Financial Resource Management Report: Budget Development and Analysis

This report provides a comprehensive analysis of financial resource management, focusing on the critical aspects of budgeting and cost analysis. It begins with an introduction to the concept of budgeting and its importance in planning, strategy, and goal achievement. The report delves into the process of budget development, outlining the key stakeholders involved and the steps required for approval and implementation. It explores the key elements of a budget, including direct and indirect costs, and details the cost structure, differentiating between fixed and variable costs. The report emphasizes the importance of gathering information to support budgeting and highlights the measurement of performance against the budget. It also discusses the impact of data analysis on financial planning and strategic goals, providing a holistic view of financial resource management within the context of a real-world example, IBIS Grocery & Fuel.

Running head: MANAGING FINANCIAL RESOURCES
Managing financial resources
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Table of Contents
Introduction......................................................................................................................................2
Usage of budget in planning, strategies and goals...........................................................................2
Process of budget development.......................................................................................................3
Key elements of budget...................................................................................................................6
Direct costs and allocation...............................................................................................................7
Cost and cost structure.....................................................................................................................7
Gathering of information for supporting budget.............................................................................8
Measurement of performance against budget................................................................................12
Impact of data analysis..................................................................................................................13
Conclusion.....................................................................................................................................14
Reference.......................................................................................................................................15

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Introduction
Budget is predicting the earnings as well as expenses of business based on long-run as
well as short term. Accurate forecasting of the cash flows assists the business to achieve the
goals in appropriate manner. Preparation of financial budget includes detailed budget like cash
flows, sources of earnings and business expenses. Analysis of the earnings and expenses is made
based on the monthly, half-yearly, quarterly or yearly period. Financial budget is considered to
be very strong tool that helps in attaining the organization’s long-term goal. In addition, it keeps
the shareholders informed regarding the business function. Financial budgets are generally
prepared for managing cash flows in better approach. Further, it provides the business with better
control and assist in planning the mechanism in more competent manner for managing the cash
outflows and inflows (Shrime et al. 2016).
Usage of budget in planning, strategies and goals
Creation of budget is not just exercising the tasks allocated by the CFO to the managers
rather it is the comprehensive financial plan to achieve operational as well as financial goals of
the organization. If budget is properly used, it can be used as the map for strategic plan of the
entity. While the budget is created, the entity may develop the objectives for acquiring and using
the resources. Once, the budget is in place, it becomes valuable benchmark for determining how
well steps taken by the management for assuring that the goals are achieved. Numbers of benefits
are there those can be derived from budgeting (Tran et al. 2016). It can be used to formalize
coordination among the activities among departments while arranging the activities into big
picture that is the entity’s strategic plan. It offers assignment of the decision making related
responsibilities which in turn improves the responsibility of the management. With the solid

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plan, al the decision makers works towards same goal. Further, budget enhances evaluation of
the performances with offering common base for the purpose of discussion in context of how
well managers met the goals and provides talking point regarding why the actual results varies
from the original budget. It further encourages all the areas of business in becoming more
efficient which in turn rolls up to greater efficiency based on overall entity (Robinson 2016)
Budgeting is all about achieving the goals of business that can be done through enhancing
the process of budget. Though initiating the changes in budget process is challenging, this in turn
demonstrate the financial leadership. If the budget is required to be implemented successfully,
the planner shall use the budget as the tool for decision making. It is not the disconnected
document that is to do little with the actual business of the entity. Rather, it shall be breathing
and living part of the decision making. Budget shall establish discipline for setting up the plan.
However the planner shall adhere to plan. In addition, the management tool always helps in
measuring the progress and eventually the success of the entity (West and Friedline 2016).
Process of budget development
Budget process is the manner in which the organisation prepares its budget. A good
process of budget is required to engage all those who are accountable for adhering budget and
implementing objectives of the organization while creating the budget. Participation from both
senior staff as well as finance committee is implemented into process and the timeline is
established after leaving sufficient time for the purpose of feedback, research, revision and
review before making the budget ready for presenting to board. However, the annual process of
budgeting shall be documented with the tasks, assignments of responsibility and deadlines shall
be stated clearly. A good process of budgeting further incorporates the initiatives in context of

