SITXFIN003

Manage finances within a

budget
WHS
• Fire exits
• Fire extinguishers
• First aid
• In a case of emergency, follow evacuation guide
and remain calm
• Taking breaks
Getting to know you
• Get to know the person seated next to you
• Find out 3 interesting things about the
person seated next to you
• Share what you know to the class
Allocate budget resources

1.1 Allocate funds

according to budget and
agreed priorities
Budgets

Types of budgets may include:

• Departmental budgets
• Event budgets
• Project budgets
• Purchasing budgets
• Sales budgets
• Wage budgets
• Whole of organisation budgets.
Allocating funds based on priorities

Remember:
• You will need to have a clear idea of what your organisation’s
strategic priorities are, as this will determine the funds you allocate
to different areas of the company
• Your organisation’s priorities will usually be summarised in mission
statements, vision statements, and work plans.
Priority examples

For example, priorities may include:

• Promoting a new product or service (marketing)
• Expanding your department through increasing staff numbers
(human resources)
• Developing a new product (development)
• Improving product/service quality
• Improving customer communications.
Activity 1A
Allocate budget resources

1.2 Discuss changes to

income and expenditure
priorities with
appropriate colleagues
prior to implementation
Who to hold discussions with

Normally, you will need to discuss priorities with:

• Managers from all relevant departments
• Accounting professional (internal and external)
• Owners
• Stakeholders
• Purchasing staff
• Marketing staff
• Specialists (internal and external)
• Spokesperson for employees.
Discussions

Remember:
• Usually, the best format for holding discussions is a formal, face-to-
face meeting, which involves all decision makers and key
stakeholders
• A formal meeting allows all parties to field ideas and raise
concerns/disagree when necessary, as well as allowing those
attending to raise questions and clarify points.
 Expenditure changes
All personnel will need to know:
• How to make expenditure choices that contribute to the organisation’s
overall goals
• Which areas require reduced spending and cutbacks
• Which priorities will require extra funding and why
• Time periods for priority funding and expenditure
• Exact monitoring methods to ensure they remain within budget
• How they need to record and report expenditure.
Activity 1B
Allocate budget resources

1.3 Consult with and

inform relevant
personnel about
resource decisions
Resource decisions

Resource decisions may involve:

• Human resources
• Physical resources
• Non-physical assets
• Marketing and advertising.
Informing personnel about resource decisions

You will need to inform all personnel about resource decisions so

that:
• They can make appropriate financial decisions in their own
departments
• All parties can work toward the same organisational goals.
Activity 1C
Allocate budget resources

1.4 Promote awareness

of the importance of
budget control
Promoting awareness of budget control

You will need to stress the importance of:

• Expected income in a specified period
• Expected overheads
• Funding allocation
o how much funding each department will get, for example
• Recording and reporting
o all personnel should be clear and confident about how financial data is
recorded.
Explaining budgets

You may need to explain:

• Cash budgets
• Departmental budgets
• Wage budgets
• Project-specific budgets
• Purchasing budgets
• Sales and revenue budgets
• Cashflow budgets.
Activity 1D
Allocate budget resources

1.5 Maintain detailed

records of resource
allocation according to
organisational control
systems
Recording resource allocation

The expenses records that need to be kept include:

• Purchase orders
• Delivery docket/invoice/statement
• Internal requisitions
• Interdepartmental transfers
• Creditors ledger.
Tracking physical resources

Remember:
• Every item of equipment bought should be given an identifying
number or code and when the item is issued to a department, its
whereabouts should be recorded in a dedicated assets register
• Items covered by this register may include cars, in–room facilities
(such as beds, televisions and fridges), technology, and office
equipment.
Activity 1E
Monitor financial activities against budget

2.1 Use financial records

to regularly check actual
income and expenditure
against budgets
Monitoring financial records

Types of financial records you may have to check include:

• Trial balance
• Receivable reports
• Purchase summary reports
• Stock reports
• Variance reports
• Wastage reports.
Monitoring financial records (2)

Types of financial records you may have to check include:

