How To

Manage Budgets & Cash Flows

Presented by
Deepak K.J
TPS 22010

About Author
PETER TAYLOR
Senior Project
Manager
Tonbridge, United
Kingdom Information
Technology and
Services
CONTENTS
1. Budget and cashflows: what are they?
2. Introducing business accounts
3. Managing VAT
4. Introducing budgets
5. Budgeting for overheads and capital items
6. Managing cashflows
7. Monitoring performance
8. Using computer to prepare budget and cash flow forecasts
9. Budgeting for all
BUDGET & CASHFLOW
A budget is a financial document used to project future income
and expenses. It plans future saving and spending as well as
planned income and expenses. Budgeting may be carried out by
individuals or by companies to estimate whether or not they can
continue to operate with its projected income and expenses.

Cash flow is the measure of money flowing in and out of your
business at any given time, especially as affecting liquidity. Good
cash flow is achieved by managing cash. resource effectively.
Contd.
Managing the cash
Ensure the business is running profitability.
Collecting receivables- ensuring that to receive payments on
time.
Taking available credit on purchase.
Correct management and financing of capital project.
Increasing sales
Contd.
Why prepare budget for your business
Planning your business- you can plan the development of
your business and make sure that your ideas will work.
Monitoring the progress of your business- you can check the
actual progress against your target.
Managing the business-

INTRODUCING BUSINESS ACCOUNTS
Profit and loss account : It show the summary of the
trading income and expenditure for the period. When dealing
with budgeted profit and loss account it is often useful to
split the transaction into monthly periods. In this way it is
easier to monitor the actual progress of the business
compared with the budget.
Balance sheet : balance sheet is the snapshot of the business
at a point of time. It show asset and liabilities at that
movement. Asset are all the things which belong to the
business. Liabilities are the amount awed by the business to
others.
Contd.
Income and expenditure
Capital income : It is the income that comes from capital, which
is to say, coming from wealth itself, rather than any specific
production or direct work. Capital income includes stock
dividends or any sort of capital gains, as well as income an owner
gets from a business they own.
Revenue income : Income generated by sales of goods or
services. When business sells the goods that it has manufactured
as it trade then this is revenue income.
Capital expenditure: It is the purchase of fixed asset which will
be used by the business and have a lasting effect for several
years.
Revenue expenditure: it is expenditure that is concerned with the
costs of doing business on a day to day basis.
Contd.
Typical profit and loss account
Trading accounts: this is the part of report show gross profit.
gross profit is the difference between the value at which goods
have been sold by the business and cost of those goods.
Overheads: those cost of business which are not directly
related to the level of trade.
Contd.
Typical balance sheet
Fixed asset: these are capital asset such as land & buildings,
plant & machinery, goodwill etc.
Current asset: this means the other non capital class of asset
of the business.
Current liabilities: this category includes amounts owed to
suppliers (creditors) etc. and short term financing such as
bank overdraft.
Long term liabilities : are liabilities with a future benefit over
one year, such as long term loans, notes payable that mature
longer than one year.
MANAGING VAT
VAT : it is the net effect of set of input and output tax is to levy a
tax on the value added.
Accounting for VAT
Tax point system: this is the normal system. Under this scheme
the time you must account for vat is fixed by time of supply, or
tax point as it is known.so the Vat must be accounted for in the
VAT period that the goods are sold regardless of the time that the
invoice is actually paid.
Cash accounting scheme: under this system you only account
for the time that the cash transaction take place. If you purchase
goods on credit you are not permitted to reclaim input tax until
you actually pay for the goods.
INTRODUCING BUDGETS
Budgeting is to forecast what is going to happened and see the
financial implications. Then it is forecast to plan the way that the
business will develop in the future. Forecasting budget is the set
of financial plan to build the business.
Links in the budgeting
Sales budget production budget
It is needed to consider the production capacity when setting the
sales budget. It will be no good forecasting sale of your product
at 5000 per week if you can only make 3000.

Contd.
Sales budget cost of sales
There is close links between these two budgets. Ex: it will be no
good setting the selling price of goods at such a level that it is
below the cost of producing an item, and it will lose money on
every item sold.
Overheads sales budget
The overheads of business will be incurred almost whatever the
level of turnover. the cost of overheads will be carried by the
sales of the product.

