Financial and HR Management Analysis for Sky Cafe's Twin Cafe Business

This report provides a financial analysis of Sky Cafe's Twin Cafe, focusing on budget preparation, variance analysis, and management recommendations. The report begins with an executive summary and introduction, followed by a detailed examination of the objectives of budget preparation, including structure, cash flow prediction, resource allocation, and performance measurement. The main body delves into variance analysis for July, comparing budgeted and actual figures to identify areas of concern, such as inaccurate forecasting of fixed expenditures and lower-than-expected sales. The analysis highlights the adverse impact of decreased sales volume and increased fixed expenses. The report concludes with suggestions for improvement, including advertising strategies, periodical review systems, improved communication, and personnel training. The report uses variance analysis to assess the financial performance of the cafe, and provides actionable insights for improving sales and profitability. The references include books and journals on finance and management accounting.

MANAGING FINANCE &
HR FOR SUSTAINABLE
BUSINESS SUCCESS

EXECUTIVE SUMMARY
The analysis will be made for the new venture of Sky Cafe i.e. Twin Cafe and the tools such as
variance analysis will guide regarding what decision should be taken by the management of the
cafe.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
Objective of preparing a budget...................................................................................................4
Variance Analysis for July...........................................................................................................5
Concern for management.............................................................................................................7
Suggestion for Café .....................................................................................................................8
REFERENCES................................................................................................................................1

INTRODUCTION
Sky Cafe, that operates near the London Gatwick Airport is the only branch and operates as an
independent cafe shop since 2016. Their unique quality is that they serve the local delicacies
with home made taste which acts as a competitive advantage for the cafe and helps them in
earning the added benefits despite being a small cafe. In this report, analysis has been made for
their new cafe i.e. Twin Cafe.
MAIN BODY
Objective of preparing a budget
In order to achieve the business goals and objectives of the company, every business
strives to develop those policies and methods that would help them in achieving those designated
goals. Budget formulation involve estimation of the probable expenses that might be incurred
and the revenues (Kouvelis, Pangm & Ding, 2018). These help in ascertaining that how well an
organisation is capable of achieving the objectives in the company. The different objectives of
budget preparation for Sky Cafe is: Providing Structure: development of the budget will help the management of the Sky
Cafe in ascertaining the correct direction in which the company should go and acts as a
guidance. Further, it acts as a planning tool and helps in developing a structure regarding
the manner in which activities are to be performed in the cafe and also shows how much
expected income and expenditure will take place. Cash Flow Prediction: Since Sky Cafe is basically located near the Airport, the sales are
usually seasonal and cannot be predicted in a definite manner. In such lucrative
businesses, preparing budgets is of extreme assistance since it helps in determining what
will be the income i.e. the cash flows that the cafe would be able to earn in the coming
period are forecasted in an accurate manner. Resource Allocation: The budget preparation helps in identifying which head will require
how much resources and under what category of expenditure. Therefore, the Sky Cafe
would be able to determine what would be the approximate resource requirement for
different departments and activities of the Twin Budget thus determining correct and
justified amount of resources (Chiu & Choi, 2016). This further assists in avoiding any
unnecessary expenditure in the Cafe and ensures that different functions have adequate
resources.

 Performance Measurement: Budget is the bet tool for measuring the performance of the
business by analysing the efficiency of different cost centres, departments and divisions.
When the actual costs and income is compared to the estimated or budgeted costs, a
comparative analysis can be made regarding the performance and conclusions can be
drawn that whether the performance was satisfactory or not. It also controls the cash,
inventory and other sales in the business.
Key Performance Indicator is another performance measurement tools that helps in selecting
those key points that can assist in determining those key areas that the cafe can use to analyse the
performance in measurable terms and drawing appropriate conclusions.
Variance Analysis for July
The variance involves the variance or change between the planned and actual budget thus
determining the performance of the cafe (Kalamkar and et.al., 2018). For the month of June,
following variance calculation can be made between the estimated and budgeted figures:

In the given budget of the Sky Cafe, the budgeted meal's quantity is 18000 in July and
additionally the revenues of the cafe is expected to be 81000 in July and the expenses are
planned to be £66180 as a total amount. Therefore, the net operating income is estimated to be
14820 for the month of July. This budget and figures were communicated by the managers to the
senior management of the cafe in the meeting that was held a year ago. These budgeted costs
helped the managers in identifying what will be their expenditures and the income levels of the
company.
In the current scenario it can be ascertained that the reduction in the amount of sales has
impacted the expenses of the company directly and therefore, the raw materials, salaries and
other variable expenses. When the flexed budget is analysed, it can be determined that adverse
values on the revenue is resulting due to the amount 900 which is derived form the cost of per
meal i.e. £4.5. Additionally, the raw materials of the cafe are treated as the expense which is
incurred in order to produce and sell the meal. Wages and salaries are associate with the cafe as
the variable cost and due to the shortage in the sales of the company valuing upto 200 meals, the

