I wasn't go to ad my recent SPA #2 however it would be great to have some feedback on where I may improve. The SPA assignments have been quite a challenge.
I’m sitting here right now pondering on what this is all about. Just the thought of the topic of budgeting send a shiver up my spine sometimes. Looking at what needs to be paid and what needs to be cut back. But enough of the rambling let’s get into the real meat of this topic and see what brings a spark of interest to me and what may confuse me or that may need clarification.
Actions speak louder than words! I have a dream but unless I put it into action it will mean nothing. In future years to come it will be great to be my own boss but until then my actions need to show that I can do this. So where do I begin with this task?
This reading reminds me of the planning that went into place last year for my first trip to Japan. I needed to put in place a plan to what I was going to achieve. Firstly where were I going to get the money from? It wouldn’t just come out of thin air. I need to work and then make a plan to save part of my earnings and then using my budgeting techniques to allocate certain funds for the many things that need to be done from airplane flights to passports to hotels and the like.
Just like the beginning of this chapter states that to achieve the plans there needs to be a first step taken. A manager will need to make a plan of what needs to be done to take his or her company into the future. The plan being setting up a budget. For me it would be setting up a budget to maybe buy a car or home or even with Aristocrat Leisure a vision was set in place to make and provide poker machines. With each step there needs to be set in place short-term goals, long term and future goals.
Whilst planning my trip to Japan just like companies I needed a reason to save and budget my money. What short-term planning would be needed? How was I going to coordinate the trip? What communication needed to be made to have a successful holiday? Budgeting is an integral part of managing accounts. Whether it be a business or the everyday person like you or I, budgeting helps us to make short term planning that will encourage others to assist the business or in my case the trip.
Budgets need to be clear in what is to be expected in the different areas of a business.
At times for some people this can be a difficult thing to comprehend that each person needs to work with others to achieve an outcome for the business. Communication is the key word in all budgets. Just like a husband and wife commit to marriage and learn to communicate their feelings to each other so must a manager be able to communicate what part of the journey that the firm wants to go. Planning seems to pay a big role in the budgeting process no matter how big or small the firm or task maybe. How can we expect a business to be successful with communicating what is required for the business to do and where the money will be used effectively? One small step at a time. This is what is needed for the company to grow. Without that step the company will not go anywhere. Do I know what my role is in the future once I have completed my degree? A company needs to know where they will be heading.
In my planning just like a manager of any firm I cannot do it all on my own. We as individuals need to delegate areas of the task to others so as to lighten the load. Whether it be the manager or myself we do not know everything and through careful planning and some delegation the overall objective and goals will need to have a considerable scope to achieve these.
In general for all this to happen a company needs to have motivation to accomplish all this. My motivation for my trip was knowing that I was going to Japan for a long awaited holiday and wedding of a friend. So to achieve this my budgeting skills need to come into play to allow this to happen. A company’s motivation would be what type of product or service they were going to provide. Money doesn’t grow on trees so being motivated is one of the key concepts for a business to succeed. Budgeting is just one of the key areas to which the company or myself would need to work on.
As I am reading more into this chapter key players are coming to the fore. Budgeting is not just at the top level. Each department whether it be the production line manager or the top executive each role is just a cog in the larger wheel. Each component needs the other to work. I see that there is a person at the top who has the bigger picture in focus or longer-term strategic plan but negotiations will need to be made for the budget to work in the short term process.
It is interesting to note though that integrity plays a big part in producing budgets. A manager who asks his staff to set their budgets and then decides that he will instead do it himself leaves his staff in mistrust as they have been lied to in regards to what they have planned. Disunity then can set in and staff will not try to meet the targets that now have been set.
Looking at what makes up the budget process I have found that various aspects of the firm will be involved. These will includes sales, marketing, production, distribution, customer service, human resources, finance and administration. Thinking logically even within my own workplace I can see how this works. Within the private school environment you have similar areas. From the customer (being the parent or student), sales and marketing being the school, teachers, ancillary staff, administration staff, financial staff and other areas will all need to work together to have a feasible system for the budget that is put in place. If by any chance that conflict arises or school numbers increase or decrease the school will need to adjust their budget accordingly. Time lag could hurt the system if it is not acted upon quickly and efficiently.
