Manage Finances Within a Budget

This article provides tips for managing finances within a budget for hospitality businesses. It covers legal requirements, variable costs, budget revisions, communication of budget changes, financial records, types of budgets, and more.

MANAGE FINANCES WITHIN A BUDGET

Table of Contents
Assessment 3: 3
Reference List 12
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Assessment 3:
1. Hospitality businesses require to controlling costs and set budgets for every area of operation
in general. Legal requirements included allocating funds to a number of mandatory taxes and
liabilities (Henry, 2017). Legal aspects in which the companies require to allocate funds in
include:
- Insurance premiums
- Negotiation of service taxes
- Real estate taxes
- Energy management and consumption taxes
- Service taxes to labourers and builders for maintenance of pieces of furniture,
fixtures and equipment.
- Funds for renewing or obtaining new licenses
2. Variable costs are defined as the costs incurred by an organization which are not fixed with
time. The expenses in an organization operating in the hospitality industry which varies with the
staffing levels are included in the variable costs segment under the budget. Some examples of
variable costs for a commercial company in the hospitality industry may include:
- Direct labour costs
- Staff salaries
- Commissions and incentives
- Training costs
- Billable staff wages
- Medical insurance costs
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3. Some expenses that do not vary with the variable staff levels and charging of the labourers
are:
- Funds for intangible assets
- Depreciation costs
- Insurance
- Expense on interest payments
- Rents
- Costs of general utility facilities such as electricity, internet and phone bills
4. Budget revisions can be required if there are unexpected outcomes faced by the company
repeatedly. Some of the reasons for considering budget revision may include:
- Sudden changes in the external factors of the organisation affecting the financial
performance
- Mismatch in the expected outcomes indicating some miscalculation within the budget
- Required redistribution of funds depending on additional expenditures (Jacobs et al.
2018)
- Controlling expenses due to increased incomes and deciding about investments after
reaching financial targets
5. In a business in the hospitality industry, budget making is the primary step included in the
forecasting process. At some points, budget revisions are required as the expected performances
do not match the actual results. Therefore, in hospitality businesses, a budget revision might be
required in some specific situations such as:
a) The number of rooms booked per day surpasses the estimated numbers in the budget
which can change the whole framework of revenue collection (Ross and Harrington,
2016).
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b) If there is a sudden and unanticipated increase in attrition rate, then the budget will have
to be reviewed in order to employ and train new employees. In this case, hiring costs and
training costs will have to be included in the budget.
6. It is required to notify each and every department in an organisation about the proposed
changes. The ways to communicate budget changes within an organisation in the hospitality
industry can be of either verbal or non-verbal form (Fao.org, 2018). The non-verbal formats
included communication of the changes in the budget through written documents on paper. Some
means communications include:
- Involving entire teams and clarifying their needs according to the forecasted budget. Live
presentation is one of the most used means of communicating budget alterations.
- Financial changes may also be broadcasted to all parts of an organisation through the use
of organisation website or official social media
- Budget changes can also be notified to all workers through use of official letters or mails
non-verbally.
- Team meetings are also prevalent ways to communicate budget changes in hospitality
organisations.
7. Difference accounting related data is required for controlling and monitoring expenses of both
small and large scale businesses. According to Fitriany et al. (2015) accounting records need to
be maintained and updated regularly considering compliance with legislation and measures of
progress. While monitoring and altering budgets for an organisation it is essential to keep track
of a variable number of expense records. Some of the most important sources of expense records
are:
- Accounting records including financial statements and business ratios
- Bank statements such as tax filings and payment dues
- Insurance documents such as business liability policies or renter’s insurances
8. Successful budget creation is based on the previous trends in performances and incomes of
business organisations in the hospitality industry and therefore access to all sorts of income
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statements are necessary for predicting the future expenses and profits of the company. Types of
income records needed for monitoring the budget for any organization include:
- Income statements with all details of expenditure
- Cash flow statement showing amounts of revenue collected
- Sales invoices for timing of receipts
- Receipts of grants from the government
9. Surpassing costs for food and raw materials is one of the most common issues faced by
restaurants in general. Therefore may be multiple reasons behind such extra costing for foods.
Some of the reasons causing increased food costs in restaurants are:
- Increased costs of buying ingredients from a single vendor or supplier
- Failure to mix high and low-cost ingredients accordingly
- Employee theft of foods items especially in restaurants with unmonitored walk-in
refrigerators
- Ineffective portion control techniques used by the workers
- Poor staff training regarding bookkeeping about schedules when the ingredients are
bought and at which prices.
