its role in planning, control and decision making.

7. Looking ahead to see what actions should be taken to
PLANNING: Definition
Looking ahead to see what
actions should be taken to
realize particular goals.

8. CONTROL: Definition
Looking backward, determining what actually happened & comparing it with previously planned outcomes.

9. Where do budgets fit into planning & control?
Budgets are financial plans for the future, identifying objectives & the actions needed to achieve them.

10. PLANNING, CONTROL & BUDGET
Strategic Plan
Monitoring of Actual
Activity
Long Term Objectives
Short Term Objectives
Short Term Plan
Comparison of Actual
with Planned
Budgets
Feedback
Investigation
Corrective Action
Budgets provide feedback for investigation
on achieving the strategic plan

11. WHAT IS A BUDGET? French word ‘bougette’ = purse
List of planned expenses and revenue
Realistic forecast of revenues and expenditures in monetary (AUD) or quantitative terms (%, units)
Financial plan for achieving future goals and objectives

12. WHAT IS A BUDGET?
Target
Route map for a business to reach its destination
Control mechanism – enables actual financial operation of the business to be measured against the forecasted

13. WHAT IS A BUDGET? Budget provides estimates for: Revenue Expenses
Staffing levels
Equipment needs etc.

14. WHAT IS A BUDGET? 2 Key elements to a Budget: Income Expenditures
Aim of the budget is to:
Assist us in ensuring that our expenditure does not exceed our income

15. BUDGETING Process of planning resources
Process of allocating resources and
Identifying measurable outcomes

16. CHARACTERISTICS OF EFFECTIVE BUDGET
Realistic – take into account all aspects that might influence the ability to achieve the goals and targets
Measurable – written in a quantitative format in order to compare budgeted values with actual values
Achievable – targets must be able to be reached
Logical – they must make sense to users

17. BUDGETS AS PLANS Long term budget as a strategic plan
Annual budget as an operational plan
Quarterly budget
Monthly budget as a performance plan

18. BUDGETS AS PLANS Long term budget as a strategic plan
Range usually 3-5 years
To remain realistic it should be reviewed and updated every year
Reflection of the long-term goals of the organization

19. BUDGETS AS PLANS Annual budget as a operational plan
Forecast for 1 year
Is developed to align with the long term goals (set in long term budgets)

20. BUDGETS AS PLANS Monthly budget as a performance plan
Forecast for 1 month
Is developed to align with the short term goals
Includes information such as monthly sales, profit and payroll targets

21. ADVANTAGES OF BUDGETING
Why do we use budgets?
Plan how much money is needed for the purchase of e.g. a house by calculating all costs
Determine the most appropriate saving plan

22. ADVANTAGES OF BUDGETING
Set standards (creation of targets)
Compare actual to budgeted results
Provide standards for performance evaluation
Improved communication and coordination b/w management and staff

23. ADVANTAGES OF BUDGETING
Creation of ‘what if’ scenarios
Corrective action
Summarize large amounts of information
Improve decision making
Allow monitoring, control and check

24. DISADVANTAGES OF BUDGETING
They take time to be developed
Padding = deliberate underestimating revenue, and overestimating expenses making it easier to achieve budget
Conflicts = difficult to get consensus of all people involved
They can be subjective = impact of internal or external factors might be difficult to determine

25. INFORMATION SOURCES FOR BUDGET PREPARATION
Performance data from the previous periods
Trends
Management objectives
Customer research
Planned local events or issues
Budget preparation guidelines of the company

26. TYPES OF BUDGETS Sales / Revenue budget Purchase budget
Cost of goods sold budget
Operating expense budget
Budgeted profit and loss statement
Cash budget
Budgeted balance sheet

27. TYPES OF BUDGETS Sales / Revenue budget
Anticipated levels of sales in units or revenue for the period
E.g. sale of 1,000 coffees in the month or $27,000 revenue in the month

28. TYPES OF BUDGETS Purchase budget
Estimates the amount of materials needed to created products that are anticipated to be sold
E.g. to make 1,000 coffees in the month, we need 250 l of milk and 25 kg of coffee beans
On a monthly basis within hospitality
Always prepared after Sales budget as it estimates stock needed to be purchased to support sales

29. TYPES OF BUDGETS Cost of goods sold budget
Calculations of the costs of the items that will have to be purchased
E.g if we needed 25 kg of coffee beans, unit price $16, cost of coffee = $400
Prepared from information in the purchases budget

30. TYPES OF BUDGETS Operating expense budget
Estimates expenses in selling, administrating and financing planned level of activity
E.g. sales staff wages – labour expense budget, office expenses, advertising, bad debts, discount allowed
Similarity to profit and loss statement

31. TYPES OF BUDGETS Budgeted profit and loss statement
Estimates the total revenue and total expenses for a specific future period
Calculated from sales, purchase, COGS, operating budgets

32. TYPES OF BUDGETS Cash budget
Predicts the amount of cash business is likely to have at a point in time
It shows predicted cash inflow and cash outflow
It shows surplus / deficit of cash inflows over cash outflows

33. TYPES OF BUDGETS Budgeted balance sheet
Estimates the assets, liabilities, and owner’s equity at a future point in future

34. END OF PRESENTATION
ANY QUESTIONS?