leadership and management materials with questions
Bader2012
BSBFIM501PPSlidesV1.12-5-2021.pptxBSBFIM501
Manage budgets and
financial plans
2
Housekeeping
Emergency procedures
Mobiles, security issues
Break times/smoking policy
This course is “interactive” – ask questions
Respect, confidentiality, practice
Ground rules
3
Objectives
Discover how to plan financial management approaches
Know how to implement financial management approaches
Learn how to monitor and control finances
Understand how to review and evaluate financial management processes
Gain the skills and knowledge required for this unit.
FIVE MAJOR FUNCTIONS OF BUSINESS MANAGEMENT
1. Planning
2. Organising
3. Staffing
4. Directing
5. Controlling
Budgeting is about Planning and Controlling
Planning and Budgeting
Planning and budgeting are essential for management control.
Effective planning and budgeting require looking at the organization as a system and understanding the relationship among its components.
Planning consists of developing the objectives, timetables, and performance standards needed to implement the organization's strategy and assigning individual accountability for results.
Budgeting involves identifying, prioritizing, acquiring, and allocating the resources needed to carry out the plan.
Basic principles of accounting
Revenue
Expense
Matching
Cost
Objectivity
Continuity assumption
Unit-of-measure assumption
Separate entity assumption
Cash v Accrual Accounting
Accrual accounting is the practice used by most businesses, and matches the revenue earned in a period, against the expenses incurred to generate that income in the period.
Revenue is recognised when the transaction takes place, rather than when the cash is collected.
Expenses are recognised when they are incurred, not when they are actually paid.
Clearer overall picture of the performance of the business
The notion of receiving or paying cash is not relevant in determining profit
Cash v Accrual Accounting
Cash accounting basis means:
Revenues are recorded when they are actually received
Expenses are recorded when cash is paid
Clearer picture of ‘cash flow’
Plan financial management approaches
1.1 Access budget/financial plans for the work team
1.2 Clarify budget/financial plans with relevant personnel within the organisation to ensure that documented outcomes are achievable, accurate and comprehensible
1.3 Negotiate any changes required to be made to budget/financial plans with relevant personnel within the organisation
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Strategic Plan and Budget
A business needs to have both a strategic plan and a budget.
The strategic plan lays out the direction and goals of the business and guidelines for actions to achieve those goals
The budget looks at the money needed to support achieving those goals.
Budgeting is only one part of the strategic planning process.
Budget
A budget is a forecast of all income and expenses, and helps a business identify future financial needs and plans based on expected profit, expenses and cash flow.
If a business doesn't have the budget to support its strategic plan, the business needs to either modify its plan or find the financial means to support the plan.
Budget/financial plans
Cash flow projections
Long-term budgets/plans
Operational plans
Short-term budgets/plans
Spreadsheet-based financial projections
Targets or key performance indicators for production, productivity, wastage, sales, income and expenditure
Aims of financial plans
Analyse the past
Plan for the future
Implement new strategies for the future
Set annual budgets
Long-term planning benefits
You can estimate the funding required
Budget allocations increase in accuracy
Trends in demand can be identified
Change is easier to implement
Financial consequence of major programs/changes can be planned
Change can be implemented more easily
You can forecast how the market is likely to change and account for this
You can plan for human resources changes
Staffing needs and resources can be calculated and planned
Medium-term planning benefits
Identify likely sources of cash flow
Create a cash flow forecast statement, identifying the major changes of income sources
Think what things may occur based on what you know will happen
Identify future spending levels
Consult with stakeholders for their opinions on what the major changes could be
Analyse the impact of proposed changes of future finances
Budgeting roles
When budgeting, there are various people who play a role in managing them:
Management
They are accountable for their own budgets. However, their accountability depends on their level in the organisation
Budget holders
These people contribute to setting budgets and provide the information that is used to calculating exact figures.
Finance and support staff
Computer-based budget management
A budget tracking system allows monitoring/recording of:
Organisational spending
Budgets
Organisational income
Debtor and creditor records
Payment processing
Budget management
Contract management
Financial analysis
Closing accounts
This involves having a set point where all data into accounts is frozen and recorded, so it can be analysed accurately over a set time period.
It allows decisions to be made on:
Whether under/over-spends can be carried forward
How budget managers can examine results
If any under-spend can be given back
If over-spend needs to be given back (at a later date)
Whether performance variances between actual and desired performance can be assigned to future projects
Activity 1 – P 11 - 20
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Plan financial management approaches
1.4 Prepare contingency plans in the event that initial plans need to be varied
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Contingency plans
Contingency plans may need to cover situations such as:
Broken/malfunctioning equipment
Staff quitting or needing time off due to illness, holidays etc
Health and safety issues
Natural disasters (i.e. floods, earthquake etc)
Theft, fraud or other security issues
Contingency plans should cover:
The situation needing action
Personnel to be involved
Contact numbers for personnel, resources etc.
