Victorian Academy of Commerce and Technology Startups

RTO Code: 41428 | CRICOS Code: 03477E

• SITXFIN004 - Prepare and monitor

budgets
• Prepare budget information
• Prepare budget
• Finalise budget
• Monitor and review budget
 TOPIC 1 - PREPARE BUDGET INFORMATION
• Determine and confirm scope and nature of required budgets
• A budget is the success plan for a business.
• A budget helps you plan to reach objectives within your business, making
sure you are earning the income you want and are in control of the costs
related to that income.
• if you do not have control over the costs, you won’t know if the
business is on track to your goal profit.
 Role and nature of budgets

• The role that an effective budget plays is important to the fundamentals of

business management.
• The nature of a budget is to ensure that the budget covers everything it is
planned around to ensure there are no unforeseen costs, as well as providing a
direction to reach a goal.
• Cash budgets
• Cash flow budgets
• Departmental budgets
• Event budgets
• Project budgets
• Purchasing budgets
• Sales budgets
• Wage budgets
• Whole of organisation budgets
 Tracking income

• The first step in creating a budget is to determine how much income

the business has.
• Depending on how large the business is this can be done in many ways. A
small business is more likely to have a bookkeeping system to keep track of
income. This may be recorded on a daily or weekly basis.
• A larger business may have a more complex computerised system. A
system like this keeps track of all transactions as they come in, and reports
are printed daily. It will also make tracking income down to the cent very
easy.
 Tracking expenses

• Start with the regular and fixed payments you have, such as your
lease, company car payments, insurance, debt repayments and taxes.
• After you’ve listed your fixed monthly expenses, it is time to dig deeper to
find out where the rest of your money goes.
• Jot down how much is spent on things like wages, utilities, stock, laundry,
and so on.
• Once you have calculated all of the expenses project a total for the
year (this will be an educated estimation) you should be liberal with
your estimation as sometimes costs rise and fall so estimating more
can give some room for inflation.
 The bottom line

• Total up the yearly income and total yearly expenses. Subtract the
expense total from the income total and you’ll have either a positive
or negative number.
• If you have a positive number, you are spending less than you earn.
• The whole reason for creating a budget is to identify any deficiencies and
determine how to address them. This could also be calculated on a
monthly or even quarterly scale depending on the needs of the business.
Identify, access and interpret data and data sources required
for budget preparation
• When preparing to write a budget there are multiple sources of information and
data that you will need. These sources and contents of data required for budget
preparation may include:
• Competitor research
• Customer or supplier research
• Declared commitments in areas of operation
• Financial information from suppliers
• Financial proposals from key stakeholders
• Income and expenditure
• Departmental, event or project budgets
• Grant funding guidelines or limitations
• Management policies and procedures
• Organisational budget preparation guidelines
• Performance information from previous periods
 Objectives

• Another key component you need to address when preparing a

budget is objectives.
• Objectives refer to the desired income/profit/loss/cost that have been
previously aimed for.
• When creating a budget, it is good to set your objectives at a difficult yet
achievable level.
Analyse internal and external factors for potential impact on
budget
• It is helpful to do a SWOT (strengths, weaknesses, opportunities and
threats) analysis:
• Internal
• Strengths
• Weaknesses
• External
• Opportunities
• Threats
 Planning

• When planning to achieve your objectives you'll need to take into account your
requirements for:
• Skilled staff
• Appropriate suppliers
• Future expansion

• Consideration will need to be given to:

• A lack of skilled labour or supervising personnel
• A shortage of capital available for expansion
• The amount of competition that exists or may exist in the future
• Management policy on the type of service you will offer, for example, busloads of tourists
and/or regular clientele
 Non-monetary objectives