10. Variances in the budget forecasting and actual sales are inevitable in all businesses. There are
both positive and adverse unfavourable impacts of deviations on the performance of the
companies. However, all deviations do not result in negative impacts on the performances. For
example, if the actual sales figures exceed the forecasted figures, it actually has positive impacts
on the performance (Ter Bogt et al. 2015). Therefore such deviations can be ignored and budget
revisions are not required. Contradicting to this, in monitoring expenses, if the actual expenses
exceed the forecasted values, it has negative impacts on the financial performance of the
company. Such deviation requires attention as they hinder overall incomes of the company.
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11. Budget meetings are essential for large scale hospitality businesses such as hotels as this
builds awareness about the overhead expenses in the organisation and how the next year's
expenditures can be managed according to the previous historical data. Therefore the information
topics that need to be covered in the said budget meeting may include:
- Previous years bank statements
- Present invoices
- Balance sheets
- Ledgers
- Previous non-profitable debts
- Penalties
- Fines to be paid and upcoming taxes
- Further pieces of information about breakouts and overhead new construction budgets (if
any)
- Projected revenues may also be discussed in such meetings
12. Budgets reflect on previous performance trends in the company's finances and predict the
performance in future. Sometimes, some years or phases can experience more sales and
increased incomes as compared to usual performance levels. If certain sections of the
organisations are performing better than expected, then it can be expected that placing more
targets can be sustained effectively (Beeler et al. 2015). For example, if a company exceeds
targeted sales in every quarter of a year, it may be feasible that in the next budget, the targets can
be increased in order to achieve higher levels of income and maintain the motivation levels of the
workers.
13. Uses of Financial records:
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● Bank deposit documentation - used for documenting the information included in deposit
transaction by the depositor● Bank statements- Documents monthly record of activities in the account including
cheques issued, withdrawals, credits, interests and service charges● Banking summaries- This report is used in daily balancing procedure which enables
cross-referencing of deposits and creating three-way balances● Business activity statements- These statements are used for paying goods and services
taxes (GST) and other tax instalments (Miao et al. 2017).● Cheque books- Used for drawing depositing or granting money directly from the account
of the issuer.● Credit card transaction statements- Reports drawn amounts and available balance of the
user in the linked account● Invoices- Used in accounting to record sales and prices
● Journal entries- Special procedure in bookkeeping used in accounting containing all
financial transaction related details● Labour and wages reports- Used for recording employee names working under a
particular organisation and their gross wages against the number of hours worked.● Merchant statements- Records a merchant’s fees and transaction counts.
● Merchant summaries- Merchant summary reports are used for showing transactions in
each account, total amounts processed by each merchant gateway and average amounts
per credit card.● Transaction reports- Used for supervisory purposes by financial regulatory bodies
regarding individual transactions in accounts.
14. Types of budget:
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Cash budgets- Cash budgets are budget plans for expected cash inflows and outflows which are
formulated according to overall expenses and revenues collected.
Cash flow budgets- Cash flow budget is the estimated cash inflow and outflow for a business
within a particular time- period assessing availability of cash required for future operations
Departmental Budgets- Departmental budget is a budget predicting expenses and incomes of a
particular department within an organisation over a certain period of time (Weygandt et al.
2015).
Event budgets- Event budget is forecast for expenses and incomes involved in a particular event.
Project budgets- Project budget is allocated resources and funds for a certain project in specific
areas of application.
Purchasing budgets- Purchasing budget is a financial plan for documenting estimated costs for
the maintenance of inventory.
Sales budgets- Sales budget is the estimated sales for the consequent financial periods.
Wage budgets- Part of annual or quarterly expenditure involved in remunerating labourers in an
organization is called sales budget.
Statistical reports- A report consisting of multiple raw data sets about the performances of the
company in terms of sales and profitability.
The whole of organization budgets- This type of budget is the aggregate of all departmental
budgets and is aimed a representing the overall financial health and activity of an organisation.
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15. There may be many situations where lowering of targets might be required in a budget. For
example, in some cases, due to changes in the external factors such as interest rates in business
loans, some targets set in previously might not be achievable in limited times. In such cases
lowering of target may be required. Such requirement may also occur in case of lower demand
for services or products or emergence of new providers of similar services.