• Sales reports
• Business activity statements
• Labour and wages reports
• Cash flow statement
• Bank statements
• Bank deposit documentation
• Credit card transaction statements.
 Check expenditure against budgets
Remember:
• Your main concerns should be to check that spending has not exceeded
predicted levels, and that spending has been focussed on agreed
priorities and overall business goals
• You will need to pay particular attention to the primary areas of
expenditure, including labour costs, purchasing, rent, technology and
maintenance.
Checking income against budgets

Remember:
• It is equally important to make checks on all money coming into the
organisation – including money yet to be paid – to ensure that overall
income is meeting forecasted levels
• This must be done to make sure that enough money is coming in to
fund planned business activities.
Activity 2A
Monitor financial activities against budget

2.2 Include financial

commitments in all
documentation to
ensure accurate
monitoring
Including financial commitment in all
documentation
Remember:
• It is important to include all financial commitment into
documentation to provide a real and accurate status of income and
expenditure
• A financial ‘commitment’ is made when an order is made or a
contract is signed for goods/services, with payment agreed to be paid
at a later date.
Examples of commitments

Examples of commitments include:

• Billed services from external professionals
• Stock orders made
• Anything bought on credit
• Rental agreements
• Purchasing of intellectual property rights.
Activity 2B
Monitor financial activities against budget

2.3 Identify and report

deviations according to
significance of deviation
Variances and deviations

Variances and deviations can be caused by:

• Sales volume changes
• Materials and supply changes
• Labour
• Disaster/emergency.
Significance of deviations

You will need to:

• Identify the size of the variances to understand the likely impact on
budgets
• Establish whether you are dealing with variances that have positive
or negative effects on the budget
• Establish whether variances can be controlled and whether any
action you take is likely to make a difference.
Reporting deviations

To report deviations, you may:

• Organise face-to-face meetings to report budget deviations
• Send reports by email
• Report details by phone
• Send graphs, charts, and updated financial documents.
Activity 2C
Monitor financial activities against budget

2.4 Investigate
appropriate options for
more effective
management of
deviations
Managing deviations

Remember:
• The options you have for managing deviations will largely depend on
whether variances are favourable or unfavourable, and the
significance of deviations
• In most cases you will have to adjust your budget for the next quarter
immediately, usually by altering the estimates for expenditure.
Managing small to mid-size deviations

Options for managing small to mid-size deviations

include:
• Reducing funding from specific resources, areas and
departments
• Increasing funding in resources, areas, and
departments
• Increasing/decreasing expenditure and income
estimations
• Reducing wastage
• Reducing/increasing number of goals/priorities for
the period.
Managing large deviations

You may need to:

• Make significant changes to the budget
o this may mean:
▪reducing or increasing funding
▪accepting overspending in a time period
▪scrapping or rethink priorities
▪scrapping projects
▪rethinking purchasing, wage increases, new
staff.
Activity 2D
Monitor financial activities against budget

2.5 Advise appropriate

colleagues of budget
status in relation to
targets
Advising colleagues of budget status

Remember:
• Just as it is important to inform your colleagues about budgetary
forecast and agreed priorities, it is also important to update them on
a budget’s status in relation to targets
• Regularly updating key stakeholders about a budget’s status will
ensure that all key decision makers remain aware of current activity,
and this will often help to keep them focussed on targets.
Circulating budget status reports

You may choose to inform:

• Senior management
• Mid-level management
• The accounts department
• A budget committee
• Any other relevant staff members.
Activity 2E
Identify and evaluate options for improved
budget performance

3.1 Assess existing costs

and resources and
proactively identify
areas for improvement
Assessing existing costs and resources

You may need to assess expenditure areas such as:

• Labour costs
• Marketing and advertising costs
• General overheads, such as lighting and heating
• Administration costs
• Customer communications
• Returns and refurbishment
• Technology.
Identifying areas for improvement

Areas where improvements can be made include:

• Cutting wastage
• Organisational goals
• Internal communication
• Organisational structure
• Human resources.
Activity 3A
Identify and evaluate options for improved
budget performance

3.2 Discuss desired

budget outcomes with
relevant colleagues
Holding useful discussions

Effective discussions require you to:

