Budgeting Flashcards
What is the finance department is responsible for
Budgets, cash flow forecasting, credit control, paying suppliers and production and analysis of year end accounts
What are budgets
Forecasts or plans for the future finances of a business
What are the three types of budgets
Income, expenditure and profit
What are income budgets
A target set for the amount of revenue to be achieved in a specific time period, they can be split by products or departments, informed by market research and sales forecasts
What are expenditure budgets
A limit placed on the amount to be spent in a given period of time, can be split into departments, responsibility is usually passed onto managers, allows for monitoring of under spending as well as overspending
What are profit budgets
Targets set for the surplus between income and expenditure in a given period of time, informs decision making on products to include or cut from portfolio
What is the process of setting budgets
Set clear objectives, carry out market research, produce a sales forecasts, set income budget, set expenditure budget, set profit budget, set divisional targets, review against objectives
What are the problems with setting budgets
Depends on predictions and forecasts, costs are subject to change, actions of competitors are unknown, managers may lack experience, may be subject to bias, time and effort opportunity cost
What are the advantages of budgets
Provides quantifiable targets which can be measured against outcomes, inform decision making, motivates budget holder
What are the disadvantages of budgets
Potential for conflict (short term saving can damage long term objectives), may be restrictive, time consuming to set and monitor
How do budgets effect managers
Additional responsibility motivates but could become too much pressure
How do budgets effect suppliers
Fierce negotiations may occur as business tries to stay in budget
How do budgets effect customers
They could view changes in prices as the business struggling
How do budgets effect employees
Cuts in hours or lower job security to meet budget
