Principles of Business Introduction to Finance –seminar 6

Overview

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• How to prepare a budget • Budgeting

Budgeting

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A Budget is a short-term business plan, designed to link planning and decision making to strategic objectives

NB. It is not a Forecast, which is an estimate of future financial outcomes

Budgeting

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Learning outcomes

By the end of this session you should be able to:

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• Critically evaluate the role and purpose of a budget• Prepare a cash budget

Seminar Exercise 1:

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• Evaluate the value of budgeting for the following types of organisation:

- A large, listed company- A new start up business - A charity

• What are the main challenges associated with budgeting?

Seminar Exercise 2:

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• Evaluate the following types of budgeting process for the Corporate Finance team in a professional services firm such as PwC or KPMG:

1. Zero-based budgeting2. Incremental budgeting

Seminar Exercise 3:

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Masha Products Ltd, a new second-hand car business, started trading on 1 January2014. Below is information about their actual performance during the first 6 months of the year. Use your judgement to prepare a budgeted Income Statement for the 6 months ended 31 December 2014

Actual units sold

Budgeted

January 5 10

February 15 10

March 25 20

April 10 10

May 8 12

June 10 14

73 76

Additional info

Average price of car sold in period

£1,500 (budgeted £1,750)

Average price paid per vehicle

£800 (budgeted £720)

Actual overheads in period

£85,000

Repair costs of vehicles purchased

£8,000 (zero budgeted)

A final thought:

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• What is the alternative to budgeting?