Managing Finance: Importance of Budgeting and Variance Analysis

This report discusses the importance of managing finance through budgeting and variance analysis. It highlights the objectives of budgeting, the report showing variances in a company's budget, and areas of concern for management. It provides advice on improving sales, reducing expenses, and maintaining quality. Course: Finance, College/University: Not mentioned

FINANCE

EXECUTIVE SUMMARY
Finance is the most important thing which is being used within the company. This is the
money which is being used in the company for running and operating the business. Thus, for the
business it is very necessary for the company to manage the finance so that the company can
manage the work in effective and efficient manner. Thus, with help of this report it has been
discussed that budget making is important and for this budget is prepared. Then the actual
performance is compared with the actual performance and the variance between them is
calculated. This variance calculation is helpful for company in understanding the areas which are
of concern for the company and needs to be improved.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
Objectives of preparing budget..............................................................................................4
Report showing variance of company....................................................................................4
Variance concerned for management.....................................................................................5
Advise in support of objectives..............................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Finance refers to the money which is being used in the business to manage the operations
and working of the company. The present report will discuss for the finance and budget of the
Twin Rivers Café. This will start by discussing the objectives of making the budget and then a
report for the variance of the planned and actual budget will be outlined. Further the discussion
will highlight the key concern area for the management of the café. In the end some of the advise
will be provided to the management of café for improvement.
MAIN BODY
Objectives of preparing budget
Budgets are prepared by organisations for having a planned structure to be followed in
the long run. Budgets helps the management of company in planning future steps that are
required to be taken for improving the over all performance and efficiency. There are various
types of budgets that can be prepared by the organisations. Each budget of the company have
different objective and benefit. Some examples of the budgets are sales budget, purchase
budgets, cash budget and many more. Main objectives behind preparing the budgets by Twin
River Cafe are :
Providing Structure
Budgets are prepared by organisation to have proper guidance for the direction in which
business has to be moved. Budgets enable management in planing their next step for cafe that
will be enhancing the process. It is prepared for planning the specific profit objective of cafe.
Regarding every activity of the cafe it has planned a budget that helps in giving a well organised
structure to the organisation(Tayal and et.al., 2019).
Prediction of Cash Flows
When cafe prepares the budgets according the levels of sales and expenses it can make
predictions about the cash flows that could be generated by company. It could also make
predictions for the expenses that will be causing the cash outflows. Budgets helps in estimating
the expected inflows and outflows of cash from different activities that are undertaken by
companies. Cafe can plan their future expense according to the estimates made by them in the
budgets.
Allocation of resources

Budgeting also helps companies in allocating the funds to different activities that are
undertaken by cafe. Allocations of funds helps in allocating the resources to specific expenses
according to the budgeted level. This prevents overspending by the cafe over a particular
activity. This helps in running the organisation in a structured manner. When business has
specified funds within which expenses are to be carried out it prevents the cafe from facing cash
crisis.
Measure performance
Performance of the cafe could be measured through budgets. Budget enable the company
in making comparison between the budgeted and actual levels. Differences between the actual
and budgeted levels are known as variances(Srinivasa, Kaura and Gilman, 2017). They help the
organisation in taking corrective measures that will reduce the variances to minimum in the next
budgets. It is very essential to know the performance for enhancing the process and identifying
activities that are requiring causing the major variances.
Report showing variance of company
Cost Type Budget Actual Variance A/F
Variance as %
of Budget
Meals
Quantity 18000 17800 200
Revenues 81000 80100 -900 A 1.11%
Direct
Materials 43200 42720 480 F 1.11%
Direct Labor 10600 10540 60 F 0.57%
Utilities 3300 3290 10 F 0.30%
Facility Rent 4300 5100 -800 A -18.60%
Insurance 2300 2600 -300 A -13.04%
Fuel 2480 2490 -10 A -0.40%
Total
Operating
Expenses 66180 66740 -560
Net Operating
Income 14820 13360 1460 9.85%
Interpretation
Above table has been prepared for identifying the variance between the actual and
budgeted activities of cafe. Budget is for the month of July. Sales revenues of company are lower

