Budgetary Planning

Budget is the approximation of incomes and expenditures over the specified period of time, the process for preparing budget is known as budgeting. While budgetary planning is essential for an individual, a company, or even for group of companies, as it provides the future estimations of cash inflows and cash outflows. Budgetary planning is necessary due to the following reasons: It not only provides the current assessment but also entails the projections for the future roadmaps. It enlists the important elements which are required for a company to cover in order to generate future cash flows. It helps in knowing the requirements of the capital structure by the company which includes the ratio of debt as well as equity. It helps in categorizing the spending that is required by the company to grow from or to maintain the current performance of the company. It also make it easy to compare the revenues against the spending of the company. If budgeting is done properly then it can serve as planning and controlling system as the companies may list their basic requirements in the budget and it can act as the benchmark to follow. As planning is more future oriented and budgeting involves planning, a budget can help in achieving long-term as well as operational goals. It provides aid in decision making about the company. It can be assured that what is available for the company for the future projects by analyzing budgets. It can help in identifying problems, such as cash flow difficulties.

Process for Preparing Budgets

Budgeting process has been designed below: In making the budget, there is firstly the need to write down the income

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Enlist the expenses for the company o List down the fixed expenses for the key operations of the company o List the variable cost that changes with the number of units

Find the surplus (if inflows are more than outflows) or deficit (if outflows are more than inflows) Review the expenses, in case of surplus (a company can adjust it in reinvesting or in form of employment benefits)

While the extended planning process draws the overall image of the complete process for designing master budget (a budget that involves the matching of; allocation of resources and strategic objectives for the company). Master budgeting process explained below has also been designed in order to know the steps involved in controlling. Economic Evaluation of Region and Trends Prevailing in Industry Analysis of past performance of the company and its competitive position Establishment of objectives Designing operational as well as investment plans to fulfill objectives Preparation of operating programs; Sales, Operating Cost, Inventory, Research and Development Preparation for financial programs; Cash flow, Capital investment, Financing requirements Translation in to operating and financial budgets Consolidation in to operating and financial budget Management review of consequences Adjustments of programs required Approval for publication Preparation of reports regarding controlling

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Review of variances Taking corrective actions to remove discrepancies

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Economic Evaluation of Region and Trends Prevailing in Industry

Analysis of past performance of the company and its competitive position

Establishment of objectives

Preparation for financial programs; Cash flow, Capital investment, Financing requirements

Preparation of operating programs; Sales, Operating Cost, Inventory, Research and Development

Designing operational as well as investment plans to fulfill objectives

Translation in to operating and financial budgets

Consolidation in to operating and financial budget

Management review of consequences

Preparation of reports regarding controlling

Approval for publication

Adjustments of programs required

Review of variances

Taking corrective actions to remove discrepancies

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Cash Budget
Following is the Cash Budget for the case provided:

CASH BUDGET
CASH IN HAND SALES LABOR OVERHEADS CUTLERY INTEREST CASH IN HAND 5,000.00 526,513.50 157,954.05 131,628.38 100.00 25,000.00 216,831.08

ADD LESS

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Budgeted Income Statement

BREAKFAST LUNCH NO. OF SEATS PRICE SALES PER DAY FROM DINE-IN SALES PER DAY FROM TAKE AWAY

THU 3.00 4.00 30.00 9.50 1,995.00 292.50

FRI 3.00 4.00 30.00 9.50 1,995.00 292.50

SAT 3.00 4.00 30.00 9.50 1,995.00 292.50

SUN 3.00 4.00 30.00 9.50 1,995.00 292.50

MON 2.00 2.00 30.00 9.50 1,140.00 292.50

TUE 2.00 2.00 30.00 9.50 1,140.00 292.50

WED 2.00 2.00 30.00 9.50 1,140.00 292.50

TOTAL SALES PER DAY TOTAL SALES PER WEEK FULL POTENTIAL SALES PER MONTH ASSUMING 4 WEEKS A MONTH

2,287.50 13,447.50 53,790.00

2,287.50

2,287.50

2,287.50

1,432.50

1,432.50

1,432.50

January February March April May June July August September October November December

Potential 40% 50% 60% 70% 80% 90% 100% 100% 100% 100% 100% 100%

Sales 21,516.00 26,895.00 32,274.00 37,653.00 43,032.00 48,411.00 53,790.00 53,790.00 53,790.00 53,790.00 53,790.00 53,790.00

