Finance Report: Analyzing Financial Objectives and Challenges

This report delves into the core aspects of financial management, beginning with an introduction to the subject and its significance. It examines the intricate relationships between financial functions and other functional areas within organizations, highlighting the importance of coordination. The report then analyzes the impact of financial objectives, such as revenue, cost, profit, cash flow, and capital structure, on decision-making processes, including financing, investment, and dividend decisions. It differentiates between management accounting and financial accounting, outlining their distinct characteristics and purposes. Furthermore, the report investigates the influence of organizational and regulatory frameworks on financial management approaches, emphasizing the need for adherence to policies and procedures. It also explores the financial challenges faced by organizations, particularly small businesses, such as lack of cash flow and capital, and differentiates between budget setting and financial forecasting. The report concludes by discussing corrective actions for budgetary variances and reporting procedures, providing a comprehensive understanding of financial management practices.

MANAGING FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY ..................................................................................................................................3
Relationship between financial and other functional areas within organizations........................4
Impact of financial objectives on decision-making.....................................................................6
Difference between management accounting and financial accounting......................................7
Impact of organizational and regulatory frameworks on financial management approaches.....8
Financial challenges faced by the organization...........................................................................9
The differences between budget setting and financial forecasting............................................10
Evaluations of budget methods used by the organizations........................................................12
Formulation and justification of budget for an area of management responsibility..................14
Analysing the impact of different factors on budget management............................................16
Corrective actions in response to budgetary variance................................................................17
Reporting procedures for authorizing corrective actions to a budget........................................18
CONCLUSION..............................................................................................................................19
REFERENCES................................................................................................................................1

INTRODUCTION
Preparing budgets of different departments in order to know the expected income and
expenses is the prime role of the responsible person of that department. In this report, we will
understand the relationship between financial function with other functional area. This report
will also state the differences between management accounting and financial accounting or
budget setting and financial forecasting. This report will also include the impact of financial
objectives on decision-making and organizational and regulatory frameworks on approaches of
financial management. Nowadays, organizations are facing financial challenges and mostly small
organizations in UK. This report also includes evaluation of different budgets along with
formulation and justification of budgets in order to cope with the financial challenges. This
report will also state the impact of different factors on budget management. The report will study
the corrective actions in case of budget variance in order to minimize and eliminate the budget
variance if any. This report will also understand the reporting procedures for authorizing
corrective actions to a budget.
MAIN BODY
» LEARNER EVIDENCE
1.1 Analyse the relationship between the financial function and other functional areas
within organisations

Relationship between financial and other functional areas within organisations
Finance management is a part of management indulge in planning, organizing and controlling
the financial resources of the organization. For this purpose, every organization hires finance
managers. The relation between finance function and other functional areas (such as
production function, human resources function and marketing function) states maintaining
coordination among the departments in order to utilize the resources. (Nawaz, and Koç, 2019).
For example, Sainsbury company always focus towards maintaining flexible relationship
between all departmental managers in order to achieve the goals and objectives of the
organization.
 Relationship with production management: In organizations, the role of production
manager is to analyse and monitor the production and development process of the
product and services. For this purpose, they have to stay connected with inventory and
sales manager to know about the stock availability and sales quantity. In this respect,
production manager has to coordinate with the finance manager to provide information
about the cost of production of product. So, after receiving and analysing the
information related to the cost of production, finance manager choose an appropriate
investment plan out of various alternatives in order to arrange capital for converting
the raw material into finished goods.
 Relationship with HR management: The role of human resources management is to
organize, control and motivate the employees of the organization. To motivate the
employees includes various incentive policies, HR managers also look out the pensions
of retired employees (Monden, 2019). So for all this purpose, there is a requirement of
funds which is going to be arranged by finance mangers. Finance manager and HR
manager are interrelated with each other in order to arrange and conduct training and
incentives plan.
 Relationship with marketing management: The role of marketing manager is to
analyse the demand of the product in the market by conducting various surveys. Due to
continuously increase in competitions, finance managers and marketing managers have
to work together in order to increase the market share of the company. To increase the
profit of the company, marketing managers have to promote the products of the
company into the market. Promotion and marketing activity required funds to further

proceed. This indicates that how marketing and finance managers are working together
to increase the profitability of the company.
1.2 Examine the impact of financial objectives on decision making within
organisations