16. Some factors that need to be considered while preparing financial and statistical reports are:
- Inventory
- Sales activities
- Working capital
- Asset status
- Accounts receivable
- External environments
17. Budget Maestro is a popular software program used or budgeting in businesses. It provides
driver based modelling and effective forecasting without any hassle. It also has features such as
Expense budgeting, workforce planning, capital asset planning, revenue calculations and sales
forecasting.
18. Budgeting and control of expense is essential for all purposes in business since this helps in
ensuring that the available funds and expenditure within the company are adequate and
accordingly done (Fao.org, 2018). Budgetary control report may be generated yearly, monthly or
quarterly as per requirement of the firm.
19. Formulating budget helps in profit maximisation of a firm by improving the value of wealth
of the shareholders. It also helps in greater earnings through timely recognition of risks
associated with cash flows.
20. Cash flow refers to the total sum of cash being transmitted in and out of the business
particularly acting as effective liquidity.
21.Weekly: purchase invoices, cash receipts and account statements
Daily: Sales transactions and purchases
Monthly: Revenue losses, average gross margin and average cost per orders
22. Restaurant wastes can be classified as follows:
- Kitchen wastes
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- Electronic waste
- Paper and packaging wastages
- Prepared food wastes
23. Commissions earnings are sums of money provided for the completion of tasks such as goods
or services on behalf of another individual or company.
24. Variance in a budget is the difference between the actual amounts of sales or expenses and
the forecasted amounts in the budget.
25.
Financial report Definition Purpose
Budget Estimated income and
expenditure for particular
time-period
Used for forecasting
incomes, expenditures
and profitability of a firm
Covers Insurance coverage
measuring the safety
margin for a firm
Used for protecting the
overall market value of
the firm
Expenditure The action of spending
funds and assets
For identifying the nature
of transactions and their
uses
Labour Work of tasks done by
employees
Enabling employees to be
financially adequate
Occupancy rate The ratio of used space to
the available space for
business
Can act as indicators of
success and monitoring
demand
Purchases The act of buying goods
and raw materials
Provides cost-saving
functions
Sales The action of selling
products or services for
money
For helping customers
solve their own problems
by buying
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Stock Capital raised by
companies through shares
Useful in issuing new
investment shares in
future
Transaction The complete event of
selling and obtaining
money in exchange
Save information about
total number of monetary
exchanges
Transaction exempted Type of transactions
involving securities
exchange that do not need
compliance with
legislation
To avoid registration with
Securities Exchange
Commission (SEC)
Unit sold Quantification of Sales
earned by a firm in a
particular reporting period
Used for total revenue
calculation
Wages Regular payment provided
for work
Paid in return for work
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Reference List
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satellite link budget analysis (LBA) optimization. U.S. Patent 9,178,607. Available at:
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[Accessed 12/01/2019]
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Fitriany, N., Masdjojo, G.N. and Suwarti, T., 2015. Exploring The Factors That Impact The
Accumulation Of Budget Absorption In The End Of The Fiscal Year 2013: A Case Study In
Pekalongan City Of Central Java Indonesia. South East Asia Journal of Contemporary Business,
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Community Center, Lacey, Washington. Available at:
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Jacobs, T.L., Batra, S., Purnomo, H., Dege, K., Wegner, M.A. and Gulbranson, J., American
Airlines Inc, 2018. Reserve forecasting systems and methods for airline crew planning and
staffing. U.S. Patent Application 10/102,487. Available at:
https://patentimages.storage.googleapis.com/9c/36/75/00b2fccf44e284/US10102487.pdf
[Accessed 17/01/2019]
Miao, Y., Liu, Y., Chen, Y., Zhou, J. and Ji, P., 2017. Two uncertain chance-constrained
programming models to setting target levels of design attributes in quality function
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http://my.shu.edu.cn/FCKeditor/userfiles/201710.pdf [Accessed 22/01/2019]
Ross, L. and Harrington, C., 2016. California Nursing Home Chains By Ownership Type Facility
and Resident Characteristics, Staffing, and Quality Outcomes in 2015. Available at:
http://theconsumervoice.org/uploads/files/general/CA-Chains-Report_20AUG2016.pdf
[Accessed 15/01/2019]
Ter Bogt, H.J., Van Helden, G.J. and Van Der Kolk, B., 2015. Challenging the NPM Ideas
About Performance Management: Selectivity and Differentiation in Outcome‐Oriented
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Performance Budgeting. Financial Accountability & Management, 31(3), pp.287-315. Available
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Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John
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