Contd.
Steps involved in preparing the budget
1. Decide the period that should be covered by budget 1 year.
Also decide what periods the budget is to be divided into- for
example 12 months.
2. Forecast activity levels and income from trading and other
sources for each of the periods.
3. Having establish the level of sales for each month you must
now forecast the cost of sales.
4. Next forecast the level of each of the overhead expenses.
5. Finally confirm that your plan fit into your cash budget
BUDGET FOR
OVERHEADS AND CAPITAL ITEMS
Budgeting for overheads: it is to
consider the indirect costs.
Indirect cost includes
Stationary
Clerical wages
Management & supervisory
salaries
Rent & rates
Travelling
Bank charges



Motor expense
Depreciation
Audit & legal fees


Contd.
Each of the overheads must be considered in turn and relevant figure built into
overhead budget.
Administration budget
12months to 31 march 20xx
Previous years
actual
Current
budget
MATERIALS:
stationary
Sundries
SALARIES & WAGES
management
clerical
EXPENSE
Rent and rates
Telephone
deprecations
Insurance
Bank charges

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Contd.
Budgeting for capital items
Capital budget deals with the provision of new machines,
extensions to factory, replacement of motor van etc.
How capital expenditure affects profits
By increasing depreciation charges: it will recall that
depreciation reflect the loss in the value of fixed assets
during the period.
By interest charges: investment in new equipment or
buildings will involve some form of finance which will in
turn have an interest charges of some effort.
MANAGING CASHFLOWS
Introduction to cashflows
The Cashflow forecast runs hand in hand with the budgeted profit
and loss account.
The profit and loss account takes account of transactions at the
time that the expenses accrues to the business and the income is
earned.
The cashflow forecast deals with the transactions at the time of
payment.
The cash flow forecast must also take account of capital
expenditure for the equipment for use in business.

Contd.
Preparing cashflow forecasting
The first thing to decide is the period of forecast that might be
three months , six months or an year.it should also decide how
many periods you are going to break the forecast into. A short
forecast can be prepared with a lot of detail and reasonable
degree of accuracy. A forecast looking forward for six or twelve
months and divide into monthly periods is more normal and
should give a good general indication of the cashflow trend of the
business.

MONITORING PERFORMANCE
Monitoring cashflow forecast
In a cashflow forecast there should be projected column and actual column
and at the end of the month it should complete the appropriate column with
actual income received from cash sales and debtors, and the expenditure
actually paid. Then compare how each item has performed against the
forecast. If the difference is substantial it should investigate why.

Monitoring budget
Effective budget monitoring reports provide vital information about
spending patterns that help management to make realistic forecasts of year-
end under or over spends. Monitoring a budget by Comparing of actual
expenditure and actual income against the budgeted income and
expenditure. If there is a big variation from the budgeted figures then you
should rework the cashflow to ensure that the necessary finance will be
available or to provide you with adequate warning so that alternative
arrangement can be planned.
USING COMPUTERS TO PREPARE
BUDGET AND CASHFLOW FORECAST
Using spreadsheets to help to prepare the budget and cashflow. It
can help with complex calculations and you can see at a glance
incomings and outgoings. It also means that any changes to
figures can be automatically updated in calculations by the
spreadsheet so that it does all the hard work. Many math function
are supported in spredsheet to prepare budget.
Advantages of using spreadsheets
Once you have mastered the skill needed for the program it
is quick to use.
It removes the tedious math with its inherent possibilities of
mistakes through human error.
It is easy to modify budget.

Contd.
The use of computer in preparing budget and cashflows
is to be recommended provided that they are used with a
degree of caution. If we know how to use spreadsheet
program it can save a lot of time.
BUDGETING FOR ALL
It is becoming more important that to administrators of public
service organization appreciate the benefit and pitfall of budget
and Cashflow in relationship to them. Budget can be prepared for
many different types of organization- not just business but
schools, hospitals, and domestic households .

Managing school budgets
Managing hospital budget
Managing household budget

Thank You