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SITXFIN003
Manage Finances within a Budget
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Allocate funds according to budget and agreed priorities
Organisations have very definite financial information needs. Managers and supervisors must
know how to collect, collate, present and communicate the relevant, reliable, co
ect and cu
ent
data which, in turn, is analysed to produce information for employees and for the organisation.
Types of financial records
• bank deposit documentation
• bank statements
• banking summaries
• business activity statements
• cheque books
• credit card transaction statements
• invoices
• journal entries
• labour and wages reports
• merchant statements
• merchant summaries
• transaction reports
What is a budget?
A budget is the projected incomings and outgoings of a business, or business function, for a
set period of time. It can be very simple for a sole proprietor or small business, or extremely
complex for larger businesses and corporations. It can relate across the board for the whole
usiness or organisation, or can be
oken up into section or departmental budgets, under a
master budget or strategic plan.
Every business, large or small, public or private, profit oriented or not-for-profit should have
a budget of some sort. Budgets enable the organisation and the people working within it to
pull together its commitments, plans and projects and all its costs, to gain a good picture of
proposed expenditure with expected revenues. They are the tools that are utilised to
determine what resources are available at specific times of the year and they are used to
allocate those resources and monitor their use.
There are two basic types of budget:
• Fixed budgeting: Fixed budgeting relies on figures from the past, adjusted nominally to
allow for the future. It asks: What did we do in the past? What factors will cause a change?
What will we do in the budget period? The budget is then designed to accommodate a
predetermined volume of output based on assumptions that costs and income will
ehave as predicted.
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• Flexible budgeting: Flexible budgeting allows for adjustments so that figures which
depend on other figures are regulated if conditions change. That is, it is designed to allow
changes and adjustments to cost levels so they match the level of activity actually
attained. It is a budgeting method that recognises differences in the behaviour of fixed
and variable costs in relation to fluctuations in output. It is more meaningful to compare
the actual expenditure (to measure expenditure against income) with a flexible budget
ather than a fixed budget.
Types of budgets that organisations regularly prepare.
cash budgets
cash flow
udgets
departmental
udgets
event budgets
project
udgets
purchasing
udgets
sales budgets wage budgets
whole of
organisation
udgets
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Budget Preparation
Five yearly, annual, six monthly, quarterly, and monthly budgets can all be used. Different
udgets and time frames will apply to different purposes, for example special projects, capital
expenditures etc. The type of budget and the time frames applied to the budget used by the
usiness will determine the type of information you need to collect and the ways in which it will
e used. A micro business may need to plan the cash flow in and out of the business for the
coming year. In contrast, a large business or corporation may prepare a variety of budgets, each
with a differing time span.
Changes to income and expenditure
Income and expenditure priorities will
change over time. Ideally, budgeting should
e a consultative process- a variety of
individuals, both internal and external
should be involved in the decision-making
process. This means that, prior to developing
new budgets, it is a good idea to consult with
those who will use or be affected by the
udget. It is a good idea to determine what
the cu
ent income and expenditure
priorities are and to consider what changes
are likely to impact on the coming budgetary
period. Although it is possible to use last
year's figures--relative to both income and
expenditure to inform the budget, the
priorities for the new budgeting period
might be quite different from those in the
previous period. Changes to organisational
structure might mean that a budget should
make allowance for the recruitment and
selection of a number of new staff members.
There might be a need for capital
expenditure-_for equipment and
infrastructure. Then again improved
organisational systems might mean that the
amount of money budgeted for the hiring of
staff and for purchases of consumable
supplies is reduced.
To prepare budgets and financial reports relevant to your work team, you will need to:
» identify the data that needs to be collected
» identify the appropriate sources of data
» ensure cu
ency, reliability and validity of data
» classify and code the data according to accounting and organisational principles
» assess the results of data analysis and provide formal or informal reports on the outcomes
» keep accurate and secure records of financial transactions
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New products/ services added to an organisation's portfolio might mean that more
expenditure should be allocated to promotion and marketing activities. Each budget period will
e different, and priorities must be set according to the need at the time.
Prioritisation of needs (in terms of resource allocation) should, however, revolve around
customer satisfaction. Complaints and other feedback from customers (including sales, returns
and wa
anty repairs) should be used as a means of determining where and how products/
service improvements should be made. This takes into consideration the fact that everything can
e improved, and that improvement should be a continuous process. Customer satisfaction is
the marker of business success. If customers are not satisfied, they will take their custom
elsewhere. Thus, the main priority when setting budgets is to ensure that resources will be
available to meet customer needs.
Consulting relevant personnel
Operational staff are the people actually doing the job. These people are in the best position to
identify problems, constraints or issues relating to cu
ent budgets and to advise financial
personnel of requirements for future budgets-to help prioritise resource needs for the next period.
They should, therefore, be included in consultative processes for collecting the data to inform
udgets.
Staff who could be consulted include:
➢ Administration (data/word processors, records, clerk)
➢ Customer service (sales representatives, account managers)
➢ Information technology staff (help desk, systems engineers, analysts)
➢ Human resources (payroll, consultants, training facilitators)
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Other groups for consultation
Promote awareness of the importance of budget control
One of the best ways to promote awareness of budget controls for the coming period, is, as
already considered, to involve the staff who will be affected--who will use the resources to be
allocated in the budget--in its design and development. At the very least, staff could be involved
in collecting and presenting the data that will be used to develop the budget. This will include
performance data and data relating to the costs of the previous budgetary period. They should
also be asked to make suggestions about the resources they feel will be needed in the upcoming
udget period. They could be asked for suggestions on waste management and methods of
educing costs. They could also be asked to submit proposals for new resources.
This means that:
» goals reflected in a budget should be achievable and realistic
» employees who will be affected by a budget should be consulted when the budget is prepared,
and feedback, suggestions or ideas should be both encouraged and given due consideration
» employees should be kept up-to-date with regard to monitoring the budget (eg they should
eceive regular updates on budgetary targets and the efficiency with which resources are being
used)
» all budget targets must be clearly communicated
• The following people or groups might also be consulted:
✓ partners in the business
✓ committees
✓ employees and section managers/supervisors
✓ the accountant
✓ financial planners
✓ government departments
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Maintain detailed records
Good record keeping goes beyond the compliance and statutory requirements of a business. It
is the information system of the organisation and the output should be geared to the needs of
management and to supporting and enhancing business decisions.
Each organisation must have in place secure, user-friendly systems to collect, collate, analyse,
ecord and store information. Staff must have the competencies (training) to use and maintain
the systems. Technological applications which support the information and knowledge-base of
the organisation should be constantly monitored and updated to ensure cu
ency of accurate
information.
Records contribute to functionality-new and for the future. Financial and resource allocation
ecords are used to determine what can and should be done now; and what can and should be
done in the future.
For example:
1. What has been purchased and from whom?
2. Where the best cost advantages were found.
3. Where the best quality supplies were located.
4. How much inventory is required to produce specific products/ services?
5. Is cu
ent performance and are operations being maintained within budgetary limits?
6. Is income (revenue from sales) meeting forecast expectations?
7. What budgetary allocations will best serve the organisation's purpose in the future?
Records