amount of £60 is underspent in the salaries head. The utilities section of the company has
depicted a favourable balance of £10. Due to incorrect estimation of the other expenses such as
facility rent, fuel etc., the actual expenses have incurred as 66740 instead of 65630.
Also, the flexed budget includes the amount of net profit of 14470 but there is an adverse
variance calculated for the cafe amounting to 350 due to the actual net profit falling short by this
much i.e. it is only 13360 thus resulting in the planned variance of 1460.
The above variance calculation helps in clearly ascertaining that due to the decreased
sales volume, the budgeted and actual costs depicted as adverse variance and the amount of fixed
expenses also rose thus increasing the impact.
Concern for management
The following factors should be taken by the managers of the company as a concern and serious
issue:
Inaccurate forecasting of fixed expenditure: This factor is a major concern mainly due to the
fact that the rent of the facility is assumed to remain same by the managers and this is not a
plausible or reasonable assumption. The economic factors are regularly changing along with the
change in other factors of market as well and due to this, the landlord decided to modify the
agreement and thus the cost of the rent has increased which resulted in the incorrect forecasting
of the expenditure (Messer, 2016). This factor was not accounted in the budgeted cost of July
month that managers sent to their supervisors and this points out that the managers of the
company are not apprehensive and do not understand the changing trends and norms that a
business should regularly monitor.
Lower actual sales than the estimated sales: When the sales are estimated for the business, all
the external as well as internal factors are carefully evaluated and this also incorporates that non-
financial measures. Currently, the major issue was the lack of giving adequate attention to the
negative customer feedback regarding the quality for the services I.e. the meals that were served.
Due to this factor, the sales of the cafe declined heavily and therefore, the revenue and ultimately
the profit of the company declines than the budgeted one (Kes & Kuźmiński, 2019).
Additionally, lack of any formal training procedures for the staff was also a factor that led to
decline in the sales because the staff did not understand how to satisfy the customer and fulfil his
demands and wishes. This lack of giving importance to the feedback along with the reduction in
the formal training costs and rounds led to ultimate decline in the sales of the company.

Suggestion for Café
As per the cited case situation, business unit wants to maximize sales and profitability
aspects thro ugh the means of expansion plan. However, it has identified from evaluation that in
several areas restaurant unit failed to attain or meet budgeted figures (Marzlin Marzuki & Ismail,
2019). In the area of sales and expenses Sky Cafe requires improvement so that predetermined
goals can be attained significantly. Hence, for the purpose of performance improvement
following strategies are recommended to the management team of Sky Cafe such as:
 Sky Cafe is advised to undertake intense advertising strategy in terms of both traditional and
social media marketing. In other words, for influencing decision making of customer’s café
unit should give advertisements on Facebook, Twitter, Instagram etc. the rationale behind
this, now people spend their lots of time on social sites. Thus, through focusing on modern
marketing strategy company can reach to the large number of customers and thereby
maximizes both sales and profitability aspect.
 Further, café unit should lay focus on employing periodical review system. This in turn helps
management team in assessing loopholes and thereby gives clear indications about areas
where suitable measures for improvement need to be taken. In this way, by taking
appropriate measures timely firm can control expenses and overall financial performance.
 Along with this, by communicating organizational goals to personnel effectual financial
management can be ensured to the significant level. Moreover, when personnel have clear
idea about goals, activities and monetary aspects then they make best efforts to perform as
per the planned figures. In this way, through building prominent communication system
manager of Sky café can achieve goals and thereby would become able to gain competitive
advantage.
 Manager of Sky café can also exert control over undesirable expenses and attain
predetermined sales output by organizing training session for personnel. Moreover, training
activity avoids undesirable expenses incurred by personnel and thereby contributes in cost
saving & profit maximization.
The variance analysis that was conducted above and the causes of concerns that were determined
therefore help in concluding that the incorrect forecasting and estimation of the changing
environment were the major reasons behind decreasing sales. The ignorance of the management

also added up and now the Sky Cafe by focusing on its consumers can regain the lost customers
of the company.

REFERENCES
Books and journals
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.
Kalamkar, P. and et.al., (2018). Cost variance analysis in treatment of advanced non-small cell
lung cancer.
Kes, Z., & Kuźmiński, Ł. (2019). Application of Extreme Value Analysis in the Assessment of
Budget Variance Risk. Econometrics, 23(2). 80-98.
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.
Marzlin Marzuki, N. A. R., & Ismail, J. (2019). Benefits and limitations of variance analysis in
management accounting. ACCOUNTING BULLETIN, 15.
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.
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