Impact of financial objectives on decision-making
Generally, there are various financial objectives of the organizations but the main financial
objectives of all the organization is revenue, cost, profit, cash flow and capital structure
objective. The impact of all the financial objective on decision-making of the organizations
such as Sainsbury company is that the finance managers have to take three important decisions
(Kumar, and et.al., 2017). The three decisions such as financing, investment and dividend
decisions help the finance manager to maximize the profit and wealth of the company.
 Financing decision: Financing decision involves the decision related to selection of the
best alternative to acquire funds from the market for investment and managing working
capital purpose. There are various sources of finance is available to the managers of the
company. Selecting the alternatives keeping in mind the objective of low cost of
acquisitions is a crucial decision taken by the managers.
 Investment decision: It involves the decision relating to selection of the best project in
order to earn the higher returns. Finance manager can use different investment appraisal
techniques to know the best investment plans. The decision of selection of plans of
finance manager is based upon the objective that the return from funds invested is
higher than the cost of funds. They must take all decisions keeping in mind the
financial objectives.
 Dividend decision: It involves the decision of finance manager i.e. whether to
distribute the earnings available for equity shareholders between them or to retained it
for the purpose of future development or both (Roychowdhury, Shroff, and Verdi,
2019). Taking the appropriate decision keeping in mind the objectives of finance
management is must for finance managers to increase wealth of the company.
1.3 Differentiate between management accounting and financial accounting

Difference between management accounting and financial accounting
BASIS MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING
Meaning Management accounting is a process
of providing information to the
internal managers of the company in
order to take necessary decisions by
utilizing the data of financial
accounting.
Financial accounting is a system
of accounting which involve
information of financial statement
such as income statement, balance
sheet, cash flow statement and
statement of change in equity.
Format There is no specific format of
management accounting.
It involves the preparation of
financial statement in specified
format.
Objective The objective of MA is to provide
information to manager to take proper
decisions.
The objective of FA is to provide
correct position of the company to
the both internal and external
users of the company.
Optional or
Compulsory
Management accounting is optional
but in case if done it helps managers
in decision-making.
Financial accounting is
compulsory for all the
organizations.
Users Management accounting is available
only to the internal management of
the company.
Financial accounting is available
to both the internal users as-well-
as the outsider stakeholders of the
company.
Reports The report of management accounting
provides detailed information.
The report of financial accounting
provides summarized information.
Audit There is no requirement of auditing in
management accounting.
Audit is compulsory in case of FA
by independent auditors.

Time frame Management accounting reports is
prepared as per the needs of the
organizations.
Financial accounting is prepared
at the end of every financial year.
1.4 Analyse the impact of organisational and regulatory frameworks on an
organisation’s approach to financial management

Impact of organizational and regulatory frameworks on financial management approaches
The approaches of financial management are procurement of fund and utilization of fund in the
best manner possible. For this purpose, financial managers of the company take three most
important decisions such as Financing decision, investment decision and dividend decision.
Organizational frameworks consist of legislation, policies and procedures in order to prepare
the financial statement, budgets and report in a structured way. Regulatory frameworks states
that the financial statement are prepared by following the provision of acts such as companies
act, SEBI, direct and indirect tax, Foreign exchange regulation etc. In order to take the decision
of the company, managers have to follow the structure. Organizational and regulatory
frameworks help to ensure that the behaviour of the company and directors are good towards
the customer in order to attract the customer. In case if managers are focusing on acquiring the
funds from the international market they have to take decision in the same purpose only. In that
case following the provisions of foreign exchange regulation is beneficial in the decision-
making of the managers (Ameen, Ahmed, and Abd Hafez, 2018). It also helps in increasing the
confidence of the users of the company towards the process of financial reporting. They
believe on the decision of the company if they prepare financial statement, budgets and reports
in the proper structure. In case of acquiring the funds from the market in the form of equity and
debt. It is beneficial for the managers to follow the provisions and procedures set by the
Securities exchange board of India. It also helps the managers to invest the fund into the best
project after analysing the legal and market regulations. In order to take financial decision and
achieve objective of the company, following the policies and procedures of financial reporting
frameworks is not only sufficient but it shows the accurate financial statement. It is also
beneficial for the manager to involve legal and market regulations into decision-making.
1.5 Analyse the challenges organisations face accessing finance

