A budget as said before is an estimate of expected income and expense for a given period in the future. Outlining how money will be spent within an organisation. The budget will be responsible for ensuring the budget is spent on improving the business or department or for any emergencies that may occur. In order to ensure success and control over a business’s expenses and income. A budget plan it is normally planned monthly. This monthly budget plan allows Jean’s caf© to see exactly which months they are making a profit or a loss.
Jean’s caf© can identify where the issues have occurred so an appropriate solution can be made. This in itself allows Jean to think about their future budgeting plans so they can continue to stay within their budget.Problems that arise when costs are not controlled to a budgetWithout a budget it can become difficult to make decisions regarding money as there is so much unknown.
For example a business may want to know whether they have enough money to hire a new checkout assistant, whoever is in charge of finance could quickly refer to the budget and see if they have enough money available to hire this new staff member, without having a budget that is correct, which can be due to poor management, they will not know whether they could hire the new staff member, this would result in them either: In addition to this Jean’s Caf© could reduce their employees’ wages so that they try to generate more profits, however it would have a negative effect on the business in several ways. One example of this would be that it decreased the employee’s motivation and they would not work at the same high performance as before as they would be feeling that they aren’t doing a good job as their wages got reduced. Due to this they may slack and not meet targets as often, if this happened then the business would not run as successful as less work would be done. Employees de motivation would have a bad effect on the overall profits of the business and they would not be making as many sales if there was less work being completed. An example would be the lack of their customer service, the employees may not try as hard with delivering a good experience to their customers, this could further mean that their customers are unhappy with the service that they had and may not return to the store decreasing the amount of sales. Another example of staff de motivation would be how the quality of the products would not be as good due to the employees not working as hard, due to these customers would complain and it would give the business a bad reputation meaning that less people will visit the caf©. As well as ff the budget for salary is not controlled properly then staff could also leave which could affect the number of sales the caf© would be making. Also time and money is being spent on training and recruiting new staff, and that time and money could be used elsewhere. Such as improving the business. Furthermore they could look at the amount of stock that they have and could try to reduce the amount that they hold to try and save money within the business, however this could also have bad impact on the business overall as if there was an unexpected increase in demand then the business may not have enough products to provide for their customers. If they didn’t have enough stock then it would mean they would be losing out on sales and profit overall, when customers could not get served, they may be dissatisfied and may not come to the shop anymore. These are some of the consequences when the company has poor budgets.A budget can help a lot if something changes in a business such as a supplier not supplying any more goods to the caf©. If that supplier leaves and the businesses budget isn’t managed properly the business could end up spending too much money on resources that they longer need, if they did have a well-managed budget they could look at the decrease in income and equate that with expenditure and figure out how much they need to reduce the outflows of the business until they get to the point where the suppliers they have are of the same value they were as the previous suppliers or less allowing Jean’s Caf© to save more money.Also it is important to look around a few sources before considering where they are going to purchases things required by the business from. This can be applied to suppliers, changing suppliers may be helpful in order to save money. As often when you remain with the same supplier for a long time, they may take advantage and gradually increase the price over time. It can help for the business to look around for other suppliers, who may charge a smaller price for the stock required at the same quality. This can allow them to save money. Below is where I have broken down the main budget in document 1 into individual budgets and have compared this with the figures in document 2. Sales budget and actual salesThe sales budget total for the month for June was 30000. Whereas the actual sales that were generated in June was 14,435. This is over half of the sales that was predicted. With this due to predicting more sales Jean must have allowed more of a budget for other areas such as marketing and purchases. Due to this it could lead to the purchase of more goods that were predicted to be sold. With this it can lead to stock such as food going out of date which could be a waste of money. Because of this less money will be available for the other areas. Marketing budget and actual marketingAlso another area where the budget was lower than the actual was marketing. The budget for marketing in January was Ј650 when in reality it actually costed Jean Ј740. With this it was Ј90 under what it was actually. With this it is not a big amount that will break the bank but