Managing Finance & HR for Sustainable Business Success

This document discusses the objectives behind preparing a budget, revenue and expense spending variance, concerns for management, and recommendations for Twin River Café in managing finance and HR for sustainable business success.

MANAGING FINANCE & HR FOR
SUSTAINABLE BUSINESS SUCCESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
(1) Objectives behind preparing budget...........................................................................................1
(b) Revenue and expense spending variance...................................................................................2
© Concern for management.............................................................................................................3
(D) Recommendation to Twin River Café.......................................................................................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
Budget is the tool that is used to control expenses in the business and to monitor business
performance. In the present research study objectives behind preparing a budget is explained in
the detail. In second part of the report variance analysis is done and variance as percentage of
revenue is calculated. In the middle part of the report, main area where variance observed is
discussed in detail and reason behind elevation in expense is find out. At end of the report,
recommendation section is prepared where some recommendations are given that must be
followed to control situation.
(1) Objectives behind preparing budget
Budget is the statement in which cash flows are predicted in terms of expected cash inflow
and cash outflow. Objectives of preparing budget is given below. Predict cash flow: One of the main objective of preparing budget is to estimate cash flow
and accordingly make investment or expenditures in the business. In the business lots of
activities are performed and it is very important to make expenditure prudently so that
best use of cash can be made in the business (Ren and et.al., 2016). Allocate resources: In the budget cash inflow and outflow amount is clearly determined
and accordingly resources are allocated. In the budget cash inflow amount is determined.
In order to achieve that target specific level of performance need to be given and
accordingly resource allocation is required. Thus, it can be said that budget provide
guidance to the manager in respect to resource allocation in the business. Model scenarios: In the budget varied scenarios can be projected and accordingly
management can estimate future conditions and accordingly can prepare preliminary
plan. By doing so situation can be tackle in better way in the future time period. Measure performance: Other main objective behind preparing budget is the performance
measurement. Actual performance values are compared with the budgeted value and by
doing so performance is reviewed and it is identified whether performance was good or
bad in the business (Bogoviz and et.al., 2017). After identification of performance strict
action is taken to handle the situation and to ensure that in upcoming year such kind of
variance will not be observed in the business.
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(b) Revenue and expense spending variance
Planning Actual Variance
Variance as percentage of
budget
Budgeted meals
quantity 18000 17800 -200 -1.11%
Revenue 81000 80100 -900 -1.11%
Expense
Raw material 43200 42720 -480 -1.11%
Wage and salary 10600 10540 -60 -0.57%
Utilities 3300 3290 -10 -0.30%
Facility rent 4300 5100 800 18.60%
Insurance 2300 2600 300 13.04%
Fuel 2480 2490 10 0.40%
Net operating income 14820 13360 -1460 -9.85%
From above table it can be seen that budgeted meal quantity is 18000 and actual quantity
produced is 17800 which means that actual production is less then budgeted by 200 units and
variance is -1.11% of the budgeted value. Due to less production revenue amount also decline
from 81000 to 80100 as variance is 900 and same as percentage of budget is -1.11%. Expenses
like raw material, wage and salary and utilities value is less then budgeted value which reflect
that cost saving happened in the business but important point which must not be ignored is that
cost saving happened because of low production in the business. In case of facility rent,
insurance and fuel actual expenditure made are greater then budget value. In case raw material,
wage and salary and utilities saving of £480, £60 and £10 is made. On other hand, in case of
facility rent, insurance and fuel excessive expenditure of £800, £300 and £10 is made. Overall, it
can be said that performance is not satisfactory because even production decline by 200 units
expenses increased at rapid rate.