Financial challenges faced by the organizations
Generally, challenges to accessing finance is the problem face by every organization
irrespective of size. But the challenges faced by small organization is unlimited.
 Lack of cash flows: One of the financial challenge is lack of cash flow which is face
by small organizations. Lack of cash flow states that the cash inflow and outflow is not
proper in the organization. It may be because of debtors are not giving payment on time
or may be company are not paying to the creditors on time (Mazurkiewicz, and
Poteralska, 2017). To avoid this challenge, company must focus on timely payment to
creditors and timely inform and update the debtors regarding payments.
 Stick to a particular budget: Sticking to a budget is also a challenge which small
organization face while accessing finance. To avoid this challenge, company must
focus towards creating a budget which are realistic to the goals and objectives of
businesses. Create a budget which shows all the sources of income and expenses. After
successfully creating annually and quarterly budgets, it is good to start monthly
budgets.
 Lack of capital: Lack of capital and unforeseen expenses are also one of the challenges
faced by the small organizations of UK (Battilana, 2018). Around 36% of total small
businesses in UK are facing financial challenges (Cowling, Liu, and Zhang, 2018).
Most of the small businesses are trying to use social media to increase the marketing of
their product but because of lack of knowledge they failed. To avoid thischallenges,
organizations have to become the adaptable to changes that they may face in near
future. Company has to plan a reactive as well as proactive strategy after analysing the
internal and external environment of the businesses.
2.1 Differentiate between budget setting and financial forecasting

The differences between budget setting and financial forecasting
Basis Budget setting Financial forecasting
Meaning Budget setting is a statement in which
expected revenue and expenses are
calculated for the budget period. It is
prepared before starting of the budget
period.
Financial forecasting is an estimation
of financial trends and outcomes. It is
prepared by the managers on the
basis of historical data.
Time period Budget is prepared for the one
financial accounting period. Budget is
usually prepared for short- period.
Forecast is prepared for one quarter
or may be for many years. Financial
forecast is done by the company for
longer period.
Adjustments Adjustment in budgets is less possible
because it is static in nature.
On the other hand, adjustments in
forecast are possible multiple times
because it is flexible in nature.
Benefits Budget are helpful to estimate the
future performance of the company.
On the other hand, financial forecast
does not provide any benefits in the
performance of the company.
Analysis In budgeting, variance analysis is
available to compare the budgeted
result with actual result.
While in forecasting, there is no such
analysis is available to compare the
actual result with forecasted result.
Tools Budget helps the company to manage
the operations in case of any variance
arises as they are tactical tools.
While in case of forecasting, it helps
in expanding the company for their
growth as they are strategic tool.
Outline Budget express the outline that
management wants from the company
to achieve in the budgeted period.
While on the other hand, forecast
express the outline that where the
business is present in the forecasted
period.
Decision-
making
As budget is prepared for only one
period it helps the manager of the
While on the other hand, forecast is
prepared for several years it helps the

company in decision-making for one
period only. Budget helps the
managers to take the operational
decisions of the business.
managers of the company in decision-
making for more than one year.
Forecast helps the managers to take
the strategic decisions of the
business.
2.2 Evaluate budget setting approaches used by organizations

