Assessment 2

manage budgets and financial plan

s

Financial management
The Operational Activity of a business that is respons
ible for obtaining and effectively utilizing the funds ne
cessary for efficient operation.
The importance of this function is seen in the 'Line' an
d also in the capacity of 'Staff' in overall administratio
n of a company.
Not only focused on long term budgeting but also allo
cation of the short term resources such as current ass
ets
Deals with the dividend policies of the share holders

Importance of management
smooth running an enterprise
To provide complete coordination
To evaluate profitability of operational activities
Decision-making in the light of profitability
To enhance the credit worthiness of business concern
To determine the financial soundness of a firm

Types of budget/report
Master budget - compr
ehensive projection of h
ow management expect
s to conduct all aspects
of business
Operational budget - c
overs revenues and exp
ense
Cash Flow Budget- exa
mines the inflows and o
utflows of cash

Financial budget - ho
w a business receives an
d spends money on a co
rporate scale
Static budget - element
s where expenditures re
main unchanged with va
riations to sales levels

Types of budget/report
Financial budget
Cash-flow budgets
Aged debtors budgets
Profit budgets
Time- frame budget
Short term budgets
Intermediate budgets
Long term budgets

Operational budget
Sales budgets
Production budgets
Row material budgets
Labour usage

Types of information
Projected and estimated
cash inflow and outflows
Projected capital expen
diture on building, mani
cally and other capital it
ems
Previous years sales rep
orts
Current sales targets

Previous years productio

n performance
Current production targ
ets
Projection research and
development expenditur
e

Financial reporting process

Budget and relevant inf
ormation is monitored b
y financial manager, fina
ncial director and CEO
Management report is pr
epared by management
accountant, daily, weekl
y, fortnightly or monthly
basis. It depends on type
s of information included
in the report

Budget variances are a d

ivergence or discrepanc
y, such as the difference
between actual and the
budgeted
Budgets should be revie
wed weekly, fortnightly o
r monthly. It depends on
the types of budget bein
g considered

Financial reporting process

Contingency plan:
Develops responses in adva
nce for various situations th
at possibly affect business
Not only negative events but
also positive events that mig
ht disrupt operations like a v
ery large order
Contains several actions or s
trategies to avoid or minimis
e risk and adverse impact

Roles:
To Anticipate Business Risk
s
To help mitigate the potent
ial financial damage to the
company
To give the mobility necess
ary to shift focus to differen
t aspects of the company
To seise Business Opportu
nities

Impact of poor cash flow

Increased interest and b
ank charges
Missed opportunities fo
r business growth
Poor relationships with s
uppliers resulting from l
ate payment
Poor relationships with c
ustomers due to pressur
e from overdue invoices

Decreased employee mo
rale
Stress in business and m
anagement that affects a
ll areas of the life
Solvency of the business
Restricted business grow
th

Strategies to improve cash flo

w
Monitor stock levels
Too much stock storage an
d insurance costs
Manage accounts
Follow up on overdue accou
nt
Have good credit policies
Negotiate longer payment term
s with suppliers
Review banking products
Use the right banking
Get expert advice
Seek advice from a professional
accountant or financial adviser

Increase income
Review your pricing
Use an advertising campaign
Improve customer service
Reduce overheads
Reduce staff overtime
Reduce cost of utilities
Improve financial skills
Attend a workshop
Improve business knowledge

Ageing summaries
The purpose of summaries:
To provide a trial balance of de
btors
To show any outstanding amou
nts
the report shows:
What the company owe
Who the company owe it to
How much is overdue
How much the company owes f
or the current and previous bill
ing periods and total amount
The total amount owed to all v
endors

Managers is quickly able se

e which customers are beh
ind in meeting the agreed
on payment due date
It helps the company to mi
nimise its cash flow issues
and potential losses from c
ustomers who are unable t
o pay

GST
GST (goods and service tax) is a
broad-based tax of 10% charge o
n most goods, services and other
items sold or consumed in Austral
ia
Businesses and other organisatio
ns registered for GST includes GS
T in the sales price to the custom
ers and claims credits for the GST
included in the price of the busin
ess purchases
Claim the entire expense, includi
ng GST, on the income tax return.

Report Requirements are:

Total sales
Export sales
Other GST-free sales
Capital purchases
Non-capital purchases
GST on sales
GST on purchases
BAS(business activity stateme
nt), contains GST information,
needs to be filled in quarterly
or estimated yearly

Handing GST in the budget proce

ss
The GST is charged on e
ach transaction in the su
pply chain. However, reg
istered businesses recei
ve a credit for GST paid
on purchases. Consequ
ently, GST will effectivel
y be a 10% tax on the r
etail price of goods and
services

Collected GST needs to

be send to ATO every thr
ee months with BAS
2 ways to work out the G
ST in the BAS
- Instalment method
- Calculation method
2 ways to account GST
- Cash basis
- Non cash basis

Ice Breaker
Materials: None, unless you choose to provide pennies
or other coins.
Time: 10-15 minutes (depends on group size).
Directions: Pick a coin from your wallet. Look at the da
te. Id like you to think on one thing that happened that
year that impacted your financial situation (good or ba
d!) . Then, well go around the table and ask you to shar
e briefly your year.
Examples: 1983-had a child; 1960-I was born;
1998-bought a house; 2001-lost my job, etc

Reference
Financial Management 2ed, P Periasamy, 2009
http://smallbusiness.chron.com/five-types-budgets-managerial-accounting-50928.html
http://education-portal.com/academy/lesson/what-is-contingency-planning-in-business
-definition-example-importance.html
http://smallbusiness.chron.com/importance-contingency-planning-strategy-evaluation-r
esults-18640.html
Budgeting Concepts for Nurse Managers, Steven A. Finkler, Mary L. McHugh 2008
http://beyondthenumbers.com.au/costsofpoorcashflow/
https://www.business.qld.gov.au/business/running/making-and-managing-money/mana
ging-cash-flow/tips-improving-cash-flow
http://www.accountingcoach.com/blog/what-is-the-meaning-of-aging
QuickBooks 2015: The Missing Manual: The Official Intuit Guide to QuickBooks
https://www.ato.gov.au/Business/Starting-and-running-your-small-business/Running-yo
ur-business/Goods-and-services-tax-%28GST%29/
https://www.ato.gov.au/Business/GST/Lodging-your-BAS-or-annual-GST-return/Options
-for-reporting-and-paying-GST/Monthly-GST-reporting/
https://www.ato.gov.au/Business/GST/Accounting-for-GST-in-your-business/
http://www.figuresinblack.com.au/bookkeeping-question-accountancy-question/
Manage budgets and financial plans, Student Workbook