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8/12/2019 BRSHow ToManage Budgets & Cash FlowsHow ToManage Budgets & Cash FlowsHow ToManage Budgets & Cash Flows

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ow ToManage Budgets & Cash Flows

Presented byDeepak K.J

TPS 22010


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About Author

PETER TAYLOR

Senior ProjectManager

Tonbridge, UnitedKingdom InformationTechnology andServices


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CONTENTS

1. Budget and cashflows: what are they?

2. Introducing business accounts

3. Managing VAT

4. Introducing budgets

5. Budgeting for overheads and capital items

6. Managing cashflows

7. Monitoring performance

8. Using computer to prepare budget and cash flow forecasts

9. Budgeting for all


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BUDGET & CASHFLOW

A budget is a financial document used to project future income

and expenses. It plans future saving and spending as well asplanned income and expenses. Budgeting may be carried out byindividuals or by companies to estimate whether or not they cancontinue to operate with its projected income and expenses.

Cash flow is the measure of money flowing in and out of yourbusiness at any given time, especially as affecting liquidity. Goodcash flow is achieved by managing cash. resource effectively.


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Contd.

Managing the cashEnsure the business is running profitability.

Collecting receivables- ensuring that to receive payments ontime.

Taking available credit on purchase.

Correct management and financing of capital project.

Increasing sales


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Contd.

Why prepare budget for your businessPlanning your business- you can plan the development ofyour business and make sure that your ideas will work.

Monitoring the progress of your business- you can check the

actual progress against your target.Managing the business-


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INTRODUCING BUSINESS ACCOUNTS

Profit and loss account : It show the summary of thetrading income and expenditure for the period. When dealingwith budgeted profit and loss account it is often useful tosplit the transaction into monthly periods. In this way it iseasier to monitor the actual progress of the business

compared with the budget. Balance sheet : balance sheet is the snapshot of the business

at a point of time. It show asset and liabilities at thatmovement. Asset are all the things which belong to the

business. Liabilities are the amount awed by the business toothers.


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Contd.

Income and expenditure

Capital income : It is the income that comes from capital, whichis to say, coming from wealth itself, rather than any specific

production or direct work. Capital income includes stockdividends or any sort of capital gains, as well as income an ownergets from a business they own.

Revenue income : Income generated by sales of goods orservices. When business sells the goods that it has manufacturedas it trade then this is revenue income.

Capital expenditure: It is the purchase of fixed asset which will

be used by the business and have a lasting effect for severalyears.

Revenue expenditure: it is expenditure that is concerned with thecosts of doing business on a day to day basis.


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Contd.

Typical profit and loss account Trading accounts: this is the part of report show gross profit.

gross profit is the difference between the value at which goodshave been sold by the business and cost of those goods.

Overheads: those cost of business which are not directlyrelated to the level of trade.


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Contd.

Typical balance sheet

Fixed asset: these are capital asset such as land & buildings,plant & machinery, goodwill etc.

Current asset: this means the other non capital class of assetof the business.

Current liabilities: this category includes amounts owed tosuppliers (creditors) etc. and short term financing such as

bank overdraft.

Long term liabilities : are liabilities with a future benefit over

one year, such as long term loans, notes payable that maturelonger than one year.


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MANAGING VAT

VAT: it is the net effect of set of input and output tax is to levy atax on the value added.

Accounting for VAT

Tax point system: this is the normal system. Under this scheme

the time you must account for vat is fixed by time of supply, ortax point as it is known.so the Vat must be accounted for in theVAT period that the goods are sold regardless of the time that theinvoice is actually paid.

Cash accounting scheme: under this system you only account

for the time that the cash transaction take place. If you purchasegoods on credit you are not permitted to reclaim input tax untilyou actually pay for the goods.


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INTRODUCING BUDGETS

Budgeting is to forecast what is going to happened and see thefinancial implications. Then it is forecast to plan the way that the

business will develop in the future. Forecasting budget is the setof financial plan to build the business.

Links in the budgeting

Sales budgetproduction budget

It is needed to consider the production capacity when setting thesales budget. It will be no good forecasting sale of your productat 5000 per week if you can only make 3000.


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Contd.

Sales budgetcost of sales

There is close links between these two budgets. Ex: it will be nogood setting the selling price of goods at such a level that it is

below the cost of producing an item, and it will lose money onevery item sold.

