Budgets & Business
Planning
GCSE Business Studies
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Revision Presentations 2004
What is a Budget?
A vital part of the way a business is managed
An agreed plan for future expenditure and income from sales
Allocates resources for spending and investment based on
expected business activities in the coming year
Based on objectives of business
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Using Budgeting to Control a Business
Budget helps managers to measure whether they are
achieving what they set out to achieve
If they are under or over budget they can take steps to correct
position
Budget also helps managers allocate resources at start of a
period, e.g.
 In which areas is business going to invest
 How much will be spent on marketing & promotional activities
this year
 How many employees does the business need – what will they
be paid?
Provide a way of allocating responsibility among employees
 E.g. managers are given their own budgets and are responsible
for controlling how the budget is spent / achieved
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Main Business Budgets
Sales budget
 Breakdown of how many products business aims to sell & how much
revenue it will get from those sales
Marketing budget
 Describes how business intends to achieve budgeted sales (e.g. how
much advertising, sales promotion)
Production budget
 Volume of production (units) and production costs to achieve it
 Used to help schedule work, order raw materials and manage capacity
Departmental cost budgets
Cash flow budget
 Ties all other budgets together
 Helps understand what money is coming in (sales) and what money is
going out (production and departmental)
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Budgets and Motivation
Budget - a non-money motivator
Provides a focus and a sense of achievement when it is
reached
Rewards in form of bonuses can be linked to achievement of
budgets
Encourages employees to contribute more towards overall
profitability of business
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Preparing a Cash Flow Budget
Opening balance -How much cash business has at start of
time period
Cash inflows - How much cash is coming into business from
product sales, sales of assets, loans from bank, grants from
government, and other sources of finance
Cash outflows - How much cash is going out of business,
such as expenses, wages, raw materials, buying new
machinery, tax payments and dividends
Closing balance - How much money is left at end of month
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Example of a Cash Flow Budget
Opening Balance brought forward
April
£'000
1,250
May
£'000
1,350
June
£'000
1,500
July
£'000
1,700
Cash Inflows
Sales
2,500
3,000
2,500
2,250
Cash Outflows
Raw Materials
Production Wages
Factory Overheads
Other Overheads
1,150
750
250
250
1,500
850
250
250
1,150
700
250
200
950
700
250
200
Total
2,400
2,850
2,300
2,100
100
150
200
150
1,350
1,500
1,700
1,850
Net Cash Inflow / (Outflow)
Closing Balance
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GCSE Business Studies
What is a Business Plan?
A business plan sets out how a business is going to achieve
its aims and objectives
It is extremely useful a new business to use a plan because it
can be used to show potential investors how their money is
going to be spent
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Contents of a Business Plan
Statement of aims and objectives
Analysis of the market
 Size, growth and segmentation
 Competitors – activities, strengths, weaknesses
Marketing strategy




Products
Pricing strategy
Promotional mix
Distribution plan
Operational strategy
 Production / capacity
 Costs
Finance
 How the business plan will be financed
 Risks and opportunities – and how they are reflected (if at all) in the plan
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GCSE Business Studies
Business Plan and Banks
Before a bank will lend money to a business it will want to
know if it will get money back
A business plan serves several purposes in this case:
 Fleshes out business idea so bank can see whether it is likely to
work financially
 Shows bank whether future profits will cover interest on loan
 Shows bank when it can expect to be repaid
 Shows where information comes from and whether it is reliable
Business plan must be presented in such a way as to
convince bank that intentions of business are serious and
achievable
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Improving Cash Flow
Agree an overdraft or increase an existing overdraft from
bank
Extend length of time taken to pay suppliers
Reduce price of some products to get quick sales
Sell to customers for cash rather than offer trade credit
Sell some equipment
Reduce stock levels
Buy cheaper raw materials
Allow debtors discounts for early payment
Operate tighter customer credit controls
Use debt factoring
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