Tools of Financial Management
Task 1: Gathering relevant information for budget
A. Previous budget
Figure 1: Sales budget for Sorts International Ltd
(Source: Wallstreetmojo.com, 2019)
The above figure of budget example shows a ‘sales’ budget of a sports company. It is clearly understood that particulars for budget need to be pointed out and expenditure to be incurred are to be mentioned. This will help in producing a rough draft of budget.
B. Planned activities
Activities for budget are to be planned at the very beginning. This is because without an activity plan, budget could not be drafted. Plans help in deciding upon direction of budget and processes to be involved for budget formation.
C. Sales forecasts
Predicting sales for an intended budget is necessary because a budget is formed with aim of revenue creation (Huikku et al. 2017, p.435). This creates need to predict sales for budget that will help to have a rough idea regarding profitability of budget.
D. Current staffing levels and their costs
In order to help a budget to progress, employees are needed who will work based on an agreed pay scale. This creates need to stratify staff into levels of hierarchy where talented and skilled staffs will form part of upper hierarchy. Their pay scale will be high because of their productivity and experience. These points need to be carefully considered while creating a budget.
E. Overhead costs
Budget formation involves several overhead costs like premises, equipments, utilities and other necessities. These costs could be said to be extra but necessary. This creates need for maintaining a separate amount of money for them (Newcomer et al. 2015, p.636). This amount of money is to be clearly mentioned while formulating a budget so that it may be accessed when needed.
F. Supplier data
In any budget, raw materials are needed for proposed processes. In order to gather raw materials, supplies are to be contacted. This creates need for gathering supplier data so that good quality raw materials could be purchased at minimum available costs. This will make budget cost effective.
G. Organisational sales forecasts, strategies and targets
Target for organization is essential for formation of proper budget that will help in achieving organizational goal and objectives. Strategies are to e identified while formulating budget so that they may help in attainment of organizational goal and objectives. Sales forecasts is also important for organizational budget so that purpose of formulating budget is not defeated and healthy profits are made when budget is put into action.
H. Industry and market trends
A budget is based on certain industry. This create need to identify industry’s market trend. Proper identification of this will lead to formation of a consolidated budget that will be less likely to fail. For example, in case of toy industry where it is a “Red Ocean”, budget will significantly differ than that in case of a “Blue Ocean”. Reason for this difference is that Blue Ocean is more conducive than Red Ocean because of Red Ocean being highly competitive (Eskandari et al. 2015, p.139).