Jessica Enriquez Maria Dolores Martinez Silvia Ontiveros Marta Sevilla
Num. 2
December 2016
INDEX
1. Links between budget and business planning 2. Types of budgets classified by its length or horizon 3. Types of budgets classified based upon their specific purpose 4. Elements of budget 5. How is a budget used to motivate staff 6. Department classification in the budget 7. Budget control methods 8. Corrective measures and why 9. Webgraphy
LINKS BETWEEN BUDGET AND BUSINESS PLAN Budgets have a key role. They are an important control system in many companies.The overall objective of the budget is to keep control of the activity done in the company by providing a roadmap for future activities and to set a series of goals to be achieved and the means by which to achieve those goal . Budgets are used by management for different uses: control income and expenditure (the traditional use); establish priorities and set targets in numerical terms; provide direction and co-ordination, so that business objectives can be turned into practical reality; assign responsibilities to budget (managers) and allocate resources; communicate employees;
targets
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motivate staff; improve efficiency; monitor performance Budgeting purposes are the following: 1. Planning operations that ensure the companies’ strategic objectives realization. 2. Coordinating various activities of different types of subdivisions. Coordination of each employee and groups interests. 3. Stimulation of managers from all business levels to achieve predetermined goals of each responsibility center. 4. Control of current activity, ensuring discipline according to the business plan. Careful drafting of budgets ensures the optimum standard to compare undertaken
5. Evaluation of plans fulfillment by each responsibility center and their managers. Management performance can be appreciated by comparing the results with those expected to be achieved.. 6. Training managers and other employees from financial services of a company. Budgets are considered to be highly beneficial to companies. If your business is growing, you may not always be able to be hands-on with every part of it. You may have to split your budget up between different areas such as sales, production, marketing etc. You'll find that money starts to move in many different directions through your organisation - budgets are a vital tool in ensuring that you stay in control of expenditure. A budget is a plan to: -Control your finances -Ensure you can continue to fund your current commitments -Enable you to make confident financial decisions and meet your objectives -Ensure you have enough money for your future projects It outlines what you will spend your money on and how that spending will be financed. However, it is not a forecast. A forecast is a prediction of the future whereas a budget is a planned outcome of the future - defined by your plan that your business wants to achieve.
TYPES OF BUDGETS CLASSIFIED BY ITS LENGHT OR HORIZON LONG - RANGE BUDGET The long-range budget is typically prepared for a period of up to five years. The long-range budget is usually connected to the operation’s strategic plan.While its detail is not great, it does provide a long-term financial view about where an operation should be going. ACHIEVEMENT BUDGET The achievement budget, or shortrange budget, is always of a limited time period, often consisting of a month, a week, or even a day. It most often provides very current operating information and thus, greatly assists in making current operational decisions.
ANNUAL BUDGET The annual budget is for a one-year period or, in some cases, one season. In fact, the best time period for an annual budget is the one that makes sense for your own operation. Also, an annual budget need not consist of 12, one-month periods. While many operators prefer onemonth budgets, some prefer budgets consisting of 13, 28-day periods, while others use quarterly (threemonth) or even weekly budgets to plan for revenues and costs throughout the budget year.
TYPES OF BUDGETS CLASSIFIED BASED UPON THEIR SPECIFIC PURPOSE OPERATIONS BUDGETS Operations budgets are concerned with planning for the revenues, expenses, and profits associated with operating a business. It is simply management’s estimate of all (or any portion of) the income statement ). CASH BUDGETS Cash may be generated or expended by a business’s operating activities, investing activities, and financing activities. Its are developed to estimate the actual impact on cash balances that will result from these activities.
CAPITAL BUDGETS Some expenses incurred by a business are not recorded on the income statement. Capital expenditures are those expenses associated with the purchase of land, property and equipment, and other fixed assets that are recorded on the balance sheet. The capital budget is the device used to plan for capital expenditures. Planning (budgeting) for capital expenditures is related to the investment goals of the business’s owners, as well as their long-term business plans.
BUDGET Opperations
Capital Cash
ELEMENTS OF BUDGET
Fixed expenses: These are the expenses you know your company will incur every month. These include expenses such as rent, insurance and salaries. You have to account for these expenses first so you know you can cover them without fail. Separate them by highlighting them in a different colour.
Fixed income: Fixed income is the guaranteed monthly amounts you get from regular clients. These are people you might have contracts with, for example. Because you know you'll get this money each month, it's more reliable and, therefore, you can account for it first.