Overheadssales budget

The overheads of business will be incurred almost whatever thelevel of turnover. the cost of overheads will be carried by thesales of the product.


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Contd.

Steps involved in preparing the budget

1. Decide the period that should be covered by budget

1 year.Also decide what periods the budget is to be divided into- forexample 12 months.

2. Forecast activity levels and income from trading and othersources for each of the periods.

3. Having establish the level of sales for each month you mustnow forecast the cost of sales.

4. Next forecast the level of each of the overhead expenses.

5. Finally confirm that your plan fit into your cash budget


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BUDGET FOROVERHEADS AND CAPITAL ITEMS

Budgeting for overheads: it is toconsider the indirect costs.Indirect cost includes

Stationary

Clerical wagesManagement & supervisorysalaries

Rent & rates

TravellingBank charges

Motor expense

Depreciation

Audit & legal fees


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Contd.Each of the overheads must be considered in turn and relevant figure built intooverhead budget.

Administration budget12months to 31 march 20xx

Previous years

actual

Current

budget

MATERIALS:

stationary

Sundries

SALARIES & WAGES

management

clerical

EXPENSE

Rent and rates

Telephone deprecations

Insurance

Bank charges

xxxxxx

xxx

xxx

xxx

xxxxxx

xxx

xxx

xxxxxx

xxx

xxx

xxx

xxxxxx

xxx

xxx


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Contd.

Budgeting for capital items

Capital budget deals with the provision of new machines,extensions to factory, replacement of motor van etc.

How capital expenditure affects profi ts

By increasing depreciation charges: it will recall that

depreciation reflect the loss in the value of fixed assetsduring the period.

By interest charges: investment in new equipment orbuildings will involve some form of finance which will inturn have an interest charges of some effort.


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MANAGING CASHFLOWS

Introduction to cashflows

The Cashflow forecast runs hand in hand with the budgeted profitand loss account.

The profit and loss account takes account of transactions at thetime that the expenses accrues to the business and the income isearned.

The cashflow forecast deals with the transactions at the time ofpayment.

The cash flow forecast must also take account of capitalexpenditure for the equipment for use in business.


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Contd.

Preparing cashflow forecasting

The first thing to decide is the period of forecast that might bethree months , six months or an year.it should also decide howmany periods you are going to break the forecast into. A shortforecast can be prepared with a lot of detail and reasonabledegree of accuracy. A forecast looking forward for six or twelve

months and divide into monthly periods is more normal andshould give a good general indication of the cashflow trend of the

business.


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MONITORING PERFORMANCE

Monitoring cashflow forecast

In a cashflow forecast there should be projected column and actual columnand at the end of the month it should complete the appropriate column withactual income received from cash sales and debtors, and the expenditureactually paid. Then compare how each item has performed against theforecast. If the difference is substantial it should investigate why.

Monitoring budget

Effective budget monitoring reports provide vital information aboutspending patterns that help management to make realistic forecasts of year-end under or over spends. Monitoring a budget by Comparing of actual

expenditure and actual income against the budgeted income andexpenditure. If there is a big variation from the budgeted figures then youshould rework the cashflow to ensure that the necessary finance will beavailable or to provide you with adequate warning so that alternativearrangement can be planned.


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USING COMPUTERS TO PREPAREBUDGET AND CASHFLOW FORECAST

Using spreadsheets to help to prepare the budget and cashflow. Itcan help with complex calculations and you can see at a glanceincomings and outgoings. It also means that any changes tofigures can be automatically updated in calculations by the

spreadsheet so that it does all the hard work. Many math functionare supported in spredsheet to prepare budget.

Advantages of using spreadsheets

Once you have mastered the skill needed for the program itis quick to use.

It removes the tedious math with its inherent possibilities ofmistakes through human error.

It is easy to modify budget.


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Contd.

The use of computer in preparing budget and cashflows

is to be recommended provided that they are used with adegree of caution. If we know how to use spreadsheet

program it can save a lot of time.


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BUDGETING FOR ALL

It is becoming more important that to administrators of public

service organization appreciate the benefit and pitfall of budgetand Cashflow in relationship to them. Budget can be prepared formany different types of organization- not just business butschools, hospitals, and domestic households .

Managing school budgets

Managing hospital budget

Managing household budget


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Thank You

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