Evaluations of budget methods used by the organisations
In order to prepare the budget, managers have to select the best budget setting approach which
suits the environment and needs of the business. Selecting the budget approach is the toughest
task done by the mangers of the organizations such as Sainsbury company (Jain, and et.al.,
2018). The different budget methods used by the company are:
 Incremental budgeting: Incremental budgeting is a method of budgeting in which
managers of the company prepare the budgets of current period by making adjustments
in the previous year actual results. In case, if company do not want to prepare the new
budget from zero every year and just want to make small changes into their previous
year actual result. Then, company may opt for the incremental budgeting method.
 Zero-based budgeting: In zero-based budgeting managers of the company create the
new budgets by evaluating and justifying each and every expense of the company. The
baseline of this method is zero which is totally against the incremental budgeting. In
case if company are not able to estimate the figures by considering the actual result of
previous year and wants to prepare new budgets every year with zero baseline. Then
company must go with the zero-based budgeting technique.
 Activity based budgeting: In activity-based budgeting managers of the company
allocate the resources after analysing and selecting the efficient level of activity. In this
the total cost is calculated. It helps in enhancing the efficiency of the company. In case,
if the resource allocation between each activity of the organization is possible. For
example, the material cost, labours cost, overhead expenses of each activity are clearly
identifiable then company must go for activity-based budgeting techniques. Otherwise,
it becomes difficult for the company to distribute the resources between each activity.
 Performance-based budgeting: In performance-based budgeting, budgets are
prepared in the perception of achieving the specific objective of the company. In this
first the goals are set and then in order to achieve that goals budgets are prepared. In
case, if company believe in the efficiency of their staffs that whatever targets they set
will definitely achieved by their staffs. Then only company go for performance-based
budgeting otherwise it creates difficulty for the company in case of non-achievement of
targets.
 Rolling budgets: In rolling budgets, the managers are continuously prepared the new

budgets of the period in order to replace the previous budgets as they get expired. It
helps the company to stay ahead and updated with the environmental changes. In case,
if company is unable to cope with the environmental changes they face in near future
and wants that their budgets are always shows updated figures. Then company must go
with rolling budget methods in order to prepare budgets.
2.3 Formulate and justify a budget for an area of management responsibility

Formulation and justification of budget for an area of management responsibility
Sales and Revenue Budget
Particulars Selling
price
Units Budgeted
Sales
Sales – Qtr1 12 20000 240000
Sales - Qtr2 12 25000 300000
Sales - Qtr3 12 19000 228000
Sales - Qtr4 12 26000 312000
Total Sales 12 90000 1080000
Material Usage Budget
Particulars Material1
(unit)
Material2
(unit)
Product A 1250 1125
Product B 1100 1200
Total material usage to produce Product A and Product B 2350 2325
Overhead budgets
Particulars Budgeted Amount
Employee cost 50000
Insurance expense 25000
Rent expense 15000
Depreciation expense 12000
Utilities expense 5000
Tax expense 10000
Total overhead expenses 117000

In order to prepare budget for a particular department, the manager of that department is
responsible. For example, to prepare sales budget sales manager is responsible, to prepare
material budget material manager is responsible and so on. In this, sales managers have to
estimate the sales volume along with the selling price after analysing the demand of their
product in the market (Lopez, and et.al., 2020). In order to know the requirement of material to
produce the product of the company, the material manager has to prepare the material usage
budget. And same in the case, to prepare different budgets to know the estimated revenue and
expense of departments the managers of that department have to prepare the budgets. For this
purpose, coordination among the departments is must in order to achieve the objectives of the
business.
2.4 Analyse the factors that impact on budget management

Analysing the impact of different factors on budget management
Before creating the budgets of the organization, managers must analyse and considered the
factors which are going to influence and have impact on the budget management (Dabbicco,
and Mattei, 2021). Considering the factors help the managers of the organizations such as
Sainsbury to create a strong and stable budgets.
 Income structure: It is better for the managers to analyse the current financial position
of the company before creating budgets. It is better to considered whether the income is
fixed or variable, whether company is generating income from more than one source or
not or whether the income source is stable or not. Before creating budgets, managers
must know the reliable source of income and considered only reliable income in budget
preparation.
 Spending habits: It is better for the managers to consider that whether the company
has any larger expenses or not. Whether they are taking any decisions in order to save
such expenses or not. It is also better to analyse that whether company are spending
their funds in various projects or not.
 Use of credit and debt: Before preparing budget, it is better to know whether the
company is using credit as a tool or crutch. Liabilities side of the balance sheet are
going to define how much of the company budget are need to provide service to the
debts of the company. It is better to know that company are not acquiring huge funds
that they are unable to recover it from the market in the form of returns.
2.5 Specify corrective actions to be taken in response to budgetary variance