• The following non-monetary objectives may need to be specified in

order to achieve a monetary goal of maximising profit:
• Number of items to be offered for sale
• Return on sales
• Output per employee
• Rate of staff turnover
• Return on investment
• Percentage occupancy
• Customer satisfaction
• Market share
 Internal and external factors that impact on budget
development
• Growth or decline in economic conditions
• Human resource requirements
• New legislation or regulation
• Organisational and management restructures
• Organisational objectives
• Scope of the project
• Shift in market trends
• Significant price movement for certain commodities or items
• Supplier availability and cost
Provide opportunities for colleagues to contribute to budget
planning process
• When you are budgeting, it is important that your budget
encompasses the entire business. In order to do this, you will have to
involve colleagues from all of the different areas involved in your
business.
• Managers from every area are important in budgeting as they will be able to
shed light on the intricate workings of that particular area that they specialise
in.
• Colleagues’ input will be invaluable in the long run to get an accurate
forecast of upcoming events is vital to prepare a realistic budget.
 TOPIC 2 - PREPARE BUDGET
• Draft budget and estimate income and expenditure based on
analysis of all available information
• There are various budget estimate techniques that can be implemented in
your work.
• Part of your job will involve choosing the correct estimating technique for
the task at hand.
• You will need to use the estimating techniques and procedure that
your organisation approves of, these will be outlined for you in your
policies and procedures manual.
• Cost volume profit analysis
• Budgeting - revenue budget
• Preparing the budget
• Budgeting in a new operation
• Forecasting food revenue
• Forecasting room revenue
• Calculating cost of sales
• Setting a standard percent
• Standard recipes
• Labour expense
• Other direct costs
• Indirect costs
• Cash budgeting
• Budgeting - variance analysis
 Valid, reliable, and relevant information

• Valid information is information that has been properly cited and

referenced and is correct, free from mistakes, and has been confirmed
as valid by an industry professional.
• Reliable information is that which is genuine and authentic. This information
is best gotten from the main source, rather than from secondary summaries
from unconfirmed sources.
• Relevant information is that which makes sense in regards to the subject
matter and can directly relate to it.
 Reflect organisational objectives within draft budget

• An action plan starts with identifying the goals of the organisation.

These goals need to be broadly defined and should reflect the long-
range Vision for the Future.
• The goals function to relate the financial Campaign to the fundamental
Mission of the organisation, relating back to that mission, and showing how
the goals, when achieved, will fulfil the Vision and help further the Mission
over time. The goals can have end results that reflect the future Vision over
several years.
Assess and present options and recommendations in a clear
format
• Part of the process is to present budgets and targets for final
approval.
• Getting your budget approved involves several factors:
• Credibility
• Presentation
• Justification
• Business conditions
• Communication skills
 Circulate draft budget to colleagues and managers for input

• Once you have completed the draft budget, it will be important that
you create copies of it to give to your colleagues and managers to
gain their input and thoughts on what you have created.
• Having a second opinion is useful as they may notice something that you
missed, or they might be able to give you some new information on the
budget that will require you to change it.
• When seeking feedback on your draft, ensure that you confirm the reason
you are showing these people the draft budget, which is to see if there are
any areas you missed and if they have anything they would like to input.
 TOPIC 3 - FINALISE BUDGET
• Negotiate budget according to organisational policy and procedures
and agree on and incorporate modifications
• The details of budgets are likely to need to be negotiated, particularly if they
include additional expenditure or temper the sales expectations of a top-
down budgeting process.
• Managers need to be prepared to defend their position and negotiate a
mutually beneficial outcome that is achievable and satisfactory to both
parties.
• Conduct budget negotiations
• Prioritise mutually beneficial relationships
• Align negotiations with business protocols
 Complete final budget in a clear format within designated
timelines
• Budget formats:
• Flexible budget
• Line-item budgeting
• Program budgeting
• Performance budgeting
• Zero-based budgeting
 Inform colleagues of final budget decisions and application
within relevant work area, including reporting and financial
management responsibilities
• Budgets can act as the tool in which information is shared within the
workplace.
• Management uses budgets to communicate objectives and strategies and
engage with the workplace to actively pursue those objectives.
• Budgets can motivate employees to reach certain performance levels. It
enables management to set goals and objectives for the workplace.
 Aim for consensus

