BSBFIM501 Manage Budgets: Financial Plan for Angel Boutique Ltd

This report provides a detailed analysis of budgeting and financial planning for Angel Boutique Limited, addressing the challenges faced due to changes in management and the need for a robust budgeting system. It outlines the process of preparing a master budget, including discussions with stakeholders to determine objectives, setting performance indicators, reviewing budget assumptions, and detailing cash, expenditure, and revenue items. The report also covers identifying financial risks, incorporating protection strategies, developing contingency plans for budget blow-outs, and establishing a budget monitoring process. Furthermore, it explains the implementation of the budget, emphasizing legal compliance, employee involvement, and expense monitoring, to ensure the sustainable success of Angel Boutique Limited.

BSBFIM501 Manage budgets and
financial plans

Introduction:
In this report, budgeting system is going to be explained along with steps which can be taken to
prepare a suitable detailed master budget for angel boutique limited to ensure sustainable success
of business activities. Due to segregation of partnership and holiday of CEO, company is facing
trouble full situation because the existing management of business does not have enough
experience to manage the budgeting process. Different aspects of budgeting like identification of
financial risk, performance evaluation and indications, monitoring process etc. are going to be
explained in this assessment together with different contingency risks and plans to avoid such
contingencies. Final master budget of Angel boutique Limited is also going to be prepared in this
report along with the process of implementation and monitoring of such budget and so that the
employees of company can understand their duties and ensure regular growth. After the study of
this report, user will be able to understand those problems which are faced by the budgeting team
during the budget preparation and by the management during the execution of budgeted
activities.

Assessment 1
A: Undertake discussions with stakeholders to determine budget objectives and set
performance indicators
Stakeholders are real owner of business and a company should discussed the main objects and
budget targets with them so that they can understand the future actions of business and take such
decisions which will beneficial for business in long-term. During the budget preparation process
of angel boutique Limited, A detailed discussion about the vision, targets and budget aims are
discussed with shareholders of company and following objects and performance parameters are
set to ensure an effective budget execution and evaluation of performance.
Vision of business: budgeting is a process which decides that what a company will gain in future
from its business operations. Budget decides the way of working and provides instruction to
every person of organisation about their duties so that they can work according to the targets. For
example, sales budget of company denotes the duties and targets of every person of sales
department and if a sales officer does not achieve its target, management can call him to identify
reasons. The same sales budget along with master budget helps the production department to
produce products according to the demand so that business can prevent from the over production
or underproduction. In this way, the main object of a budget is preparation of targets and
strategies which have uniformity with the vision of company so that business can achieve its
objects.
Better allocation of resources: Every business has limited resources and a good allocation of
the same is must to ensure success of business. Angel Boutique Limited also has limited funding
resources and the budget of the company is made to make proper allocation of fund so that
company can achieve its targets.
Departmental Coordination: budget is also going to be made to ensure coordination between
different departments of angel boutique Limited. On the basis of budget, managers can
understand that how much amount is available for their department and they can manage their
expenses and process accordingly.

B: Discuss and review assumptions and budget parameters
Budget assumption can be defined as the estimations which are made to prepare a budget. For
example, if a company expect 10% increase in sales then it called assumption. To develop
budget assumptions, various types of information and analysis methods are used by the managers
like previous data, projections about industry trends and past experience. Managers also share
their individual need and opportunities about market risk, customer behaviour and other issues.
Budget parameter denotes the standard level of a term and can be classified in following four
categories:
 Revenue Relatedparameters
 Expense Relatedparameters
 General Related Parameters
 Asset Related Parameters
After the analysis of all available information and considering all facts it is assumed that the
sales will be $ 700000 and $ 1500000 in November and December 2007. The property tax of
company will be $ 39600 in 2008.
C: Clearly details any Cash, expenditure and revenue items
Cash items: there are various items which can be classified as cash items like fixed
manufacturing overheads. This cost is paid regularly basis and evenly incurred throughout the
year.
Expenditure items: expenditure items are those items which generates outflow for the company
like, advertisement expenses and maintenance expense. Anzel Boutique Pty Ltd has various
items like inventory purchase expenses, labour wages, insurance, property taxes; salary etc. and
these should be reduced up to appropriate level for sustainable development.
Revenue items: the items which are related with inflows and generate income for the company
are known as revenue items. Anzel Boutique Pty Ltd has several revenue related items like sales.
Sales are main source for the income and the management of company concentrate on this term
properly because it is final goal for every business organisation.