Corrective actions in response to budgetary variance
Budget report shows the expected result of operation which is different from the actual result.
In case of variances, it may be favourable, adverse or balance. In case of favourable variance,
managers of the company have to make sure that they are taking appropriate actions in order to
maintain the trend. This includes motivating the employees of the company by providing them
incentives, bonus and perks. In case of adverse variance different corrective actions is to be
taken by the managers of the company. Small variances are normal in business but in case of
large variances, it must be investigated by the managers of the company.
 Company must keep the record of the reasons of differences into their tracking and
accounting record.
 In order to minimize the gaps, they have to figure out whether the reason of variances is
the part of trend or not.
 Sometime variances occur because of the time differences such as receiving and
issuance of invoices earlier or later than expected.
 Asking yourself the reason of variance is also one of the corrective actions taken by the
company. Asking that the reason behind the variance is just wrong data entry or any big
reason (Chugunov, Makohon, and Markuts, 2019).
 After analysing reason, we must focus towards removing or correcting each elements
behind the reason of variance. For example, attending the conference of management
arises travel expenses is also one of the reason of variance. This variance is
uncontrollable and can't get controlled by corrective actions.
 But sometime expenses arises which are controllable. In that case company have to
plan a proper strategy to minimize the controllable expenses. For example, increase in
marketing expenses of a particular month which get controlled in next month.
2.6 Discuss reporting procedures for authorising corrective actions to a budget

Reporting procedures for authorizing corrective actions to a budget
Reporting procedures includes financial reporting procedure, risk tolerances, contingency,
developed budgeting for authorizing corrective actions to a budget.
 Financial reporting procedure: Financial reporting includes the income statement and
balance sheet with proper allocation of expenses in each department. Financial
performance is compared with the budget and report to the holder of the budget along
with the senior management and board members. Then they take decisions related to
corrective actions in case of variances.
 Risk tolerances: Risk tolerance indicates the level of risk handle by the company. It
states how much of a loss company can handle within their portfolio. If the actual
performance of the company is not same as budgeted one. In that case, how much
company is prepared to handle those losses is shown by the level of risk tolerance of
the company.
 Contingency: Contingency states the negative outcome from any event which may
occur in future. In case of any contingency arises such as abnormal loss, economic
recessions, any fraudulent activity, natural disasters etc. which create difference
between actual and budgeted figure. In that case company must implement the
corrective measures such as get insurance against such contingencies or make
provisions of such contingencies.
 Developed budgeting: Developed budgets shows all the cost which will be incurred by
the company in order to develop the new projects of the company. It is a one-time cost
incurred by the company between starting and completion of project. In case if
company wants to launch any new product into the market, they can adopt developed
budgets to know the cost and take corrective actions in case of any variances.

» BIBLIOGRAPHY
CONCLUSION
This report concludes the basis on which the management accounting is different from
the financial accounting. This examines and concludes the impact of various financial objectives
of the company on the decision-making. The report also analyses the relationship between the
financial function with other function areas such as marketing, HR and production. The impact
of organizational and regulatory frameworks on financial accounting is that it helps manager to
take proper decisions to grow the company. This report also concludes the financial challenges
the companies are facing specially in case of small businesses while arranging funds from the
market. In order to deal with the challenges, this report also discuss the different budget setting
approaches along with formulation and justification of budgets such as sales, material usage and
overheads budget. This report also concludes the differences between the budget setting and
financial forecasting. This report also states how managers can use the information of financial
forecast in order to create budgets. The report also analysis the factors which have any impact on
the budget management. The report also states the corrective actions to be taken in response to
budgetary variance. In order to minimize and eliminate the variance, this report also discuss the
reporting procedures for authorizing corrective actions to a budget.