• Consensus is when everyone agrees on a decision after full and open

discussion. It is not the same as unanimous accord.
• It is concerned with an agreement to implement a decision that appears to be
the most acceptable to the team as a whole.
• It gives people an equal chance to influence the outcome, and if this is the
case, people will be more committed to the decision because they had
input into it.
 TOPIC 4 - MONITOR AND REVIEW BUDGET
• Regularly review budget to assess actual performance against
estimated performance and prepare accurate financial reports that
incorporate all financial commitments into budget and budget
reports
• Explain and justify variations in budget performance:
• Budget variations are areas where actual performance has varied from
that expected and projected in the initial budget.
• Discrepancies between actual and budgeted expenditure are called
variances:
• Unfavourable variances
• Favourable variances
 Vertical and horizontal analysis

• When presenting data, a clear and precise format is needed.

• A vertical and horizontal chart is a clear and precise format to display your
data whether assessing or presenting data.
• In reviewing budgets in this way, managers gain a broader understanding
of how the business is performing and can make better decisions to
improve performance.
 Ensure accuracy of budget reporting

• When preparing budget reports for review, it is helpful to become

familiar with the requirements for reports and past examples of
similar reports to establish an understanding of the format and
content required.
• It is important to prepare reports carefully, checking figures and calculations
more than once.
• Budget reporting procedures vary according to the size and type of
organisation and according to budgetary policies and procedures.
 Financial reporting procedures and cycles

• The financial reporting cycle, is a series of procedures in the

collection, processing, and communication of financial information.
• The financial reporting cycle is a set of steps that are repeated in the same
order every period.
• The culmination of these steps is the preparation of financial statements.
• The steps are as follows:
• Identify business events, analyse these transactions, and record them as
journal entries
• Post journal entries to applicable ledger accounts
• Prepare an unadjusted trial balance from the general ledger
• Analyse the trial balance and make end of period adjusting entries
• Post adjusting journal entries and prepare the adjusted trial balance
• Use the adjusted trial balance to prepare financial statements
• Close all temporary income statement accounts with closing entries
• Prepare the post-closing trial balance for the next accounting period
• Prepare reversing entries to cancel temporary adjusting entries if applicable
Incorporate all financial commitments into budget and budget
reports
• When preparing a budget and budget reports you must incorporate
all known financial commitment as described in previous topics.
• Financial commitments can include such things as:
• Rent
• Business deals
• Contracts
• Leases (cars/equipment)
• All commitments should be forecast and known about prior to
budgeting in order to incorporate potential costs or income into the
budget/reports.
 Investigate and take appropriate action on significant
deviations
• Standard deviation is a measure of the dispersion of a set of data
from its mean. This means that it is the expected or acceptable
deviation of a financial report.
• When taking actions, you will need to ensure that you are following
organisational policies and procedures.
• This is very important, as policies and procedures are put in place to assist
you in these moments. They will guide you through the recommended
actions that you should take and will help to prevent significant losses and
disruptions.
 Analyse changes in internal and external environment and
make necessary adjustments
• Environmental changes may include:
• General economic trends
• Environmental factors such as flood/heat wave
• Political and legal events, for example, GST
• Expected action of competitors
• New products and/or competitors entering the market
• A lack of skilled labour or supervising personnel
• A shortage of capital available for expansion
• The amount of competition that exists or may exist in the future
• Management policy on the type of service you will offer, for example, busloads of tourists
and/or regular clientele
 Collect and record relevant information to assist in future
budget preparation
• During the period of the proposed budget, all information is to be
collected.
• This is for future budgets and is also use to gauge the success of the budget.
• This information is vital when preparing budgets consecutively as you
have a base number that you can work from and also information from
previous years to compare your progress.
 ADDITIONAL KNOWLEDGE
• Features and functions of accounting software programs used to prepare
and monitor budgets
• There are many types and brands of accounting software out there. Each will have
various features and functions that you will need utilise during the operation of the
software.
• Reporting and analysis
• Graphics
• Automation
• Automatic updates
• Customisation
• Internet connectivity
• Security
 SUMMARY
• Now that you have completed this unit, you should have the ability to
analyse financial and other business information to prepare and
monitor budgets.