if the company is facing some debt or financial problems this could make the situation worse as the Ј90 would have to be gained from elsewhere. Whereas in March and Aril for marketing the budget was Ј150 when actually it had costed Ј90. This is an advantage as this money that was saved could have been used for the next months. As well as with this money being saved it could be set aside for emergencies which could occur at any time. Also this money could have been used for elsewhere this money saved may have allowed the company to buy some more stock or could be saved for expansion and growth of the company in the future. As though Ј90 is not a big amount, but it could save the company from incurring debt or having to break the bank for any emergency that could occur in the future. The marketing strategy can be changed so that it can be more effective in attracting customers so that they can make more sales. With this they can show the deals and offers on the products and also show the scenery of the caf©. In order to interest many customers to sit and eat at the caf©. This also includes the form of advertisement that they may use all year round to draw customer’s attention. Marketing is a way in which Jean’s caf© can introduce the caf© to potential customers as well as what is on the menu and deals and offers that are available. This is to show the customers what they may be missing out on. As well as show and portray any other services that they may offer. Also with showing the deals and offers on the products sold, it can draw the attention of the customers as they would feel they are getting quality products at a decent price. Purchases budget and actual purchases As well as for purchases the budget was Ј600 for every month from January through till June. The actual expense for purchases in every month was much significantly ore than the budget. The least was in January where it actually was Ј918. Though this is the least of all the expenses in the purchases out all of the months but still it was Ј318 over the budget. Which is still a lot considering this was the least expenditure out of all the months. The month of June was the most expenditure of purchases out of all the months with Ј1467 being spent. This is Ј867 over the budget which nearly equates to a Ј1000. With the expenses for all the months being over the budget shows that the budget has been too far low for what they actually spend. As you can seen in the document above the purchases for Jean’s Caf© are increasing quite rapidly. This could be due to the increased purchases of things that she may not need or for not setting a high enough budget. With not setting a high enough budget more purchases have been made resulting in higher variances. Which could eventually lead to debt if money and budgets are not controlled better. With this it could lead to there not being enough money for the other areas in which she may or had allowed for there to be a higher budget. Also all of these things can be predicted that Jean would need to spend and would earn income in order to run caf© but on the document above it shows Jean has not set aside money for emergencies. These can occur at any-time which could stop business if there is not sufficient money set aside or available at the time to fix these emergencies or problems immediately. With a controlled budget the caf© are given the opportunity to control costs and it can help identify areas for concern within the business. In which they would be able to they can see that their actual cost for labour is exceeding the budgeted figure every month and how they would be able to fix this. Therefore with a controlled budget a business can easily look at what’s coming going out of the business and the relationship between the two. Allowing them to understand the cashflow within the business which will result in them having a clearer awareness off where all the money is going. For example if a business has an issue with paying off debt they could look at their budget and see what money they are spending that isn’t important to the financial wellbeing of the and take that money from that place to pay off the debt, the business may make more money later that year than they expect and put that money into the other budgets for events or things that maybe taking place which may had previously taken away from or invest it to make more of a profit to put back into different budgets. It can help Jean’s caf© to achieve its long-term goals, this is simply because a budget will help the business to make more money than it previously could have done due to the reasons I have explained above. It can be used to set out exactly what they want to do over a period of time and achieve whilst staying realistic as they have to make sure that they can afford everything they want to do and ensure they make a profit from these set of goals. If a business doesn’t have an appropriate budget then they are not going to know whether they have money to spend or not, they can end up spending too much; and go in debt, or they could spend too little; never grow as a company. Therefore the main purpose of control budgeting to control costs as it gives an estimate on what the cost and revenue should be in order for Jean’s caf© to run and make a profit as well as prevent uncontrolled excessive spending from occurring. Overall, if these costs are not properly controlled then Jean’s caf© may have a bad credit rating which reduces their chances of borrowing money in the future. This would in other words shows to the bank you are unable to meet costs, so they wouldn’t be able to trust if the business would be able to pay back the money that is to be borrowed. Which could prevent the growth and expansion of the caf©.