Bsbfim501 : Manage Budgets And Assessment Answers

Choose two examples from the following list, of budget or financial plans that you have worked on in your workplace:
• Cash flow projections
• Long-term budgets plans
• Operation plans
• Short term budgets/plans
• Spreadsheet based financial projections
• Targets or key performance indicators for production, productivity,
wastage, sales, income and expenditure.

 

For each of the chosen plans provide examples of the following:
• Show how you have clarified the plan with relevant personnel within your organisation to ensure that the document outcomes are achievable, accurate and comprehensible. Relevant personnel you need to refer are:
o Financial managers, accountants or financial controllers
o Supervisors, other frontline managers
• How did you negotiate any changes required to be made to the plan with relevant personnel within the organisation?
• Show a prepared contingency plan in the event that the initial plans need to be varied.

Cash Flow Projections

A cash flow projection is a plan that indicates the amount of time required by the company to receive the money and also pay out the expenses and liabilities over a fixed period of time. Planning is required at every stage of business to ensure that it runs smoothly and is able to meet all its obligations Tracking cash flow is the top priority for any organization as the business needs liquid cash on a daily basis.

Projection of cash flows was done primarily by following the below steps:

• Based on the historical data, the timing of the cash inflows and outflows were studied.
• At any point of time, either the business will have a cash surplus or a cash deficit and thus the time period of such surpluses or deficit was also noted.
• In times of deficit, the need to borrow is identified and also the measures of repayment of borrowing are depicted in the cash flow projection.
• An appropriate cut off level was set for the minimum cash balance that should exist at any point of time with the company and the balance could be either used for working capital or towards any capital expenditure or to clear off the liabilitiesThe anticipated cash transactions likely to occur during the sub period were also quantified and provided for.

A snapshot of the cash flow projection is provided below:

The plan has been discussed with the financial managers, financial controllers, supervisors and accountant. A few relevant points of discussion are hereunder:

• The first six months are the actual results and the next six months are the projections. This gives a perfect view of the cash flow. The ending cash balances are available at one glance and so it becomes easier to tell whether the cash position is progressing or not.
• The cash flow projections can clearly show the timing of actual inventory purchases and how it is different from the recording of expenses in the income statement
• The Finance Controller has recommended a variance level of 5% in the cash flow projections. Hence every month the projections are compared with the actual to work out the variances and make the relevant changes. Thus the projections are refined month on month.
• An amount equal to 10% of the revenue is designated to “other expenses” as a cushion for some unforeseen expenses that might arise.

 Despite these measures taken, in case of contingency if the company is suddenly in requirement of cash, then it can liquidate the marketable securities which are easily tradable in the market. Thus a contingency plan is also in place to help the company in any emergencies.

Short term budgets / plans

A budget is typically for more than a year’s time. A long-term budget takes into account the same but a short-term budget typically marks the market movements and daily changes that are likely to impact the business

These short-term plans have a high degree of certainty in comparison to the longer ones. The goals of the company are broken down into short-term objectives to be covered over a period of time.

A discussion is carried out with the Finance Controller and the Supervisor and the accountant with respect to the below points:

•    The budgeting period is designed in such a way that it covers at least one seasonal cycle.
•    The budgeting period should coincide with the short-term reporting requirements of the company so that the budgeted figures can be compared with the actual results to analyze the results and facilitate a better comparison and interpretation of the results. The implications should help the management in risk elimination and achievement of the company’s objectives.
•    The market trends, consumption patterns are all to be considered for the budget preparation.
•    A high level of accuracy should be aimed at in the budgeted figures in relation to the future activity.
•    As the financial and investment goals of the company change, the short-term budgets also have to be amended.

A snapshot of the short term budget prepared is presented as below:

The management discussion is carried out on the following points:

• The working capital movements have the largest impact on the short-term cash flows. The movements in accounts payable and accounts receivable and the gap between the two needs to be monitored more closely.
• Cash shortages might occur at times and hence the business needs to make adjustments like deferred payment of expenses or enjoying early payment discount from creditors, negotiations with bankers and financial institutions, offering discounts to debtors to encourage a quicker payment and also possibly selling of unwanted assets if need arises.
• As budgeting is very significant for the efficient management and resources allocation, it provides an overall direction to the organization and can be used to motivate the employees also.
• The coordination among the various departments and activities within the organization is also achieved by preparing budgets. Thus it has to incorporate and take into account the smallest factors that are likely to have an impact on the organization.
• It is important to be realistic and neither be too conservative nor too generous in providing for the expenses or revenues.

Contingency arises in the short term budgeting as anticipating the problems does not happen very fast and hence sufficient time is not available to provide satisfactory solutions. This contingency plan would be either to rely on the insurance companies for the types of risk covered by them or possibly the company have to suffer the loss. Even if there is any remedy or solution for a contingency in a short-term budgeting, it has to be figured out and implemented spontaneously.

References:

Horngren, C. (2013) Financial accounting. Frenchs Forest, N.S.W: Pearson Australia Group.

Larry M. W & Christopher J. S. (2012) Managerial and Cost Accounting. Pearson Press

Libby, R, P & Short, D. (2011) Financial accounting, New York: McGraw-Hill/Irwin.

Needles, S. C. (2011) Managerial Accounting.  USA: South-Western Cengage Learning .

Parrino, R,  Kidwell, D. & Bates, T. (2012) Fundamentals of corporate finance. Hoboken

Shim, J. K & Siegel, J G. (2009) Modern Cost Management and Analysis. Barron's Education Series

Venanci, D. (2012) Financial Performance Measures and Value Creation.  State of art . New York: Springer.