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© Concern for management
Table 1Expense made on each unit of produced item
Planning Actual
Raw material 2.4 2.4
Wage and salary 0.6 0.6
Utilities 0.2 0.2
Facility rent 0.2 0.3
Insurance 0.1 0.1
Fuel 0.1 0.1
Net operating income 0.8 0.8
In order to find out main area of concern this table is prepared. Higher variance is observed in
case of facility rent where expenditure is £800 more then the budgeted value. In the budget it is
observed that it seems that good control is made on expenditure in the business. However, it is
also right fact that produced units decline and due to this reason expenditures also reduced. In
order to do more detailed analysis above table is prepared wherein expenditure amount is divided
by each unit of production in the budget and actual category. It can be seen from the table that
raw material, wage and salary, utilities, insurance and fuel expenses are same across plan and
budget which means that on these fronts stiff control is maintained on the expenditures in the
business. However, in case of facility rent actual is more then budgeted and it is the matter of
concern for the firm. This is because if rent value will increase at rapid pace and actual
production does not increase then in that case rent burden will be high on the business. Thus, in
order to solve such kind of problem some initiatives must be taken by the firm (Serra and Kunc,
2015). Rent amount increase with elevation in inflation rate. It can be said that inflation and
inflation rate both are closely correlated to each other. If inflation rate increase rent amount also
enhanced. On other hand, if inflation rate declines no change comes in the revenue amount.
Hence, it is very important to make accurate estimate of the rent expenses so that sufficient
production can be done in the business. If there will be sufficient production then in that case
even variance is negative high profitability in the business will assist firm in absorbing shock. In
past couple of years, it is observed that rent amount is increasing at rapid pace then inflation rate.
Those who give property on rent take advantage of the inflation rate and give logic that inflation
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rate is high and due to this reason, they are charging higher amount which is wrong approach. On
name of inflation rate, they charge rent amount at their own discretion and due to this reason also
variance is out of expectation. Thus, strict action need to be taken to handle the situation.
(D) Recommendation to Twin River Café
It is recommended to the Twin River Café that focus must be on rent amount control and
under this negotiation must be done with the property owner and attempt must be made to
control rent amount. Twin River Café must identify rent amount that is charged on the same sort
of property and must compared that with the rent amount company paid. In case it is identified
that rent amount paid is high then in that case that point must be placed in front of the property
owner. By doing so self-side can be made safe and property owner can be motivated to reduced
rent amount. It is also recommended that specific sort of contract must be inked with the
property owner and under this terms and conditions must be placed which will keep rent amount
static for few years (Biech, 2019). If rent amount will be static then in that case it is be easy for
the Twin River Café to control expense in the business. This will lead to increase in business
profit. If property owner does not get ready on such kind of proposal then new terms and
conditions can be placed on the proposal and under this it can be stated that if property owner
keep rent amount static for few years then in that case up to certain number of years Twin River
Café will take plant on rent. This, will ensure regular flow of income to the property owner. By
doing so property owner can be motivate to make rent amount stable because such kind of deal is
beneficial for both property owner and Twin River Café. Apart from this, if management have
any other option then in that case it can be take other steps also and by doing so elevation in the
expenses can be curbed to the maximum possible extent. Rent and HR expenses are two that
place heavy burden on the company and due to this reason time to time these expenses must be
reviewed so that action can be taken on time in the business.
CONCLUSION
On the basis of above discussion, it is concluded that there is significant importance of the
variance analysis method for the business firms because by using this approach they can identify
areas where work need to be done to improve performance. It is also concluded that after doing
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detail discussion values of the budget must be determined. By doing budget can be prepared in
proper manner and performance can be analysed in better way.
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REFERENCES
Books and Journals
Biech, E., 2019. The New Business of Consulting: The Basics and Beyond. John Wiley & Sons.
Bogoviz, A.V. and et.al., 2017. Modernization of the approach to usage of region's budget
resources in the conditions of information economy development. European Research
Studies. 20(3B). p.570.
Ren, L. and et.al., 2016. Exploring customer experience with budget hotels: Dimensionality and
satisfaction. International Journal of Hospitality Management. 52. pp.13-23.
Serra, C.E.M. and Kunc, M., 2015. Benefits realisation management and its influence on project
success and on the execution of business strategies. International Journal of Project
Management. 33(1). pp.53-66.
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