Variable expenses: These expenses change from month to month depending on your company's position and rate of sales. If your company sells less, your expenses, such as telephone costs, could decrease because of fewer sales calls Just because these vary from month to month doesn't mean they're not important so ensure you can account for them each month.
Variable income: Variable income comes from once-off purchases from new clients. These are people who don't have contracts with you so you might never do business with them again. If your budget contains these five specific elements, it will be effective every time.
Once-off expenses: These aren't very important expenses and often you can choose when you incur them. For example, the expenses of servicing a company car is a once-off expense that you can choose whether you do it this month or next month.
One-off expenses
Fixed expenses
ELEMENTS OF BUDGET
Variable expenses
Fixed income
Variable income
HOW IS A BUDGET USED TO MOTIVATE A STAFF
It can be used in different aspects: Formation: - Include employees in the drafting of the budget - Obtain agreement from all parties to the budget before it is completed. - Make the completed budget available to all stakeholders, and sending a copy of the final budget to everyone involved.
Motivate the staff have consequences for the company. They usually feel better and this is great for the company because they are more involved in the company, the care more about what they are doing and they even try to improve the proceduresor make them better.
Use a monitoring: - Record actual performance in a timely manner. Sales and expense information should be entered monthly, at minimum and more frequently if reliable information is available - Determine a threshold for investigation of budget variances. - Calculate budget variances - Identify variances that are greater than the threshold for investigation to follow up on. - Create action plans for investigate variances. - Recognize performance.
DEPARTMENTS CLASSIFICATION IN THE BUDGET The department classifications related to the different aspects that we are going to see in the budget are these: Accommodation or rooms is at reception department Bar and restaurant belongs to the same department, food and beverage Banquets as are described in the budget are located in sales department Other: others
BUDGET CONTROL METHODS In this point we have to make kind of a list of the control mechanism that we are going to use will be check poitns. In these check points we will: Observe the variance between the contrast and the real data that we have. As we already know that we have had variances in our forecast and the real aspects, we have checked the different aspects that have made this. To solve this variances, we have thought about checking the occupancy lasts years to compare them and to know what to expect, we are also going to control the incomes and the outcomes lasts years to check what we are able to do these months. We have to control if we are going to need more or less staff, if we can offer higher or prices have to be decreased.
CORRECTIVE MEASURES AND WHY ROOMS: We expected that we were going to have less rooms booked, in january so we have meet the point in which we have to hire more staff or give our staff the holiday later because we are going to need them at the reception. This necessity comes out because if we have more occupancy and less workers, we are not going to offer the service in the best way, and it may make the guests thinking that we are not welcoming and treating them as well as they deserve. In february, we have had almost double production we thought that we were expeting, so this point is the same as we had in january, we need more people working because they have to offer the best service as they can and if they are in a hurry because there is not enough staff we are not doing it well. As we are having more occupancy that we expected, we are also going to need more staff at housekeeping because there are more rooms that must be cleaned.
RESTAURANT: In this department, we thought that we were going to have more incomes than we have already had. This is the reason why in January, we have had an almost 100€ loss. Otherwise, in February we have had a nearly 1000€ profit , which was over what we thought that we would income. The main action that we are going to perform is keeping all of the staff working because in February, we have had more affluence. Other thing that we have to do is ask our suppliers to bring us more products because we do not want run out of them. BAR: This department has not been successful in January but we have been completely successful in February. We have had not such a loss in January, because we had a forecast of 1713 € in this first month and we just got 1468 as income. In February we expected 734 € and we have already got as income 1654, which is more of the double. This has made us thinking in similar actions as in the Restaurant department, because we do need ore goods to work and do not run out of them, and we do need more staff tow ork, because we do not want to overcharge our workers. BANQUETS: This department has not been successful enough. In January, we have had just 8,02 € over the quantity we though that we were to income. In February as we had expected we have not had any client.
OTHERS: In this department, we expected that we were going to spend more than we think, which is a great aspect, because it means that we have earned money, and it may be saved up to be spent in next months. In February, we also have thought that we were going to spend more then we had. The main action that we are going to start is saving up everything that we are not spending during the month, for example, if we expected to spend 50 euros and we finally spend 45, those 5 euros are going to be saved up for the next month.
Click here to see the budget: https://www.dropbox.com/s/7rijttmjjoq7tn9/Budget.ods?dl=0
WEBGRAPHY
http://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/ http://budgetandthebeach.com/2013/06/26/the-5-elements-of-a-successful-budget/ http://classroom.synonym.com/basic-elements-budget-24467.html