Following on from this another key area would be ensuring the budgeting procedures are consistent with both budgeted sales and budgeted inventory. Each member of the team will be responsible for their own area. The goals they set in place will reflect how their sales will proceed during the year.
Whilst I consider on this and think what is involved I see that within the master budget the company will need to have a cash budget, a budgeted income statement and also a budgeted balance sheet. Creating a budget adds a new dimension to the business world. This reminds me of the movie the matrix where a virtual world was created just like the business world creates its budget for a future that has happened yet but show what could happen in the short term process.
Can budgets look similar or do they can they be different. Seeing that there is no set rule on how budgets are set up it is interesting to note that whether it be Ryman Health Centre or Aristocrat Leisure Pty Ltd or even my own budget for some strange theme of things they look different but can also be very similar. Could this be that in the scheme of things if it is working well why change it? Depending on the rules of the business a budget will show what the company is working toward. Concepts used will assist managers to understand and engage with the economic and business realities of their firm.
The cash budget will show the simple side of things like Cash Inflows and Outflows. Interesting to note that it is only when the company receives the cash does the budget count, sales of product or when the product is handed over do not count. Another factor to take into consideration is that purchase of direct materials, direct labour, indirect costs or overheads are part of the cash outflow. They are included in this budget when they are paid not when they are incurred.
Scenario put forward by the author is the manager of the Purple Chocolates, What does the budget tell me? With a negative cash flow each month I need to approach the bank to negotiate an overdraft. Phone calls from the bank manager would not be a wise. I also don’t want to have cranky suppliers or even workers due to there being no money to pay them. The supply chain needs to keep flowing. Having an overdraft will ensure that the budget can be met however as the manager I need to add equity investors so as to provide a return on their capital in which they invested into the firm.
Next would be the budgeted Income Statements. These will show the expected outcome over a six month period. This looks a little confusing in a way. In one area the Purple Chocolates Statement show an expected profit of $825,000 and yet the Net Cash Flow is showing a negative of $325,000. Both the Cash Budget and the Budgeted Income Statements do not match each other. Reading further into this shows that a time lag has occurred between Cash Inflows and Cash Outflows compared to revenue actually earned and costs incurred.
Changes in the budget in the firm’s Assets, Liabilities and Equity will need to be made in the next step the Balance Sheet. The Balance sheet gives more insight into the goings on off the firm. What will this show me? Do I really want to know about what is around the corner? Are there any surprises lurking in the background that need to be looked at. These are some of the questions that will show up as I look at the final picture. Just like life can throw us curve balls so can the future workings of a business. No matter how hard the business tries to keep to their budgets unexpected surprises do arise. The point that arises here now is what will the business do if it occurs?
Before an answer can be made to these questions a look at the Budgeted Balance Sheets may give an insight into the finer details of the budget. In this area Assets, Liabilities and Equity are shown. I can see that this sheet is used to check the accuracy of the other budgets that a business prepares as well as showing the financial strengths or weaknesses at the beginning of the year.
The final part to this puzzle in the chapter is the Balanced Scorecard. This is the system that attempts to measure and provide feedback to the business to help implement strategies and objectives of the budgets. By using this it helps in the improvement of various internal functions and their resulting external outcomes.
There is so much that could be written in regards to this chapter and yet when I look at it I have come to the conclusion everyone is responsible for some part of the budgeting process. The chapter goes onto to talking about responsibility accounting where the business is broken into different units of measure and the performance of the units in terms of accounting results. Certain Managers will be assigned some aspect of the firm’s performance.
The Final key in this, is that managers need to make decisions. They need to lead the way and show that they can take charge of any situation and be able to work out how to budget effectively and ensure that their decisions are met positively.