Managing Finance & HR for Sustainable Business Success

This report discusses the importance of budgets, variance analysis, and financial decision making for sustainable business success. It focuses on the financial statements of Sky Café and conducts variance analysis for the month of July. Recommendations are provided based on the analysis.

Managing Finance & HR for
Sustainable Business Success

EXECUTIVE SUMMARY
Sky Café has lately been garnering attention for its unique taste, concept and idea. In the report,
the importance of budgets will be highlighted along with the discussion on the variance analysis
and its importance and assistance in the financial decision making. Figures from the financial
statements of Sky Café will be taken and variance analysis will be done.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
a. Objectives of framing budget...................................................................................................4
b. Variance analysis of revenue and the spending.......................................................................5
c....................................................................................................................................................6
d...................................................................................................................................................7
REFERENCES................................................................................................................................1

Sky Café is located near London Gatwick Airport and this independent café shop opened in the
year 2016. The unique characteristic of serving the homemade food and local delicacies sets the
café a bar apart from its competitors who are mainly the food and beverage chains (Chiu & Choi,
2016). In this report, the objectives behind budget preparation has been highlighted and the
variance analysis if the company for the month of July will be conducted and appropriate
analysis and recommendation will be made.
a. Objectives of framing budget
There is a particular set of business goals and mission that Sky cafe has formulated for
themselves i.e. to become an independent café store for both travellers and citizens where they
tend to provide a flavour of homemade specialities thus increasing sustainability. In accordance
with this mission, there are several objectives for which the budget is been prepared by Sky cafe
are as follows-
 Providing structure- Budget is considered as useful for Sky cafe in providing a guidance
to an entity in relation to the direction within which it is been supposed to go. It forms as
the base for planning that tells about the future requirements and in facilitating a direction
(Kouvelis, Pang & Ding, 2018). Budget provide for a significant amount of the structure
when the management referred it as constantly and for making the employees performed
as per the expectations outlined.
 Predicting cash flows- preparing of the budget is said to be extremely useful within the
companies that are been growing rapidly which have seasonal sales or having an irregular
pattern of the sale in forecasting accurate level of cash flows in the future.
 Allocating resources- Sky cafe through preparing budget for Twin rivers cafe could be
able to coordinate and allocate efforts of the several departments of an organization
towards a common direction. It helps in fixing the responsibilities of the different
functional heads.
 Measuring performance- It is the budget that helps in accelerating an operational
efficiency of the cost centres, divisions and all the departments of an enterprise (Marzlin
Marzuki & Ismail, 2019). Framing of the budget also helps in ensuring effective control
on firm's cash, sales and an inventory.
Key Performance Indicators are used to analyse the performance of the business and determine
what are those key points or statistics that can be used to analyse in quantitative terms, what the

performance of business has been. It also helps in meeting the objectives of the company and
anything that is of relevance to the company can be categorised as a KPI for the company.
b. Variance analysis of revenue and the spending
An given it has been reflected that Sky cafe expects a budgeted sales of 18000 means in
July along with generating budgeted revenue amounting to 81000. Planned expense for the
month has been estimated or anticipated as £ 66180 in consideration to making a net operating
income of the value 14820 for the July 2018.
Managers had communicated figures to their respective supervisors in the senior management
meeting that had been held an year ago. Budgets allows management team in identifying the
quantity of the raw material that is been required from a local stakeholders (Kalamkar and et.al.,
2018).
After setting of the financial goals for the month of July and determining the meals that are
estimated in selling and the actual outcomes are been monitored by the senior management.
Particulars
Planning
budget Flexed budget
Variances on
the flexed
budget Actual result
Variances
within actual
result
Budgeted
meals quantity 18000 17800 200(Adverse) 17800 200(Adverse)
Revenues 81000 80100 900(Adverse) 80100 900(Adverse)
Expenses :
raw
material(£2.40q
) 43200 42720
480(Favourabl
e) 42720
480(Favourabl
e)
Wages &
salaries 10600 10540 60(Favourable) 10540 60(Favourable)
Utilities 3300 3290 10(Favourable) 3290 10(Favourable)
Facility rent 4300 4300 0 5100 800(Adverse)
Insurance 2300 2300 0 2600 300(Adverse)
Fuel 2480 2480 0 2490 10(Adverse)
Total expenses 66180 65630
550(Favourab
le) 66740 560(Adverse)

