Managing Finance & HR for Sustainable Business Success

This report discusses the importance of budgets and variance analysis in managing finance and HR for sustainable business success. It explores the objectives behind budget preparation, variance analysis between revenues and spendings, variances of concern for management, and recommendations for supporting objectives. The report also provides insights into Twin Rivers Cafe and their budgeting process.

MANAGING FINANCE & HR
FOR SUSTAINABLE BUSINESS
SUCCESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
REQUIREMENTS...........................................................................................................................1
a. Objective behind preparation of the budgets by Sky Cafe.......................................................1
b. Report for variance analysis between the revenues and spendings.........................................2
c. Variances of concern for the management...............................................................................3
d. Twin Rivers for supporting their objectives............................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
Sky cafe is a coffee house that sells the coffee and coffee products. The present report is
about the budgets and its importance to the business. Variance analysis is used for identifying the
difference between the actual and budgeted expenses of company. The report will identify the
variations and recommendations about possible measures for improving them.
REQUIREMENTS
a. Objective behind preparation of the budgets by Sky Cafe
The objective behind preparation of budgets s to provide idea about the future activities
that will be undertaken by the cafe. They are required for decision making having a structured
organisation, proper allocation of resources to the activities and taking appropriate measures for
removing the gap between the planned and actual incomes and expenses of cafe. There are
various objectives behind preparing a budget (Taieb and Atiya, 2015). There are different kinds
of budgets that are prepared by the cafe and every budget has a different objective. It is essential
for the management decision making. The objectives because of which the budgets are prepared
by Sky Cafe are
For planning the next step
Operating budgets are used by Cafe for guiding the business towards achieving a desired
profit objective. Purpose behind preparing a budget is to plan how company will be operating,
coordinating different activities of cafe and for providing a base for evaluating performance of
employees. It gives cafe the path on which it is to proceed so the it can its desired objectives
within reasonable time. It helps cafe in planning the next step for the business after one activity
has been evaluated by the business.
Allocation of resources
Business cannot run without availability of the sufficient funds for carrying out the
operations. Funds and are invested in equipments, purchases, labour and and cash balances for
meeting the daily requirements of business (Tayal and et.al., 2019). Budgets helps in allocating
defined amount of funds to the department or activity carried out by the cafe house.
Goals and Business coordination
Goals and targets can be delegated to the subordinate when the management itself has
the budgeted figures and objectives to reach. It enables the cafe to reach the desired levels
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processes and promotions that are required to be performed. Allocations should be adequate so
that the activities do not go out of cash.
Evaluation of results and performance
Budgets also enable the cafe to identify the variances that are affecting the budgets. This
helps in taking corrective steps so that the variance between the revenues and expenditures could
be reduced to minimum. It is essential to evaluate the performance of cafe and the operation
undertaken by it. It is essential for the business to evaluate the causes of difference that are
happening in the organisation. If it do not identifies and takes possible measures for reducing the
variances if could affect the business (Srinivasa, Kaura and Gilman, 2017). They are required to
be controlled unless they go out of control of the business.
b. Report for variance analysis between the revenues and spendings.
Cost Type Budget Actual Variance A/F
Variance as
% of Budget
Meals
Quantity 18000 17800 200
Revenues 81000 80100 900 F 1.11%
Direct
Materials 43200 42720 480 F 1.11%
Direct Labour 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%
Interpretations
Of the business enterprise there are situations that cause the variance to occur between
the planned and budgeted figures. The budgets are planned by organisation so that they can have
a structured path to follow during the period. It is not possible for the organisations to accurately
forecast about the future but seeing the past trends they can make estimates near to actuals. The
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actual incomes and expenses in most of the cases will vary as the business is affected by various
factors. Twin Cafe budgeted revenues for around £81000 with sale of 18000 q as against the
actuals companies was able to sell 17800 q and revenues amounting to £80100. There is a
variance of 1.11% amounting to £200, high variance are not seen in planned and actual
revenues. Wages and salaries showed a favourable variance of 0.57% of £60. The direct
materials of company has have not shown a significant change the variations are only seen due to
the change in budgeted quantity and actual quantity (Rubio-Herrero and Baykal-Gürsoy, 2019).