Legislative, organisational and ethical requirements to consider
How it will impact on the organisation
Costs that may occur
Solutions
How the solution will be implemented and by who
A deadline
Contingency Plans
Outsourcing
Diversifying outcomes
Cheaper consumables
Increasing output
Recycling/Re-using
Procurement options
Restructuring
Additional funding
Reducing costs
Activity 2 – p22 - 23
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Implement financial management approaches
2.1 Disseminate relevant details of the agreed budget/financial plans to team members
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Types of Budgets
Sales budget
Revenue budget
Cost of Goods & Services sold budget
Cash flow projection
Inventory budget
Project budget
Marketing budget
Projected Profit & Loss / Balance Sheet
Who is informed?
After the budget/financial plans have been agreed, you will now need to divulge the relevant details to team members.
People who may be informed include:
Senior management
The accounts department
Budget committee
Managers
Establishment staff
Who’s Involved?
Organisational and team budgets are developed by senior managers, then distributed to team members by their team leaders.
Some organisational budget information may be sensitive and available only to senior management.
However, ‘operational’ budgets are usually kept by the team leader in a particular department or section, and used to set targets and detail individual responsibilities
Consultation
Be aware of the people in your organisation who have responsibilities for financial planning
Understand your own responsibilities and who you are accountable to, regardless of whether:
- You are producing a budget
Helping to prepare a budget
Or implementing a budget
Traditional ways to inform about budget allocations
Departmental meetings where information is delivered verbally and face-to-face (as described above)
All staff meetings where a series of overhead projections (or a PowerPoint presentation) is used
Internal memos or emails sent to staff
Paper-based documentation that outlines, without being too specific, the requirements that have been decided on.
Communication Methods
Formal Meetings
Group Meetings/Sessions
Written Communications
Face-to-face Presentations
Electronic Communication
Activity 3 – p25 - 28
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Organisational Chart
Implement financial management approaches
2.2 Provide support to ensure that team members can competently perform required roles associated with the management of finances
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Support for team members
Access to specialist advice
Documentation of procedures
Help desk or identified experts within the organisation
Information briefings or sessions
Intranet-based information
Training including mentoring, coaching and shadowing
Roles/activities that may need support
Arranging for use of corporate credit cards
Banking
Debt collection
Ensuring security, accuracy and currency of financial operations
Invoicing clients, customers and consumers
Roles that may need support
Maintaining journals, ledgers and other record keeping systems
Maintaining petty cash system
Purchasing and procurement
Wages and salaries payments and record keeping
Activity 4 – p30 - 31
39
Implement financial management approaches
2.3 Determine and access resources and systems to manage financial management processes within the work team
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Resources and systems of financial management processes
The resources and systems needed to manage financial management processes within the work team may include:
Hardware and software
Human, physical or financial resources
Record keeping systems (electronic and paper-based)
Specialist advice or support
Activity 5 p33-36
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Monitor and control finances
3.1 Implement processes to monitor actual expenditure and to control costs across the work team
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Ledgers and financial statements
A general ledger is the main accounting record of a company – it contains a complete record of financial transactions over the entire life of a company. It is used to prepare financial statements and includes the following accounts:
Assets
Liabilities
Owners' equity
Revenues
Expenses
Chart of Accounts
Classifies and codes all the financial transactions of the organisation and the effect they have in two categories.
1. Balance Sheet items – assets & liabilities
2. Profit & Loss items – revenues (sales) and expenses
Profit and Loss
If the revenue (income) exceeds the expenses (outgoings) the business has made a profit.