REFERENCES
Books and journals
Nawaz, W. and Koç, M., 2019. Exploring organizational sustainability: Themes, functional
areas, and best practices. Sustainability. 11(16). p.4307.
Monden, Y., 2019. Toyota management system: Linking the seven key functional areas.
Routledge.
Kumar, A. and et.al., 2017. A review of multi criteria decision making (MCDM) towards
sustainable renewable energy development. Renewable and Sustainable Energy
Reviews. 69. pp.596-609.
Roychowdhury, S., Shroff, N. and Verdi, R. S., 2019. The effects of financial reporting and
disclosure on corporate investment: A review. Journal of Accounting and
Economics. 68(2-3). p.101246.
Turner, M. J. And et.al., 2017. Hotel property performance: The role of strategic management
accounting. International Journal of Hospitality Management. 63. pp.33-43.
Ameen, A. M., Ahmed, M. F. and Abd Hafez, M. A., 2018. The Impact of Management
Accounting and How It Can Be Implemented into the Organizational Culture. Dutch
Journal of Finance and Management. 2(1). p.02.
Stubbs, W. and Higgins, C., 2018. Stakeholders’ perspectives on the role of regulatory reform in
integrated reporting. Journal of Business Ethics. 147(3). pp.489-508.
Jain, P. and et.al., 2018. Process Resilience Analysis Framework (PRAF): A systems approach
for improved risk and safety management. Journal of Loss Prevention in the Process
Industries. 53. pp.61-73.
Mazurkiewicz, A. and Poteralska, B., 2017. Technology transfer barriers and challenges faced
by R&D organisations. Procedia engineering. 182. pp.457-465.
Battilana, J., 2018. Cracking the organizational challenge of pursuing joint social and financial
goals: Social enterprise as a laboratory to understand hybrid organizing. M@ n@
gement. 21(4). pp.1278-1305.
Huikku, J., Hyvönen, T. and Järvinen, J., 2017. The role of a predictive analytics project initiator
in the integration of financial and operational forecasts. Baltic Journal of
Management.
1

Lopez, A. and et.al., 2020. Bridging forecast verification and humanitarian decisions: A
valuation approach for setting up action-oriented early warnings. Weather and
climate extremes. 27. p.100167.
World Health Organization, 2018. What Quantitative and Qualitative Methods Have Been
Developed to Measure Community Empowerment at a National Level? (Vol. 59).
World Health Organization.
Chugunov, I., Makohon, V. and Markuts, Y., 2019. Budgetary policy of the emerging countries
in conditions of institutional transformations. Problems and Perspectives in
Management. 17(4). pp.252-261.
Dabbicco, G. and Mattei, G., 2021. The reconciliation of budgeting with financial reporting: A
comparative study of Italy and the UK. Public Money & Management. 41(2). pp.127-
137.
Oyebode, O. J., 2018. Budget and Budgetary Control: A pragmatic approach to the Nigerian
infrastructure dilemma. World Journal of Research and Review (WJRR). Budget and
Budgetary Control: A Pragmatic Approach to the Nigerian Infrastructure
Dilemma. 7(3). pp.1-8.
Pebrianti, S. and Aziza, N., 2019, January. Effect of Clarity of Budget Objectives, Accounting
Control, Reporting Systems, Compliance with Regulation on Performance
Accountability of Government Agencies. In 1st Aceh Global Conference (AGC
2018) (pp. 396-410). Atlantis Press.
Cowling, M., Liu, W. and Zhang, N., 2018. Did firm age, experience, and access to finance
count? SME performance after the global financial crisis. Journal of Evolutionary
Economics. 28(1). pp.77-100.
Online
7 Steps to Manage Your Money. 2021 [Online]. Available
through:<https://money.usnews.com/money/personal-finance/articles/steps-to-manage-your-
money>
The Basics of Money Management. 2021 [Online]. Available
through:<https://www.entrepreneur.com/article/78994>
2

3