Financial Analysis and Budgeting for Sky Cafe's Twin Rivers Expansion

This report analyzes the financial management strategies of Sky Cafe, focusing on budgeting and variance analysis in the context of its Twin Rivers expansion. The report begins by outlining the objectives of budgeting, emphasizing its role in predicting future sales, controlling expenses, and coordinating departmental efforts. It then presents a detailed variance analysis, comparing budgeted and actual figures for meals, revenue, and various expense categories, revealing both favorable and adverse variances. Key findings include adverse variances in sales revenue and net operating income, primarily due to factors like lower-than-expected meal sales, increased facility rent, and fuel expenses. The report identifies sales revenue as the major concern and recommends actions such as promotional strategies, employee training, and improved internal communication to enhance revenue and profitability. Furthermore, it suggests controlling expenses, particularly facility rent and insurance costs, and emphasizes the importance of aligning budgets with realistic targets and market conditions to achieve financial success. The report concludes by summarizing the importance of proactive budgeting, marketing, and advertisement for achieving the financial objectives within the specified timeframe.

Managing Finance &
HR for Sustainable
Business Success

EXECUTIVE SUMMARY
The present report will throw a deeper insights towards the significance of the budget in
planning for the activities of the cafe adequately and appropriately. Furthermore, study will
reflect appropriate measures that needs be taken by managers fro improving its revenue and
profitability.

Table of Contents
INTRODUCTION...........................................................................................................................4
1. Objective behind preparing the budget ...................................................................................4
2. Preparing a report showing the variances of the company's disbursements and revenue .......5
3. assessing which activity of variance should be point of concern to management...................6
4. Advising Twins River Cafe about actions that it needs to undertake for the attainment of
objectives.....................................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................1

INTRODUCTION
Financial management implies for the techniques which firms undertake for the
procurement and utilization of funds. The present report is based on the case scenario of Sky
café which is planning to explore operations. In this, report will shed light on the extent to which
budgeting aspect important for Sky café. Further, it also entails that higher management team
should take with regards to the fulfilment of business objectives.
1. Objective behind preparing the budget
The main objective of Sky cafe behind formulating budget is positioning itself as the
independent cafe for the local citizens and the visitors, by providing them with the flavour of the
local handmade specialities that tends to increase sustainability of the product. Through
preparation of the budget, Sky cafe could be able predict its future sales, other expenses and the
product cost for the purpose of earning a desired amount of an income and in minimising
chances of incurring losses. It helps the company in knowing the variances or deviations that are
present between the actual and the budgeted figures so that appropriate measures could be taken
for meeting those gaps (Harding, 2017). Budget act as the base for the company to make its
employees work or perform in accordance to the set standards and in coordinating efforts of
several departments towards a common direction. It helps the firm in accelerating an efficiency
of the operations within various functional divisions and cost centres. By framing the budget for
the Twin rivers cafe, Sky cafe company could facilitate a centralised control on the management
with ensuring an effective control over cash, sales and an inventory of the company.
Furthermore, the main purpose for framing budget for Twin rivers cafe is mainly to
facilitates model regarding the way a business may perform in case particular strategies, plans
and events are been carried out. In respect of constructing the business plan, budget helps the
managers in forecasting expenditure, profitability and income. Thus, budget seems to be useful
for providing the guidance to an enterprise in relation to the direction within which it suppose to
go. Budget reflects a significant structure to the employees in performing the task and function as
per the budgeted standards (Pandey, I. M., 2015). It also helps in predicting the cash flows is
seen as extremely useful for cafe in order to achieve growing success in the future periods. It
provides a view of the cash flows in a reasonable objective of budgeting at time it presents
budget for the few months or the periods.

2. Preparing a report showing the variances of the company's disbursements and revenue
In accordance to the results generated it has been seen that expected quantity meals is
18000 but in fact the actual meals resulted as 17800 which means that reduced number of meals
has been attained with an adverse variance of 200. Decrease in sales probably resulted due to the
mix of several factors that includes lack of training, poor communication within the management
and sufficient campaigns for marketing the product is not been seen. The revenues of the cafe
also shown an adverse value of difference between budgeted and the actual figures accounted as
900 as the budgeted figure was 81000 but actually the revenue earned of value 80100. Expenses
of the company in terms of raw material, wages and salaries, utilities had been indicated as
favourable outcome because low amount of expenses were incurred in actual comparison to the
expected that in turn seen as the positive sign for the company as it ensured adequate control
over the cost (Karadag, H., 2015). Moreover, facility rent, insurance and the fuel related
expenses shown the adverse results which clearly reflects that actual expenses incurred in
relation to this items are greater than budgeted which clearly states that cafe needs to take