D: Ensure your budget objectives are clear & conform with the business’ expectations
The budget Objectives of Angel Boutique Limited are clear and made according to the company
expectations. Following step gives more significant information about it:
The budget of Angel Boutique limited is made accruing to the needs of business for example;
company is thinking for a plant upgradation and 40% of that plant should be paid initially. In the
budget of company, required amount is allocated for this need because it will be beneficial for
the bushiness in future. The budget of company has significant fixed targets for every department
and a strategy of company is made according to these targets. For example, company is
expecting that the sales will be high in December and November due to festivals and the
production department of company is instructed to produce goods according to the expected
demand. The inventory department of company also significantly instructed for maintaining the
inventory 25% of total sales to fulfil the product demand.
E: Include milestones and performance indicators to monitor financial performance.
Following performance indicators and milestones are used by the Angel Boutique Limited to
measure the financial performance:
Current ratio: Current ratio is used to determinate the ratio of current assets and liabilities of
business and investigates that is company have sufficient current assets to repay its current
liabilities or not? On the basis of this ratio short term financial solvency of company is measured.
Return on asset: This parameter denotes the level of earning against the total asset introduced in
business. In other words, if company introduce one dollar in asset the ratio will denote that how
much amount gain by the company against the investment. The parameter set by Angel boutique
Limited for the same is 18%.
Debtor turnover: Reflects normal time traverse from association to coins gathering. The
decrease the volume infers the snappier that records are paid. From a salary perspective, it's far
primary to keep days excellent to a base.
Return on equity: return on equity marks the earning of company for the equity investment. In
other words, the amount of profit against the each investment in capital is denoted by the by
return on equity ratio. The parameter for the Angle Boutique Limited is 10%.
Retained earning to Asset ratio: Retained earnings are those profits which are available for the
shareholders but not paid because company hold these funds for the future investments. This

parameter shows the percentage of retained earning balance against the total capital of company.
The set parameter for the company is 25%.
F: Breakdown of your annual budget into seasonal periods as required by the business
Season Name Month Expected increased
Valentine season February 5%
Easter season April 10%
Pre-charismas season October and November 15% & 20%
Charismas season December 40%
Valentine season: Valentine day comes in February and due to gift giving season, the sale of
company increased significantly. 5% of the company’s total sale is achieved in the month of
February.
Easter season: April is Easter month and 10% growth in sales is expected due to festival season.
In this month, company will try to maintain regular supply in market so that company can gain
desired profit.
Pre-charismas season: in October and November season month, purchasing will be started by
the peoples for the charismas and due to the same; a great improvement in sales is expected in
these months. Company expects that sales will be increased by 15% and 20% in this season.
Charismas season: In the month of December due to charismas season, the sales of company
will be highly increased in this month and the sales trend of company increased by 40% in this
month. In this moth company tries to ensure more supply in market to gain more profit.
G: Identify any financial risks and incorporate protection strategies according to business
Liquidity and solvency risk: liquidity risk is that situation in which company does not have
enough funds to pay its short-term liabilities. To protect the business from same, company has
policy to maintain 2:1 of current ratio which ensures the enough liquidity in company.
Credit risk: this risk is related with the credit policy of company like if a major debtor of
company gets insolvent, a heavy loss will arise for business and to protect from this situation,
company follows a sound strategy. The 55% amount of credit sales is received as initial payment

and 35 % in next month and remaining in next. This strategy helps to remove the capital loss
situation.
Inventory risk: Inventory risk can arise in various types like price fluctuation, unavailability of
material etc. and Angel Boutique maintains 25% inventory of total sales of next month as
inventory stock to ensure prevent from this situation.
H: Contingency plans for budget blow-outs or changes
System for Early warning: during the budgeting process, management should include
contingency as important matter and should take decisions accordingly. The company decision-
makers should consider all possible threats and make plans for them to stop the budget-blow-
outs.
Technology assistance: Various types of information technology tools are available which helps
the managers to analyse financial information of business so that business can forecast about the
possible threats. Angel Limited can also use information system as preventive tool.
Plan for contingency: decision-makers should made appropriate plan for the contingency
because future is uncertain and various external factors are uncontrollable for business. Angel
limited maintains a Contingency reserve from its profits to ensure protection from budget outs
and contingencies.
I: Budget monitoring process to monitor implementation of budget
Regular monitoring of budgeting is required to get the desired results and from the same
following steps can be used to monitor the execution of a budget:
Figure 1 Budget Monitoring Process

 Identify results: Company should identify the results obtain from the execution of
activities as per budget. For example, sales department should make sales reports to
determinate the sales of each sales officer along with a comparison with standard.
 Compare with actual: Company should compare actual results with pre-decided
standards and find variances and reasons of variances.
 Suitable changes: Company should make appropriate changes in pre-decided activities
as per needs to eliminate the negative variances.