TOTAL ANNUAL SALES HOLIDAYS/ SALES LOST TOTAL SALES ANNUAL

532,521.00 6,007.50 526,513.50

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Income Statement for the Year Ending December 2013

TOTAL SALES ANNUAL LESS: COGS INITIAL INVENTORY PURCHASES CLOSING INVENTORY GROSS PROFIT LESS OTHER EXPENSES: LEASE LABOR OVERHEADS INTEREST DEPRICIATION (Straight-line) CUTLERY LOSS TOTAL EXPENSES PROFIT 2,000.00 157,954.05 131,628.38 25,000.00 6,000.00 100.00 322,682.43 42,877.03 526,513.50

5,000.00 157,954.05 2,000.00 365,559.45

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Balance Sheet Asset Non-Current Assets Leased Property Furniture and Fittings Kitchen Equipment China, Glass, and Cutlery Current Assets Inventory Cash In Hand Total Assets Liabilities Lon-term Liability Long-Term Loan Short-term Liability Equity Capital Total Liabilities Plus Total Equity

100,000.00 50,000.00 10,000.00 1,000.00 2,000.00 5,000.00 168,000.00

68,000.00

100,000.00 168,000.00

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Net Present Value

The table below, include the Net Present Value. As, PV = FV / 1+i^n NPV=um of All Present Values Initial Investment

YEARS CASH FLOWS PVS INITIAL INVESTMENT NPV

1 216,831.08 198,927.59 168,000.00 401,826.00

2 225,504.32 189,802.47

3 234,524.49 181,095.94

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Sensitivity Analysis
Following is the impact for changes in the figures, provided in the case.

Sale Per Day From Take Away If Average Transaction Cost drops to 3.00 THU 2,265.00 FRI FRI SAT SAT SUN MON SUN 2,265.00 2,265.00 2,265.00 1,410.00

270.00 TUE MON 1,410.00 WED TUE 1,410.00 WED

Total Sales Per day at 3.00

TOTAL SALES PER WEEK Total Sales Per week at 3.00 FULL POTENTIAL SALES PER MONTH ASSUMING 4 WEEKS A MONTH Assuming 4 WEEKS A MONTH at 3.00

13,447.50 13,290.00 53,790.00 53,160.00

POTENTIAL

JAN 40%

FEB 50%

MAR 60%

APRIL 70%

MAY 80%

JUNE 90%

JUL 100%

AUG SEP OCT 100% 100% 100%

NOV 100%

DEC 100%

Months Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Sales
21,516.00 26,895.00 32,274.00 37,653.00 43,032.00 48,411.00 53,790.00 53,790.00 53,790.00 53,790.00 53,790.00 53,790.00

Sales at 3.00
21,264.00 26,580.00 31,896.00 37,212.00 42,528.00 47,844.00 53,160.00 53,160.00 53,160.00 53,160.00 53,160.00 53,160.00

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CASH BUDGET
Revised

ADD

CASH IN HAND SALES

5,000.00 526,513.50

5,000.00 519,489.00

LESS

LABOR

157,954.05 166,236.48 131,628.38

OVERHEADS CUTLERY INTEREST CASH IN HAND

100.00 25,000.00 216,831.08

131,628.38 100.00 25,000.00 201,524.15

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TOTAL ANNUAL SALES TOTAL ANNUAL SALES at 3.00 HOLIDAYS/ SALES LOST HOLIDAYS/ SALES LOST at 3.00 TOTAL SALES ANNUAL TOTAL SALES ANNUAL at 3.00 LESS: COGS INITIAL INVENTORY PURCHASES PURCHASES at 35% CLOSING INVENTORY GROSS PROFIT GROSS PROFIT revised LESS OTHER EXPENSES: LEASE LABOR LABOR at 32% OVERHEADS INTEREST DEPRICIATION CUTLERY LOSS TOTAL EXPENSES TOTAL EXPENSES revised PROFIT PROFIT revised

532,521.00 526,284.00 6,007.50 6,795.00 526,513.50 519,489.00 5,000.00 157,954.05 181,821.15 2,000.00 365,559.45 330,667.85

2,000.00 157,954.05 166,236.48 131,628.38 25,000.00 6,000.00 100.00 322,682.43 330,964.86 42,877.03 34,594.60

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