necessary measures for ensuring control over such expenses in order to achieve higher
profitability.
Thus, the resulted expenses and the net operating income accounted an adverse outcome
as because expenses in actual are seen as higher than the budgeted and lower value of
profitability has been gained in actual as compared to expected. This means that as majority of
the expenses shows an adverse variance and along with lower revenues so the profitability
resulted as low. In order to attain favourable outcome in context of profitability, cafe needs to
make corrective measures for attracting higher amount of customers with eliminating
unnecessary spending over the operating expenses which results in larger profit margins. This
also shows that the value of fixed expenses are not forecasted accurately or correctly as facility
was seen as due for the renewal and managers anticipates that rent remains as same. In
consideration to economic climate, landlords had changed an agreement and the increase in the
rental cost. This budgeted data was not been taken into account for planning purpose in the
month of July by resulting an effect on the rent cost (Armitage, Webb and Glynn, 2016). These
measures need to be analysed by the managers so that variances in the budgeted and actual
values does not resulted. By assessing the customer feedback it has been interpreted that due to
poor quality of the products and had provided comments relating to delay in the services leads to
lower value of the sales in actual than the budgeted. There does not exist any formal training
provided to the new members which likely in correlating to delivery days of the customers that is
captured in customer feedback.
3. assessing which activity of variance should be point of concern to management
By doing assessment, it has identified that sales revenue is the major concern to management.
Moreover, both flexed and actual performance shows adverse variance of £900 which in turn not
desirable. Moreover, maximization of sales and profitability aspect is the main objectives of Sky
Café behind the expansion activity. Thus, management team of Sky Café is required to take
effectual measure which helps in enhancing revenue and thereby profitability as well. Along with
this, total expenses are also showing negative variance of £560. Due to having high expenses
under the category of facility rent, insurance and fuel adverse variance was occurred. Along with
this, as per the outcome of variance analysis, it can be stated that Sky Café failed to generate net
operating income in line with the budgeted figure.

Moreover, deviation of £1460 took place in profitability aspect of firm. Hence, for getting
the desired level of outcome or success management team of Sky Café is required to take
significant action timely. The rationale behind this, if firm would not become able to exert
effectual control over expenses then it may negatively affects profitability (Kouvelis, Pang and
Ding, 2018). Along with this, in the case of having higher expenditure restaurant unit will face
difficulty in offering services to the customers at lower prices. In this way, company will also
face issue in gaining competitive advantage over rivals. Now, people prefer to visit café which
offers quality services to the customers at suitable prices. Thus, for the attainment of objectives
in relation to enhancement of customer base, maximization of sales and profitability etc
management need to do specific changes in the existing strategic and policy framework.
4. Advising Twins River Cafe about actions that it needs to undertake for the attainment of
objectives
In respect of insurance, it has been recommended to the managers that they require to
keep a check on the other insurance entities for seeing if they are been cracking for the better
deals. Increased level of internal communication among the employees should be made which
helps in increasing motivation. Employees at the cafe must contains sufficient knowledge in
relation their targets, ensuring that the budgets shows realistic results. It has also been suggested
that managers should increase the bonus towards each employee and should also consider an
excellence programme for an employee where they are been getting rewards for performing
beyond the standards with connection to the customers. It is also essential that the managers
should actively focus on the controlling, altering and changing the data in the budget by
informing the team.
Results of variance analysis clearly exhibits that management team of Sky café need to
undertake suitable measure for the success of Twins River Café. Accordingly, focus should be
placed by management team in relation to taking below mentioned measures for improvement
Purpose: For the purpose of sales enhancement management of Sky café should focus on
undertaking promotional tools and techniques. Accordingly, advertisements pertaining to service
offerings need to be placed on social media sites such as Facebook, Twitter, Instagram. By this,
firm would become able to develop awareness among the customers about its offerings.

In addition to this, management of Sky café should conduct training & development
session for personnel. This in turn develops their understanding about the manner in which
business activities need to be performed as per planned budget.
Along with this, emphasis need to be on the identification of causes due to which
deviation are occurred. This in turn assists in taking appropriate action timely and thereby
facilitates performance improvement.
Further, by improving internal communication aspects Sky can attain success in new
expansion. As per this aspect, café unit should communicate organizational vision, mission and
objectives to personnel. This in turn motivates them in relation to achieving predetermined
budgeted figures.
CONCLUSION
By summing up this report, it can be presented that by preparing budget Sky café can
evaluate monetary performance of new expansion. Besides this, it can be inferred that by making
focus on proactive budgeting control, marketing and advertisement etc business unit can attain
objectives within specific time frame.

REFERENCES
Books and journals
Kouvelis, P., Pang, Z. and Ding, Q., 2018. Integrated Commodity Inventory Management and
Financial Hedging: A Dynamic Mean‐Variance Analysis. Production and Operations
Management. 27(6). pp.1052-1073.
Harding, S., 2017. MBA management models. Routledge.
Pandey, I. M., 2015. Essentials of Financial Management, 4th Edtion. Vikas publishing house.
Karadag, H., 2015. Financial management challenges in small and medium-sized enterprises: A
strategic management approach. EMAJ: Emerging Markets Journal. 5(1). pp.26-40.
Armitage, H. M., Webb, A. and Glynn, J., 2016. The use of management accounting techniques
by small and medium‐sized enterprises: a field study of Canadian and Australian
practice. Accounting Perspectives. 15(1). pp.31-69.
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