Net Operating
income 14820 14470 350(Adverse) 13360 1460(Adverse)
In accordance to above analysis it has been interpreted that the reduction in the value of
the sales had a direct impact on expenses that includes a variable aspect that are raw material,
salaries, wages and the utilities. Such variances are counted as favourable but it results as the
circumstances when lower quantity of the product is been sold. An assessment of the flexed
budget indicates that adverse value of variance in the revenue is resulted of the value £ 900 as it
is based on the £ 4.5 value of the per meal sold. Furthermore, raw materials are seen as the
expenses that are incurred in connection to selling of the meals. This shows that as lower meals
were been sold so less quantity of the raw material is been required in order to attain a favourable
variance. Wages and the salaries having a variable aspects in connection with quantity of the
meals that are sold. As there exist the shortage of the sales valuing to 200 meals, there is £60
underspend in the salaries. Utilities shows a favourable difference of the value resulting as £10.
Expenses like fuel, facility rent and the insurance were not been anticipated correctly. Thus, total
of the expenses have been resulted as 65630 rather than 66740.
The flexed budget contains a total amount of operating profit resulted as 14470 that is
counted as an adverse variance of the value 350 as the difference between budgeted and actual.
The actual value of the net operating income accounted as 13360 that seems to be adverse
variance of the 1460 than the planned. Therefore, it is clearly seen that such adverse variance
resulted because of the lower volume of the sales from the budgeted and higher amount of the
fixed expenses.
c.
Inaccurate forecasting of fixed expense- The facility remains due for the managers and
the renewal by assuming that rent would remain of the same amount. Because of the economic
climate, landlords has changes an agreement and resulted a increase in the cost of rent. This data
is not been accounted in planning the budget for the month of July in relation to the effect on the
rent cost. It acts as the major concern for the managers with regards to the future prospects of the
company.
Actual sales resulted lower than budgeted- An external and the internal analysis
involving the non-financial measures are ascertained because of the reduced quality of the

products in reviewing the customer feedback (Messer, 2016). Another reason for reduction of the
sales is attained because of the formal training has not been provided new members of the staff.
It likely to correlates with the customers in capturing delivery delays in respect to the feedback
of the customers.
d.
As it has been analysed that the main variance with regards to the actual results was
accounted as increase in the amount of rent which in turn means that fixed cost are increasing.
From this it is advised for negotiating procedures and the cost with the stakeholders and the
landlords as of relevant. An aim of the company must be getting a fixed period agreement for
long run which ensures that cafe minimises any amount of the unstimulated additional cost
which could affect net profit of the company.
For example- it is been recommended to the company in checking for the other insurance
companies for seeing in case they are having the better deals.
Increasing an internal communication with all the employees in an organization results in
increasing the motivation. Employees at Sky cafe must be having an enough knowledge
regarding their targets, in making sure that the budgets seems to be realistic but as challenging.
In case if company is making investment in the training that is important for ensuring that each
and every employees stays in company for the long term period. It has been suggested to
increase bonus for per meal that is been sold at single employee (Kes & Kuźmiński, 2019). Also,
managers should have consider the programme relating to employee excellence where the
employees gets rewards for the great performance with the customer liaison.
It is significant for having more of the proactive budgetary control where the managers
need to have actively focus on the budget control, amendment in the data changes and in
informing teams so that task could be performed by keeping in mind the budgeted estimates.
Lastly, an external communication is also been determined and is highly recommended in using
more and more marketing tools like social media for increasing an opportunity for advertising
company and its major point of selling. Thus, by taking into account such investments, quantity
of the sales may be increased and hence larger profitability could be gained.
It can therefore be concluded that the variance analysis is an extremely important tool in
analysing the performance of the business and helps in taking appropriate decisions.

REFERENCES
Books and journals
Kes, Z., & Kuźmiński, Ł. (2019). Application of Extreme Value Analysis in the Assessment of
Budget Variance Risk. Econometrics, 23(2). 80-98.
Messer, R. (2016). Teaching Variance Analysis for Cost Accounting: How to Achieve above Par
Performance. In Advances in Accounting Education: Teaching and Curriculum
Innovations (pp. 51-63). Emerald Group Publishing Limited.
Kalamkar, P. and et.al., (2018). Cost variance analysis in treatment of advanced non-small cell
lung cancer.
Marzlin Marzuki, N. A. R., & Ismail, J. (2019). Benefits and limitations of variance analysis in
management accounting. ACCOUNTING BULLETIN, 15.
Chiu, C. H., & Choi, T. M. (2016). Supply chain risk analysis with mean-variance models: A
technical review. Annals of Operations Research, 240(2). 489-507.
Kouvelis, P., Pang, Z., & Ding, Q. (2018). Integrated Commodity Inventory Management and
Financial Hedging: A Dynamic Mean‐Variance Analysis. Production and Operations
Management, 27(6). 1052-1073.
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