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• Module overview
• 1. Introduction to budgets
  • 1.1 Introduction to the Budget Process
  • 1.2 Budget types
    • 1.2.1 The Budget Guidelines
    • 1.2.2 The Sales Budget
    • 1.2.3 Budget for Operating Expenses
    • 1.2.4 Profit Budget
    • 1.2.5 Cash-Flow Budget
    • 1.2.6 The Financial Position Budget
    • 1.2.7 Additional Types of Budgets
    • 1.2.8 Additional Budgeting Techniques
  • 1.3 The budget process and its objectives
  • 1.4 Budgets for performance management
    • 1.4.1 Master budget

• 2. Planning the budget

  • 2.1 Planning the Budget
    • 2.1.1 Business income
    • 2.1.2 Visual representation of sales and budgets
    • 2.1.3 The break-even point
    • 2.1.4 Contribution margin

• 3. Controlling the budget

  • 3.1 Controlling budgets
    • 3.1.1 Variance analysis
    • 3.1.2 Taking action to achieve the objectives of the budget
    • 3.1.3 Resource acquisition and usage

• 4. Introduction to Financial Management

  • 4.1 Business Objectives
    • 4.1.1 Maximising profit
    • 4.1.2 Maximising wealth
  • 4.2 Ethics and conflicts in business
    • 4.2.1 The dilemma of ethics in finance, investment and accounting
  • 4.3 Financial Managers
    • 4.3.1 Financial information and objectives
    • 4.3.2 Accounting, the financial information system
  • 4.4 The finance function
    • 4.4.1 Business and financial calculations

• 5. Elements of Business and Financial Management

  • 5.1 Business Structures
    • 5.1.1 Sole proprietors
    • 5.1.2 Partnerships
    • 5.1.3 Corporations and companies
  • 5.2 Reporting financial data and information
  • 5.3 Financial reports
    • 5.3.1 Statement of financial performance (profit and loss statement)
  • 5.4 Capital Markets
    • 5.4.1 Capital Markets
  • 5.5 Regulation and financial institutions
    • 5.5.1 Interest rates, supply and demand and market efficiency
  • 5.6 An overview of taxation implications

• 6. Obtaining Funds: Sources of Long Term and Short Term Finance

  • 6.1 Finance from external sources
    • 6.1.1 Equity finance
  • 6.2 Debt
  • 6.3 Long-term debt
    • 6.3.1 Debentures and unsecured notes (bonds)
    • 6.3.2 Mortgage loans
  • 6.4 Hybrids of debt and equity
  • 6.5 Leasing
    • 6.5.1 Operating Lease
    • 6.5.2 Financial Lease
    • 6.5.3 Distinguishing between an operating lease and a financial lease
    • 6.5.4 Sale and Leaseback
    • 6.5.5 The issue of gearing
  • 6.6 Short-term debt
    • 6.6.1 Bank Overdrafts
    • 6.6.2 Fully drawn advance
  • 6.7 Retained Earnings, internal funds and depreciation

• 7. Managing Working Capital

  • 7.1 Managing current assets and current liabilities
    • 7.1.1 Appropriate level of working capital
  • 7.2 Managing inventories
    • 7.2.1 Reasons for holding inventories
    • 7.2.2 The economic order quantity (EOQ)
    • 7.2.3 Re-order point (ROP)
    • 7.3.4 Safety stock (SS)
    • 7.2.5 Quantity discounts
  • 7.3 Managing trade debtors (accounts receivable)
    • 7.3.1 Credit policies
    • 7.3.2 Collection period
    • 7.3.3 Managing cash and near-cash assets
    • 7.3.4 Managing trade creditors (accounts payable)

• 8. Job Costing

  • 8.1 Accounting information about product, service and project costs
    • 8.1.1 Full costing
    • 8.1.2 Single product/service line
    • 8.1.3 Multi product/service
    • 8.1.4 Direct and indirect costs
  • 8.2 How costs behave
    • 8.2.1 Allocating Overheads
  • 8.4 Cost drivers
    • 8.4.1 ABC and the service industry
  • 8.5 Conclusion

3.1.3 Resource acquisition and usage

Other options available to us that will assist in the control of budgetary performance and the financial management of our operation are the control of inventory and the use of 'just in time' (JIT) systems. These two business tools assist by potentially reducing the amount of finance or capital tied up in stock. Stock may include raw materials, components or other items that are used in the production of goods or services.

It is critical to the cash flow budget performance that a business does not purchase items that will sit in stock or inventory longer than necessary. If this does happen it will reduce the amount of cash that the business has on hand. Another danger of having too much stock is that there may be a reduction in demand for the products of the business or the stock may become obsolete while waiting to be used. In these circumstances there will be a lot of cash tied up in a non-productive area.

Inventory control systems involve the careful management of supplies and stock and often require the careful management of the relationship between the supplier and the business. The operation should only purchase enough stock to fill its current needs and those of the immediate future. To do this the business must work closely with its suppliers to ensure adequate delivery of stock at a fair price.

Many organisations are aware of the importance of managing stock and have adopted computerised ordering systems that reorder stocks automatically when numbers of an item get to a predetermined level. This type of system in known as Just In Time (JIT) and is often used in the manufacturing sector. The aim of a JIT system is to minimise the amount of money, and warehouse space, invested in storing stock. This enables cash to be used for more productive purposes while adequate levels of stock are maintained.

Hints
Remember the following when planning budgets

• Budgets are planned expectations of performance in terms of the financial achievement of an operation.
• Budgets may also be known as financial plans, targets and objectives.
• Budgets assist managers to achieve financial targets. This includes the effective use of resources in the production of profits. Managers understand that, while budgets are explained in financial terms, they are a representation of the performance of people and resources and can be used as a measure of productivity.
• The master budget is the group of budgets required to run an enterprise and will include budgets such as, profit, cash flow, sales, marketing and operations.
• Predicting the income of an operation and understanding the breakeven cost is critical to the budget planning process.
• A series of steps should be used in the preparation of the budget, however these may differ from operation to operation.

As a matter of interest it may be useful to compare and contrast the financial planning and control process established in the following reading (course) from Matt Evans at the Financial Management Training Centre in the USA .

Reading 1

Evans, MH (2000) Course 2: Financial Planning and Forecasting Excellence in Financial Management, Financial Management Training Centre: Virginia . Sourced November 2004, at http://www.exinfm.com/training/pdfiles/course02.pdf

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