• Value everyone’s opinions
• Involve the correct people
• Communicate clearly
• Compromise when necessary
• Use active listening techniques
• Be open-minded
• Trust colleagues.
Discussing budget outcomes

You should ask:

• What is the budget supposed to achieve?
• Is the budget achieving what it is meant to?
• What action needs to be taken if budgets are not achieving what they
are supposed to?
Activity 3B
Identify and evaluate options for improved
budget performance

3.3 Undertake
appropriate research to
investigate new
approaches to budget
management
Researching new approaches

Research includes:
• Looking at what competitors do
• Consulting experts and colleagues with more experience and
knowledge
• Using learning materials to find out about accepted theories.
Activity 3C
Identify and evaluate options for improved
budget performance

3.4 Define and

communicate the
benefits and
disadvantages of new
approaches
 Defining the benefits of new approaches
Defining the benefits of new approaches will require you to:
• Express why they are better than old approaches
• Point out why new approaches are more accurate in estimating income
and expenditure
• Communicate why new approaches will increase efficiency and decrease
wastage
• Explain how new approaches will help to prioritise organisational goals
and objectives
• Determine how monitoring, reviewing, and reporting will improve with
the adoption the new approach.
Defining and communicating the
disadvantages of approaches
You may need to communicate:
• Why new approaches/strategies can lead to lack of control or
incorrect budget estimations
• When disadvantages are likely to occur
• What areas of the organisation or budget the disadvantages are likely
to occur in
• How staff can act to minimise the impact of disadvantages
• Key monitoring and reporting protocols which will help to minimise
the impact of disadvantages.
Activity 3D
Identify and evaluate options for improved
budget performance

3.5 Take account of

impacts on customer
service levels and
colleagues in developing
new approaches
Impact on customer service

Be aware, new approaches can lead to:

• More/less funds for human resources
• More/less funds for communications
• More/less funds for technology
• More/less funds for purchasing materials
• More/less funds on customer areas – such as shop floors, eating
areas, and payment areas.
Impact on colleagues

Remember:
• There is often an adjustment process, in which employees have to
learn, accept and feel comfortable with new methods and strategies
• Communicating what changes are expected and why those changes
are happening, will improve chances of colleagues understanding and
supporting any new approaches.
Activity 3E
Identify and evaluate options for improved
budget performance

3.6 Present clear and

logical
recommendations for
budget management
Presenting evidence of clear weaknesses

Focus on any financial data (contained in financial documents) which

shows:
• Poor estimations of costs and income
• Examples of overspending
• Examples of significant variances and deviations
• Examples of wastage
• Examples of poor funding allocation
• Examples of objectives and goals that have not been met because of
poor control of finances.
Presenting evidence of benefits associated
with proposed changes
You should focus on backing up your recommendations by:
• Focussing on why proposed changes will work for your organisation
• Using examples of how approaches and strategies have worked in
other organisations
• Presenting experts’ views as to why your recommendations will work
• Showing how new approaches will benefit both customers and
employees.
Activity 3F
Complete financial and statistical reports

4.1 Complete financial

and statistical reports
within designated
timelines
Completing financial and statistical reports

You should be comfortable with creating:

• Trial balance
• Receivable reports
• Purchase summary reports
• Stock reports
• Variance reports
• Wastage reports.
Completing financial and statistical reports (2)

You should be comfortable with creating:

• Sales reports
• Supporting reports, such as covers, occupancy rates, staff costs and
units sold
• Business activity statements
• Labour and wages reports
• Cash flow statement.
Activity 4A
Complete financial and statistical reports

4.2 Prepare and present

clear and concise
information to enable
informed decision
making
Using information to inform decision making

Remember:
• All financial decision-making relies on accurate and up-to-date
information and data, so you must be adept at preparing and
presenting that data to ensure that it is clear, easy to understand, and
available when it is needed.
Preparation and presentation

You may choose to present information and data in:

• Written summary reports
• Charts
o such as pie charts
• Graphs
o such as bar graphs
• Digital tables, where data is sortable.
Activity 4B
Questions