Tag Archives: Budget

WHAT IS BUDGET?

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A budget is a financial statement, prepared and approved before a financial or accounting time period, of the expected and planned transactions of revenue and expenditure in the monetary and quantitative terms, reflecting the business policy of the Hotel/company. It can also be defined as-
· A guideline to the managers to achieve the business targets.
· A tool to the audit department /directors to measure the business success or shortfall.
· A legal statement for the investors/ share holders, of the future business plan.
· A strategic business plan for the future, after considering past activities.

Some of the basic elements of the budget are:
· It is a business specific, depending of actual situation.
· It is a future plan.[not actual]
· It is time specific. It should be for a specific period, especially financial period.
· Both the revenue and expenditure should be counted.
· Plans should include all the resources and the operations.
· It should be expressed in financial accountable terms.
· As it is a future plan, the actual result may vary from the planed one.
So we can say “a budget is a comprehensive and coordinated statement expressed in monetary terms,reflecting the policy of a hotel and determining its operation in respect of a particular trading period”. E.G.- The financial budget of the hotel abc for the [fiscal] year 1999-2000; The sales budget of the hotel star for the year 1999-2000.

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Classification of Budget

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Budgets can be classified on the basis of different factors as below –

1)      On the basis of Subject matter :-

a)      Capital Budget: Capital budgets are  concerning with assets and liabilities of the business and are incorporated into the budgeted balance sheet for the fiscal year. These budgets deal with the assets and capital funds of the hotel. Budget for plant, equipment, cash and stocks etc. are, therefore, capital budgets. It reflects the long term business policies.

b)      Operating Budget/ Operational Budget:These are concerned with income, expenses and profits and may be divided into the different operational sectors like sales, purchase, Office administration, Labour/HR, Maintenance etc. Budgets are prepared for the various revenue producing departments. Some of the examples are –Purchase Budget, Sales Budget, Labour Cost Budget, Office Expenses Budget etc. It reflects the short term business policies.

2)      On the basis of Scope/ sections:-

a)      Master Budget

i)        Income-expenditure Budget/ Profit & Loss Budget.

ii)      Assets-Liabilities Budget/ balance sheet Budget.

b)      Departmental Budget / Functional Budget. It is in respect of single department or function of the operation.

i)        Banquet Budget;

ii)      Sales Budget;

iii)    Purchase Budget;

iv)    Operating Budget.

3)      On the basis of behaviour

a)      Fixed Budget: a Budget which is independent on the level of turnover is known as fixed Budget. It is based on one set of conditions, one volume of output, and simple collection of costs such as-

i)        Advertising Budget,

ii)      Office Administration Budget,

iii)    Maintenance Budget.

b)      Flexible Budget: A Budget which provides for several possible levels of turnovers and predetermines costs or cash flows is known as flexible Budget. It contains different estimates in different assumed circumstances. For examples- labour cost Budget in a resort hotel.

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Budgetary control

 

                Budget is a statement of proposed activity of the business in financial terms. It is also a tool of financial planning and control. It sets standards or targets of the business activities, to ensure an optimum but economical use of the business resources. Thus it is used to measure all the outcomes of the business activities against the actual. These deviations are termed as variance. All the differences between the actual and the budgeted are simply termed as budgetary variance. Here comes the control, or budgetary control. Depending on the variance senior managers needs to implement strategies to make the results more in favour. Some of the common strategies may includes like selling price reviews, cost factors reviews, changing the responsibilities of the outlet managers etc. some of the common budgetary control measures are –

  1. Make & review the proposed budget, and define the departmental targets in respect of expenditure, sales volume, revenue etc.
  2. Brief the departmental heads about their targets and discuss the possible ways to achieve it.
  3. Keep records of all the measurable activities on the regular/daily basis like, volume of production, processes, sales, purchase, store, errors, time of production etc.
  4. Make the variance report periodically and analyse to find out the loopholes and possible reasons there off.
  5. Implementing new policies or amending the present one to minimise the deviation.
  6. Follow the activities again and repeat the variance analysis periodically.

 

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