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strategic planning and specifies that the earning is budgeted before the expenses. Fixed costs are
recognized as well as associated with the reliable revenue. However, the budgeting decisions are
driven by fiscal accountability as well as mission priorities. Timeframes for the budget includes
time period during which the budgets are discussed, planned, approved as well as analysed.
Budget period is the actual date to which the budget is applicable (Finkler, Smith and Calabrese
2018). Hence, monthly budget cycle that covers 1 month period will start before this one month
and will end afterwards. Various budget timing include the following –
 Monthly budget cycle – in monthly budget cycle, period generally begins on 1st day of
month and completes on last day. As for different months different number of days are
there monthly total or daily average will differ.
 Quarterly budget – it covers consecutive period of 3 months generally from January to
March, April to June, July to September and October to December. It is more common as
compared to monthly budget.
 Annual budget – it covers data for entire fiscal year for revealing the profitability of any
entity on the basis of projections at the start of cycle and actual performance at the end of
cycle. Most of the business prepares budget on annual basis for monitoring overall
performance of business (Chu and Li 2015).
However, the budget of IBIS Grocery & Fuel is prepared on monthly basis. Key
stakeholders those are involved in the budget process are those who have vested the interest for
the success of the entity. These include unions, employees, customers, shareholders, vendors,
owners, regulatory agencies, supply chain partners, community members and others who are
dependent upon the organization or will serve the organization. Each of the stakeholders has
unique perspective regarding what will be taken for the organization to make it successful.

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Insights and opinions from external shareholders are particularly valuable in the early stages of
the planning where the insights are added for considering operating environment along with the
vision in context of the organisational future. Employees are aware of the strengths as well as
weaknesses of the firm and generally understands the things those will come in success manner
and often have 1st hand knowledge regarding the requirements (Muda and Dharsuky 2015).
Budget for approved revenues and expenses are approved by finance and leadership
teams for assuring that numbers are in line with the corporate priorities and projections. Few
simple steps are follows by the entity to approve the budget. These steps involve – (i)
customizing forms (ii) defining workflow and (iii) tracking the progress. These signoffs will in
turn increase the control, lead to greater transparency, minimize errors and will integrate the
possibilities.
Budgeting systems used by the entity in the process of budgeting is Sage 50cloud which
is an online accounting system for small to medium size business. It provides wide range of
services including inventory, taxes, cash flow, invoicing along with budgeting. It further includes
various add-ons for processing of credit card, payroll and other features of accounting. For
example, stock management and inventory add-on assists the users updating the level of stock
automatically at the time of using the stock valuations and audits for managing the assets.
Further the accounting data of Sage 50cloud is synced among the desktop and cloud service of
the app which in turn make the data accessible for all the time (Muda and Dharsuky 2015).
Moreover it integrates with the MSOffice seamlessly along with backing up the data for assuring
its security. Communication is major element of budget while revising the budget, meeting the
budget or expanding the budget. This is owing to the fact that the single budget has its impact on
different individuals. Discussions regarding the budget provide the fresh insights and address the

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requirements those are generally overlooked by individuals those are responsible for budget
construction.
Key elements of budget
Master budget is prepared for forecasting the income and expenses of the organization.
From master budget owner of any small business is able to develop different reports for assisting
in setting specific business goals. Major components of master budget include revenues,
expenses, overhead, production costs, and projection total on monthly and annual basis and
average (Muda and Dharsuky 2015).
Generally the entity has wide range of various costs related to the business. These costs
are segregated into direct costs, indirect costs and capital cost under the income statement. Fixed
costs and variable costs together make up total cost structure of the entity. Costs analysts are
answerable for evaluating both variable costs as well as fixed costs through different types of
analysis of costs. Fixed costs are generally predetermined expenses those remain same
throughout the specific period. These overheads cost do not change with the output or with the
performance of the business. Fixed costs are regarded as fixed as the same is to be borne by the
entity that is independent of the business activities. Usually the fixed costs are established by the
contract agreements or the schedules. These are the base costs those are involved in the business
operation. Once the fixed costs are established they do not alter over the life of the agreement or
for particular level of activity. Conversely, variable costs are the expenses of the entity those
vary with the changes in the level of activities or output quantity. Unlike the fixed costs those
remain unchanged irrespective of the output variable expenses are directly relayed to production
volume. Common variable expenses of the entity include cost of raw material, labour and