Due to this variation is seen of 1.11% in direct materials. Utilities of company have raised by
£0.05 per q from the budgeted rates and therefore the variance of 0.30% only are seen. There is
not much variation between actuals and budgeted figures of the direct expenses. There is
unfavourable variance of 18.60% in facility rent of cafe house the increase is high as the rent has
raised by £800 from the budgeted figures. The insurance premiums has also been increased from
the budgeted figures.
c. Variances of concern for the management
Variance analysis refers to the the method used for analysing the difference between the
budgeted and actual budgets. The differences are important to be identified for the management
to take decisions for reducing the gap. The profitability of company has gone down by 9.85%
where the variance in revenues is only of 1.11%. Management is required to consider the reasons
and actual causes behind the variation between the profitably and the revenues. The variance of
all the direct expenses is not high from the budgeted levels of cafe. Increase is seen only in
wages and salaries of £0.30 q and utilities of £0.05. The increase in direct cost are seen mainly
because of external factors that are beyond the control of cafe.
The rules and regulation of the new government laid minimal wage system that increased
the labour charges. The cost of labour is increased from previous years. Cafe could outsources
the labour activities for controlling the cost of operation of cafe. Outsourcing of activities will
decrease the cost of wages per q. Outsourcing is very effective source through which firms are
cutting their cost to the minimal. Cafe could try to increase the efficiency of the existing
employees of company. The variances are favourable even after the revenues and selling quantity
is less than the budgeted level (Wang and et.al., 2017). Favourable variances are seen as the
company has made budgets taking the forecast of 18000 q here the variance of £200 has
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provided the gap for company to cover its cost. The variances are favourable even when the
direct costs of company has increased.
Variance sometimes do not represent the actual picture and reason for the change. Major
variances are seen in facility rent and the insurance. The increase in rent is very high from the
expected budgets. Increase of £800 has influenced the budget to considerable extent. Increase in
the rent of the coffee premises has increased due to the competition prevailing in the market
about the rent. Cafe should make conversation with land lord to reduce the rent charges of the
premises. They should negotiate on certain terms that could be beneficial both for cafe and the
land lord. Cafe should identify the rates prevailing in the location and that charged by the
landlord. Cafe has to ensure that rent of premises do not go high from this level. If the rent of the
premises is increased further than it may increase the margins of profit for recovering the cost.
They could increase the cost of meals for getting the required returns from the cafe.
Another higher variation of 13.04% is seen in insurance. The increase in premiums has
further affected the budgets. These variations are were beyond the expectations. Te insurance
premiums were increased as cafe has taken new policy cover for storehouse of cafe. The policy
was taken after the accident took place in a competitor's cafe that destroyed all the stock and
materials of cafe. The insurance premiums were not included in the budgeted forecast by
management. They were required to make estimates for the insurance in the budgets. The
management of the cafe should take considerable steps for reducing the gap between actual and
budgeted figures. There should be not much difference between the actual and budgeted
revenues and expenditures of company.
d. Twin Rivers for supporting their objectives
Cafe like every other business has the objective of earning profit with constant growth.
Other vision of cafe is to provide best coffee experience to its customers. A business can grow
and achieve its objectives only when it is efficiently manage its business operations.
Management should consider all the factors internal as well as external before preparing budgets
for cafe. If the budgets are not prepared considering all the factors that could influence the
business. Variances will be high between the planned budgets and actual budgets
(Krishnamurthy, Narasimhan and Rengasamy, 2016). Like factors related to the increase in rent
and insurance were not considered in their estimates. This resulted in high variances and the
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profitability of company was reduced to considerable extent. For reducing the variances cafe
should plan their budgets using the previous budgets with increments of certain percentage that
they expect to have for the period considering the market trend. New strategies and policies that
will help the company in reducing the cost are required to be implemented in cafe.
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REFERENCES
Books and Journals
Taieb, S.B. and Atiya, A.F., 2015. A bias and variance analysis for multistep-ahead time series
forecasting. IEEE transactions on neural networks and learning systems. 27(1). pp.62-76.
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).
Rubio-Herrero, J. and Baykal-Gürsoy, M., 2019. Mean-Variance Analysis of the Newsvendor
Problem with Price-Dependent, Isoelastic Demand. European Journal of Operational
Research.
Wang, X., and et.al., 2017. Postharvest quality monitoring and variance analysis of peach and
nectarine cold chain with multi-sensors technology. Applied Sciences. 7(2). p.133.
Krishnamurthy, S., Narasimhan, G. and Rengasamy, U., 2016. Three-dimensional lung nodule
segmentation and shape variance analysis to detect lung cancer with reduced false
positives. Proceedings of the Institution of Mechanical Engineers, Part H: Journal of
Engineering in Medicine. 230(1). pp.58-70.
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