Assessment 2
B: Explain how your budget will be implemented
Budget execution process is also important well as budget execution because without an
effective execution, any organisation cannot get the benefits of budgeting. The director of Anzel
Boutique Pty Ltd made a sound budget and the implication of the same is done in following way:
Legal Compliance: To effectively implement the budget of company, the company management
should ensure that the proposed budgeted activities are as per legal rules.
Employee involvement: To effectively implement the budget, management of company will
segregate the duties of every employee and provide them proper instructions to ensure that every
employee has significant involvement in the execution of budget.
Observing of expenses:
Company management will observe the absorption of expenses to find out the appropriateness of
expenses. In other words, company will regularly analyse every expense to find that the funds
are consumed as per budget.
Adjustment in pre-allocation structure: It is possible that the actual revenues received from
business may less than budgeted and in this case, management will reduce the level of expense
for every business activity.
Reporting to decision-maker: If any shortfall found by the departmental managers during the
implementation of budget, they will inform to decision-makers so that they can make appropriate
steps to rectify the mistakes.

C: Explain how your budget will be monitored
Determinate current situation: in this step, management of company will prepare efficiency
reports to find out that how efficiently planned activities are executed and what is the current
position of business have. On the basis of this evaluation, management can investigate the
current position of company.
Comparison of current and expected position: on the basis of above efficiency reports and
budget reports, management of Anzel Boutique Pty Ltd can easily compare the position and can
find variances. On the basis of variance, managers can find that which areas of budget are
lacking and require improvement.
Identify required steps:
While doing a comparison among the planned and current position the ensuing stage is to
recognize whether it is needed to make a move. In case association receiving and spending
income is combining with the original plan, the aid of then no further action can be required at
this phase. Regardless, company might also have grow to be greater pay than foreseen and there
can be an possibility to attain something in the investing power outline which became no longer
before everything planned
Reporting to management:
Departmental managers of company will inform the decision-makers about the progress of
budget effectiveness. In the case Anzel Boutique Pty Ltd, departmental managers should inform
the budget progress to CEO Mr. Jam Colngford so that they can take required actions because
ultimately he is liable for the success of budget.
Action for improvement: On the basis of information provided by the departmental managers,
CEO of Anzel Boutique Pty Ltd will make appropriate strategy about the required actions to
improve the effectiveness of budget process. After making appropriate strategy, CEO will
execute planned actions to ensure success of business.

D: Allocate responsibilities for at least 2 different budget components
Inventory manager: Anzel Boutique Pty Ltd has separate inventory management department to
manage its inventory. Company maintains 25% of next month’s sale as stock to ensure proper
supply in market. Inventory manager of company is fully responsible to maintain appropriate
level of stock if raw material and finished goods. In current budget, company expends the
responsibility of inventory managers and currently he is also liable to ensure timely payment to
suppliers because company is using a unique powder as raw material and very few numbers of
suppliers are available in market. Now, he is also responsible to proper maintain the supplier
payment policy of company.
Sales head: the products which are made by the company are seasonal products and the sale of
company is increases as per the festivals. Company finds that at the peak time, sometimes
company face the situation when supply was not enough as per demand and this situation arise
because the production department does not have proper coordination with sales department. In
current budget, company makes sales head more responsible and now he is liable to maintain
appropriate level of production as per sales expectations so that company can avail the benefit of
festival peak.

E: Instruct each person to whom you have allocated a responsibility to, to ensure they
understand and are empowered to perform their allocated task.
Company provide extra responsibilities to the inventory manager and sales head to ensure more
appropriate execution of business plans. Following instructions are issued for them so that they
can complete their responsibility more appropriately:
Give understanding of duties: the CEO of company should provide proper instructions and
guidance to the selected employees so that they can understand and complete their extra liability
in more appropriate manner.
Motivation: every person feels frustrated if an extra liability provided him without consideration
and the same rule is applicable to sales head and inventory manager also. The CEO of company
should provide enough motivation so that they can complete their liabilities without frustration.
Respect: the achievement and hardworking of selected person should be awarded and the award
can be given in monetary or non-monetary form.
Timely feedback and monitoring: Regular monitoring and feedback is must to ensure that
they perform their duties appropriately and contribute to success for organisation.