If expenses exceed revenue it’s a loss, and it is represented in financial statements in brackets
Eg $10,000 – Profit
$ (10,000) – Loss
Profit and Loss Template
Assets
Current Assets
Economic benefits consumed by the organisation within the accounting period (usually 12 months)
eg: cash, debtors, inventory
Fixed (non – current) Assets
Benefit extends beyond the current accounting period
eg: buildings, vehicles, machinery, office equipment
Liabilities
Current Liabilities
- Due inside/within a year
Non – Current Liabilities
- Not due in the present accounting year
Journal Entry - example
Activity 6 – p38 - 40
51
Monitor and control finances
3.2 Monitor expenditure and costs on an agreed cyclical basis to identify cost variations and expenditure overruns
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Organisational record keeping and auditing
The Australian government will review your financial affairs each year in a tax or superannuation review to check you:
Have declared all the assessable income you receive
Are entitled to the deductions and tax offsets you have claimed on your tax return
Have met all your regulatory obligations
Record-keeping requirements of Australian Taxation Office
For the purposes of the SMSF auditor, the following records need to be kept for at least five years:
Accurate and accessible accounting records that explain the transactions and financial position of your SMSF
An annual operating statement and an annual statement of your SMSF’s financial position
Copies of all SMSF annual returns lodged
Copies of any other statements you are required to lodge with us or provide to other super funds
Record-keeping requirements of Australian Taxation Office
The following records need to be kept for a minimum of ten years:
Minutes of trustee meetings and decisions
Records of all changes of trustees
Trustee declarations recognising the obligations and responsibilities for any trustee, or director of a corporate trustee, appointed after 30 June 2007
Members’ written consent to be appointed as trustees
Copies of all reports given to members
Documented decisions about storage of collectables and personal-use assets
Key Regulatory Bodies
ASIC
Australian Securities & Investments Commission
(Public – Audited accounts, half yearly results which include Income, Expenditure, Profit, Balance Sheet and Cash Flow
Australian Tax Office
(Private – less stringent and annually reporting)
(Income Tax / Sales Tax)
ASX
Australian Stock Exchange
(On going disclosure by public companies)
Paul Armstrong (PA) -
TAX
Company tax
Goods and Services Tax (GST)
Pay As You Go (PAYG)
PAYG Instalments
Fringe Benefits Tax (FBT)
Superannuation Guarantee Levy
Payroll Tax
ATO Reporting
All companies with a valid ABN are required to report activity to the ATO as outlined:
Monthly - annual turnover exceeds $20m
- PAYG (>$25k - <$1m)
Quarterly - annual turnover is less than $20m
- PAYG is less than $25k
Sample Budget
Activity 7
60
Monitor and control finances
3.3 Implement, monitor and modify contingency plans as required to maintain financial objectives
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Maintaining contingency plans
Communicate the details of it to everyone in the organisation
Tell people their roles and responsibilities in the contingency plan
Provide training (if necessary) for people to perform their roles
Perform training drills periodically (to test the contingency plan)
Use training drills to identify and implement any necessary changes
Review the plan any time there are personnel, operational and technological changes
Maintaining contingency plans
Distribute amended plans throughout the company (discard the old plan)
Make and store copies off-site that can be easily accessed if need be
Perform audits on the plan from time to time. They should:
Reassess business risks
Compare actual performance levels to desired performance levels in the contingency plan
Identify changes and implement them, if necessary
Activity 8 – p46
64
Monitor and control finances
3.4 Report on budget and expenditure in accordance with organisational protocols
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Report on budget and expenditure
Reporting may include data from:
Bank statements
Credit card statements
Financial reports
Invoices and receipts
Ledgers and journals
Logs
Petty cash records
Spreadsheet-based records
Types of reports
Sales summaries
Daily, weekly or monthly transactions
Department expenditures
Commission earnings
Marketing activities
Accident reports
Activity 9 – p48 - 51
68
Review and evaluate financial management processes
4.1 Collect and collate for analysis, data and information on the effectiveness of financial management processes within the work team
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Data on the effectiveness of financial management processes
Bank account records
Cash flow data
Contracts
Credit card receipts
Employee timesheets
Files of paid purchase and service invoices
Income and expenditure
Data on the effectiveness of financial management processes
Insurance reports
Invoices
Job costings
Petty cash receipts
Quotations
Taxation records
Wages/salaries books
Activity 10 – p 53 - 55
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Review and evaluate financial management processes
4.2 Analyse data and information on the effectiveness of financial management processes within the work team and identify, document and recommend any improvements to existing processes
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Identify, document and recommend improvements
The things that you want to see include:
Earnings growth – over the previous year, quarter or month. You also want to strive for growth to be above the market average.
Earnings stability – you want steady, predictable growth as opposed to spikes of revenue and periods of inactivity. This makes it easier to predict the financial position of the company in the future.
Return on equity – you want to turn a profit on the money invested
Activity 11 – p57 - 58
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Review and evaluate financial management processes
4.3 Implement and monitor agreed improvements in line with financial objectives of the work team and the organisation
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Monitoring and reporting budgets
Monitoring and reporting processes should cover the following:
Set timetables and deadlines for monitoring and setting up of budgets
Having a system to ensure data is up-to-date and accurate
Reports should be made available for to management
Reports should be done at least monthly
Data should be inputted into your records regularly, to allow for better budgetary planning
Monitoring and reporting budgets
Reports should be produced as soon as possible to ensure they are relevant
Reporting should happen from the bottom up – it should include:
Actual expenditure
Forecasted expenditure
Expected changes
Monitoring should happen from management downwards
Monitoring processes should be reviewed regularly (to check they are working)
Activity 12 p60 - 61
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Skills and Knowledge Activity
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Major Activity
This activity should take anywhere between an 1-2 hours to complete and can be found at the end of your workbook.
Your instructor will let you know whether they wish for you to complete it in session time or your own time.
Summary and Feedback
Did we meet our objectives?
How did you find this session?
Any questions?
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Congratulations!
You have now finished the unit…
‘Manage budgets and financial plans’
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