1.1 What Are Budgets?
(By Lydia Wanjiru)
They are predictions of future income and expenses and cash flow. They also predict future performance with financial forecasts and projections and with financial models. The process of creating a weekly departmental schedule can be time consuming. It’s difficult to juggle various financial guidelines as well as ensure optimum staffing levels to properly serve guests without a budget. The front office ‘transaction’ is simply the time it takes to check a conference guest in and/ or out of the hotel. A budget is a financial document used to project future income and expenses. The budgeting process may be carried out by individuals or companies to estimate whether the person/ company can continue to operate with its projected income and expenses. A budget may be prepared simply using paper and pen or computer using a spreadsheet program like excel or with a financial application like QuickBooks The process of preparing a monthly budget includes
Listing of all the sources of monthly income
Listing of all required fixed expenses like expenses like mortgage/ rent utilities, phone expenses etc Listing of other possible and variable expenses
Budgets are plans of action for business organizations. Without a budget a business is literally in the dark when it comes to trying to plan expenditure for the business and to match them to sales revenue.
2.0 CASE STUDY
2.1 Here's how budgeting and business planning helped my business grow (By Rachel Obonyo)
Gideon Kasfiner launched First Luggage, a door-to-door luggage collection and delivery service, in 2004. The business now employs nine people and turns over £2 million a year. Here Gideon explains how financial planning has helped him grow his business in a controlled way. What I did
Worked to an annual and monthly timetable
"I start doing my annual budgets three months before the year end. I look at the current year and see whether we are going to increase sales, and if we are how it's going to increase our costs, and so on. My accountant actually sets the budgets though, from the figures I give. "Then, every month, I sit down with my management accounts. I look at my actual income and expenditure, compare them with my projections and look at the variance. I can see under every budgetary heading where things have gone up or down and I can make appropriate decisions. "So, for example, we may have budgeted sales of £200,000 for one month but only made £170,000. I might, for example, look at the marketing budget and do some more advertising. I might take a service out where costs are high, or even put prices up. It's all about juggling." Built a detailed picture of my business
"I work with as many budget headings as I can. On the sales side, I break the figures down into the different products we deliver – suitcases, prams, golf bags, and so on. Then I can see exactly where revenue is coming from. I'll also look at the top 15 countries I'm delivering to. "On the cost side there are all sorts of headings, from transportation to fuel surcharges, office rent, salaries, and PR and marketing. "It's not easy doing things this way, but it gives me a better picture of my business and I have more areas to juggle with. Flexibility is very important." Budgeted for loss of business
"After doing the annual budgets, I do them again with a 20 per cent drop in sales to see what the impact would be on the cash flow if there are any changes in the market. I want to make sure I'm being as prudent as I can be with my cash. "My mind is always looking at the downside as well as the upside. If I have a month that hasn't come up to where it should, my comfort zone is that I can do something about it." What I'd do differently
Work with a colleague on monthly reviews from the start
"Initially, I did the monthly reviews on my own and then I started doing them with a commercial colleague. Ideas are better when you have two heads...