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packaging those are directly involved with the manufacturing process of the entity. While
analysing the income statement of the entity it must be kept in mind that increasing costs are not
necessarily troubling sign. While sales increases it is generally due to higher production that is
turn means increase in the variable costs. Hence, for increasing the revenues expenses will also
be increased accordingly. Costs incurred for earing the revenues include both variable as well as
fixed expenses. Fixed expenses are considered fixed as they are not dependent upon the sales
units whereas the variable expenses are considered as variable as they are dependent on sales
volume (Chu and Li 2015).
Direct costs and allocation
In case of IBIS Grocery & Fuel its revenues include revenues from sales. Direct costs of
the company include Mitre 10 fees, LAR franchise fees and shrinkage. Different expenses of the
company includes rebates, commission, admin expenses wage expenses, utilities, fees for
accountant, audit and legal services, advertising, bank charges, stationary and rent. Among all
the expenses direct costs are variable. Other expenses include wages, superannuation, workers
compensation, staff amenities, securities, trade expenses, sundry expenses, electricity,
maintenance, repairs, telephone, vehicle expenses and bank charges, rates, insurance and
stationary. Costs are allocated on the basis of departmental consumption.
Cost and cost structure
Various costs of the company include costs expensed for different stores in different
locations including Store A to Store F. Cost structure of the entity composed of variable costs
like Mitre 10 fees, LAR franchise fees and shrinkage and fixed costs like admin expenses wage
expenses, utilities, fees for accountant, audit and legal services, advertising, bank charges,

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stationary and rent. Major expenses like employee salaries, worker’s compensation are paid on
the basis of total revenue proportion. Superannuation expenses are paid at 9.5% on employee
salaries. Legal charges, accountant’s fees, audit fees and consultant fees will be incurred on total
basis that is it is budgeted for all the stores together. Further, the vehicle expenses will not be
incurred in store C.
Gathering of information for supporting budget
Before preparing the budget it is necessary to know priorities and what makes most sense
for the entity at particular development stage. Figuring out of the expenses involves planning
process for the entire organization. While preparing the budget it is necessary to be as accurate as
possible. Under this the entity uses actual figures of preceding period as the base instead of
taking the average. For budget of the entity the preparer must make the assumption based on the
expectations and previous year’s result. As the budget plan for expenses there shall be the money
for the purpose of expenses. Expenses those are expected to be paid from budget are also
considered as expenses. Even if each of the expenses is dependent upon preceding year’s
expenses, still it is the assumption that expenses will not change (Opletalová 2015). As the
business budget helps to set up the organization goals and monitor the business for daily activity,
it is the key factor of business success. So it is essential to know how to gather information,
estimating expenses and anticipating revenue while creating the budget.
Gathering Information is the first step to make a budget. There is some books on that
particular staff, plenty of internet advice; also business software is available which will help to
teach all about the budget preparation. In a nutshell, the budgeting of business consists of
checking the direct and fixed cost for operating the business and working out the projected sales.

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The primary source of information that would support the budget as follows:
 The business plan
 Historical Information
 Knowledge of key personnel (Opletalová 2015)

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A costing system is incorporated monitoring the cost incurred by the business. This
costing system includes a set of controls, forms, process and reports that would provide to the
management in terms of revenues information, cost information and profitability information to
make a decision for budgeting. The reports of costing systems used for internal purpose so this
would not subject to report to any accounting framework such as GAAP or IFRS. Primarily
costing system is of two types and business can accumulate information from either one or adopt
a hybrid approach that is mix and match system (Opletalová 2015)
The primary costing system is:
 Job costing system - For evaluating individual job Materials or unit or labour and
overhead complied to make budgeting decision. Process costing system – under this approach materials, labour and overhead costs are
maintained in aggregate for the entire production process and assigned individual
production units. Except this above another costing system is ABC (Activity Based Costing) System. This
system is developed to concern about the overhead costs that are seldom allocated
properly. It involves a level of differentiation to determine how the overhead costs are
allocated to various cost pools and how it has been earmarked for cost object (Foster
2017).
However, IBIS Foods & Retails use activity based costing for assigning the costs to
various departments of the entity. Under this approach the entity uses costs drivers like labour
hours, number of maintenance contract, number of staff amenities for allocating the expenses.
This approach is used as it facilitates in identifying the costs those are to be allocated. This step

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is most critical as the entity is required to determine entire cost related to distribution channel. It
further helps in measuring the activity drivers where data collection approach is used for
collecting information in context of the activity drivers used for allocating the costs.
Measurement of performance against budget
Budget can be used as financial indicator and can be very useful if it checks regularly.
Budget can serve as:
 Indicator of cost and revenue
 Providing valid information and supporting management decisions
 Observing as well as controlling the business.
As far as the concern of the performance benchmarking, comparing the budget is an
excellent way of measure (Melnychuk 2016)
Key Performance Indicators:
For boosting the business performance, it is essential understanding the key drivers of the
business. Major drivers are as follows:
 Sales
 Costs
 Working Capital
Any issues towards cash flow or any stance regarding decreasing profitability will show
these figures while measuring the budgets and forecasts. To find the correct measures of your
key performance indicators, concentrate the areas and those elements that make your business
profitable (Good and Lindquist 2015)