| BUDGET SETTING | | | | figures back into the program - they have to all |
| This is the single most neglected feature in any | | | | be manually keyed! |
| organisation. | | | | The accounting program that I promote allows |
| Yet without setting budgets we have no goal | | | | selection of figures by copy and paste either way. |
| posts through which to kick the ball! | | | | This does require discipline. The order of the |
| As in sport, we should always strive to stretch | | | | figures being pasted back into the budget column |
| our limits. Thus Sales Budgets provide the impetus | | | | must not be changed in order to achieve |
| that drives the whole venture. | | | | synchronisation with the "Actual" figures. |
| We all need some yard stick by which to | | | | Fortunately, the "Actual" figures can not be |
| determine what pricing to put on to a product or | | | | corrupted. |
| service that we sell. | | | | Now when a budget has been set-up in an |
| It is often easy to determine the price that we | | | | accounting program, it is easy to compare Actual |
| pay for an item that we purchase - just look at | | | | against Budget in the reports that can be |
| the invoice! | | | | generated. |
| However, not even this is always so easy. Do we | | | | Sometimes you will note that there are seasonal |
| buy it from Supplier "A" or Supplier "B". Which | | | | fluctuations in both Actual and in Budget figures. |
| gives the best price, then do either offer better | | | | When they diverge there can sometimes be |
| pricing for bulk buys? Again, once we have set a | | | | explanations such as unseasonal weather patterns. |
| realistic Sales Budget, then we can determine our | | | | This was very obvious with one grocery chain I |
| quantity requirements in order to meet those | | | | was involved with, and at Board meetings the |
| sales. Possibly, on that basis we can negotiate | | | | financial reports were often supplemented with |
| better buying prices. | | | | weather bureau reports explaining the deviations |
| If we are buying multiple components to | | | | from anticipated results. Similarly, changed Public |
| manufacture something then the number of | | | | Holiday dates could also affect sales and were |
| questions begin to increase. | | | | reported on when applicable. |
| The next questions that then arise are quality of | | | | Changes in operations can also affect the |
| components, and suitability of combining one with | | | | performance. That is, if a business is expanding |
| another. What about wastage - can we afford to | | | | then economies of scale can assist in reducing |
| either scrap or re-work components? | | | | purchase prices. |
| What effect does re-work have on labour costs? | | | | Conversely, if additional capital outlays are |
| In a previous Practical Accounting Article we | | | | required in order to provide capacity for the |
| touched on Costing Theory. This also discussed | | | | increased throughput, then there would be |
| the need to allocate indirect costs against the | | | | borrowing costs (either actual or implied). In |
| provision of a manufacturing process, or the | | | | addition, neglecting tax scheduled depreciation we |
| provision of a service. | | | | should provide for the ultimate replacement of |
| Probably, by now you begin to see the need for | | | | assets at "tomorrows dollars" rather than |
| budgets as they can be used to assist in the | | | | historical purchase prices. |
| costing exercise. | | | | Obviously, lending authorities need to see |
| Where the volume of sales is somewhat | | | | projected figures (sometimes years ahead) as |
| consistent between one year and another then | | | | well as reports on past performance before they |
| the historical figures can be adjusted to allow for | | | | will risk lending for any proposed expansion. |
| the anticipated sales next period. These then | | | | Government funded bodies such as the nine |
| become the budget for the that period. | | | | South Australian Business Enterprise Centres |
| Most of the SME accounting packages have some | | | | (bec), and fourteen South Australian Regional |
| provision for comparing actual performance | | | | Centres conduct courses in which one of the final |
| against budget. One program in the market place | | | | products is a Business Plan for each participant. |
| has a button you press that takes the actual | | | | Even the operators of established businesses |
| figures into a popular spreadsheet so that | | | | should re-visit their Business Plan from time to |
| changes can be made on the basis of "what if". | | | | time, and make changes in response to perceived |
| Unfortunately, it is not so easy to take the | | | | public demand for product or service. |