than the budgeted levels of cafe. There is a variance of 1.11% in the revenues of cafe between
the actual and budgeted. Direct materials of company has shown a variance of 1.11 even when
the price of raw material has remained constant. Variance in direct materials are favourable and
the number of meals sold are less than budgeted level. Wages and salaries has shown variance of
0.57%that is favourable as over budget has covered the increase in labour cost of £ 0.30 per q.
From the above calculation it is interpreted that the rent was in adverse because the
planned rent expense was 4300 but in actual the rent expense was high with a difference of 800
that is at 5100. This is not a good condition for the café as in actual they have to incur more of
the money over the rent. Similarly, in insurance also the actual is more than the planned expense.
Thus, this is not a favourable thing to do. In planned budget for fuel the actual expense was more
then the planned budget.
Variance concerned for management
Making the budget is very crucial for success of company. This is mainly due to the fact
that this provides an estimation to the company that how much income and expenses will be
incurred for a period of time (Gitman, Juchau and Flanagan, 2015). Thus, it is very necessary for
the companies to find the variance because if the variance will be high then it means that the
company has to improve those areas.
With the analysis of the variance between the planned budget and the actual income and
expenses incurred it was outlined that some variance was favourable and some were adverse.
Thus, it is very necessary for the management of Twin café to consider some of the areas which
are crucial for the café to have improved actual budget. Some of the important activities which
are important for management of Twin Rivers café to be taken care are as follows-
Revenue- this is the major concern area for the café and its management. This is
pertaining to the fact that the actual sales of the café are less than what was expected. This
variance was not favourable for the café as they have estimated the revenue to be £81000 but in
actual the earned was only £80100 that is 900 less than the estimated sales. Thus, this is an
important activity which the company need to take care about it.
Rent- this is also an important area for concern of the company because this is an indirect
cost which is incurred in running the business. This was also very much deviated from the
planned budget. This is majorly because of the fact that the planned budget was less and in actual

it was 800 more and this increased the expenses of the company. Thus, it is very necessary for
the café to look for the alternate areas where the rent is low.
Meal quantity- this is also an important concern for the café to consider because there is
also deviation in the budgeted quantity of meal and the actual. Thus, this implies that the sales
were low as the actual meal quantity was 200 less. This may be due to the fact that competition is
high or may be the quality of the food product is low (Bekaert, Hodrick and Kiguel, 2019).
Advise in support of objectives
As discussed above there are many variances among the planned budget and the actual
expenses and income incurred. Thus, it is very necessary for the company to take some measures
for the reduction of the variance. This reduction of the variance is necessary because of the fact
that if variance will be reduced than the profits will be increased for the café. Hence, some of the
steps for Twin Rivers Café to reduce the variance are as follows-
The first step is to effectively market the products in the market so that the sales of the
café increases (Chambers, Freeny and Heiberger, 2017). For this Twin River café need to use the
latest method of digital marketing so that the product and services of the café reaches to
maximum consumers.
Another advice to the management of Twin River café is to research for the alternate
place for the café where the rent is low as compared to the current place. This will help the café
in reducing the variance of the planned and actual budgets.
Another advice for the café is to check the quality of the food products and other related
materials. This is necessary because of the fact that this may be the reason behind the deviation
in the meal quantity.
One more recommendation for the company is to set some standards for the quality
maintenance so that the food product made will be of top quality and will be liked by the
company (Pilbeam, 2018).
Another advice to the management of Twin Rivers café is to time- to- time audit the food
making process and the equipment used in processing the food are updated or not and if not, then
measures are to be taken to improve the state of equipment.
CONCLUSION
From the above report it is concluded that managing finance is very necessary for the
company to get successful in its operations. Thus, from the above conducted analysis it was

highlighted that making budget is very necessary for the company to provide a direction in which
the company need to work. With this report the objective of making the budget was discussed.
Also, with help of report of variance of budget many concern areas for management of café was
highlighted. These areas were like sales, mela quantity and many others. In the end some advice
and recommendations were provided to the company for improvement.

REFERENCES
Books and Journals
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Pilbeam, K., 2018. Finance & financial markets. Macmillan International Higher Education.
Chambers, J.M., Freeny, A.E. and Heiberger, R.M., 2017. Analysis of variance; designed
experiments. In Statistical models in S (pp. 145-193). Routledge.
Bekaert, G., Hodrick, R.J. and Kiguel, A., 2019. Variance Risk in Global Markets. Available at
SSRN 3442649.
Tayal, A., and et.al., 2019. Systems and method for combined account reconciliation and
variance/flux analysis. U.S. Patent Application 16/405,723.
Srinivasa, D., Kaura, A. and Gilman, R., 2017. A Systematic Review and Variance Analysis:
Does Plane of Dissection Affect Nerve Injury Complication Rates in Various
Rhytidectomy Techniques?. Plastic and Reconstructive Surgery Global Open. 5(9 Suppl).