Ned Kelly Business Plan Benefits of Budgeting - Essay Example

? Ned Kelly Business Plan – Benefits of Budgeting Ned Kelly How Budgeting Aids in Achievement of Business Goals Attaining the goals set for a business is a priority of every entrepreneur, and various methods and managerial techniques are being quoted by experts as to how an entrepreneur can ensure the attainment of his or her business’ objectives. Budgeting is a widely preferred tools of managers managing business operations whether for small, medium or large corporate entities. In this report, various benefits of budgeting and the way it helps in forecasting has been presented along with cash budget and forecasted income statement for the Taxi Business. Budgeting in business is beneficial not only because it enables projecting the yearly expenses to be incurred while following a certain plan, but it also allows to determine how costs will incur and how can they be controlled resulting in efficient operations (Dury, 2008; Albrecht et al., 2008). As for instance, without doing any budgeting of the business activities, an entrepreneur may only be able to visualize to a certain extent that what expenses will be incurred and how they will be financed and what revenues would be required to keep the business profitable. But, on the other hand, with budgeting the entrepreneur is in fact able to foresee that what expenses will be incurred and how much revenues will be required to cover those expenses and at the end make profits. This in turn allows not only setting up targets for revenue generation, but also allows ascertainment of cost controlling techniques (Jiambalvo, 2010; Horngren & Harrison, 2009). In this regard, cash budgeting is considered as one of the most beneficial and important procedure to forecast the results of a certain business approach or plan on monthly basis (Horngren & Harrison, 2009). Cash budget is a precise measure and forecast of the inflows and outflows of cash for a business. It enables the entrepreneur to set targets of revenues and thereby ascertain the amount of costs which will be incurred to attain them. The monthly breakdown of cash budget further enhances the understanding of activities being carried out for revenue generation and areas requiring attention can be identified in this way (Dury, 2008). Keeping in view these benefits, cash budget can also be prepared for taxi business and revenues and expenses can be forecasted, which can be then used to ascertain the required working capital to be raised. Apart from this, as it has been noted that the owner of the taxi business requires the amount of money required to be taken from bank to be ascertained prior to starting the business. In this regard, it is pertinent to ascertain the cash inflows and outflows expected from a year’s operations and the net profit or loss which will be earned by the business. Having taken into consideration the information provided for the case, income statement and cash budget has been prepared and presented as follows for the business to be started by Ned Kelly. Income Statement The income statement forecasted for Ned Kelly’s business has been presented as follows: Forecasted Income Statement Amount Sales ? 417,312.00 Less:   Diesel (15 % of Total Sales Revenue) - ? 59,875.20 Maintenance Costs (? 120 per taxi per month) - ? 4,320.00 Annual Road Tax and Licence Fee (3 x ? 600) - ? 1,800.00 Drivers' Salaries per Month (9 x ? 24,000 / 12) - ? 216,000.00 Drivers' Social Security (10 % of Gross Annual Salary) - ? 21,600.00 Cost of Sales - ? 303,595.20 Gross Profit ? 113,716.80 Depreciation - ? 12,000.00 Office Staff's Salaries per Month (4 x ? 16,000 / 12) - ? 64,000.00 Office Staffs' Social Security (10 % of Gross Annual Salary) - ? 6,400.00 Utility Costs - ? 6,000.00 Rent - ? 18,000.00 Local Property Tax Charges - ? 5,000.00 Drawings - ? 30,000.00 Advertisement - ? 6,000.00 Net Profit - ? 33,683.20 Sources: (Albrecht et al., 2008; Dury, 2008; Horngren & Harrison, 2009; Jiambalvo, 2010) It can be observed that the above table shows a forecasted income statement and the resulting loss incurred by the business, while following the assumptions used to set up the business. This information can be considered as useful while planning to acquire funds from bank for start up. Cash Budget (From April 2013 to March 2014) The cash budget for Ned Kelly’s business plan has been prepared as follows for the period of 12 months from April 2013 to March 2014: Cash Budget   Apr - 13 May - 13 Jun - 13 Jul - 13 Aug - 13 Sep - 13 Oct - 13 Nov - 13 Dec - 13 Jan - 14 Feb - 14 Mar - 14 Opening Cash ? 5,000 - ? 12,180 - ? 7,479 - ? 509 - ? 15,016 - ? 1,545 ? 12,379 ? 1,304 ? 15,229 ? 29,153 ? 18,078 ? 32,002 Sales ? 15,120 ? 30,240 ? 30,240 ? 33,264 ? 36,288 ? 36,288 ? 36,288 ? 36,288 ? 36,288 ? 36,288 ? 36,288 ? 36,288 Diesel (15 % of Total Sales Revenue) ? 2,268 ? 4,536 ? 4,536 ? 4,990 ? 5,443 ? 5,443 ? 5,443 ? 5,443 ? 5,443 ? 5,443 ? 5,443 Maintenance Costs (? 120 per taxi per month) ? 360 ? 360 ? 360 ? 360 ? 360 ? 360 ? 360 ? 360 ? 360 ? 360 ? 360 Annual Road Tax and Licence Fee (3 x ? 600) - ? 1,800 Drivers' Salaries per Month (9 x ? 24,000 / 12) - ? 18,000 - ? 18,000 - ? 18,000 - ? 18,000 - ? 18,000 - ? 18,000 - ? 18,000 - ? 18,000 - ? 18,000 - ? 18,000 - ? 18,000 Office Staff's Salaries per Month (4 x ? 16,000 / 12) - ? 5,333 - ? 5,333 - ? 5,333 - ? 5,333 - ? 5,333 - ? 5,333 - ? 5,333 - ? 5,333 - ? 5,333 - ? 5,333 - ? 5,333 Drivers' Social Security (10 % of Gross Annual Salary) - ? 1,800 - ? 1,800 - ? 1,800 - ? 1,800 - ? 1,800 - ? 1,800 - ? 1,800 - ? 1,800 - ? 1,800 - ? 1,800 - ? 1,800 Office Staffs' Social Security (10 % of Gross Annual Salary) - ? 533 - ? 533 - ? 533 - ? 533 - ? 533 - ? 533 - ? 533 - ? 533 - ? 533 - ? 533 - ? 533 Utility Costs - ? 1,500 - ? 1,500 - ? 1,500   Rent - ? 4,500 - ? 4,500 - ? 4,500 - ? 4,500   Local Property Tax Charges - ? 1,250 - ? 1,250 - ? 1,250 - ? 1,250   Drawings - ? 2,500 - ? 2,500 - ? 2,500 - ? 2,500 - ? 2,500 - ? 2,500 - ? 2,500 - ? 2,500 - ? 2,500 - ? 2,500 - ? 2,500 - ? 2,500 Advertisement - ? 5,000 - ? 500 - ? 500   Closing Cash Balance ? 5,070 ? 4,515 ? 1,693 - ? 5,356 - ? 2,584 - ? 266 - ? 5,698 - ? 3,380 - ? 1,062 - ? 6,494 - ? 4,175 - ? 1,857 Sources: (Albrecht et al., 2008; Dury, 2008; Horngren & Harrison, 2009; Jiambalvo, 2010) Based on the above presented cash budget for 12 months, the annual cash budget has been prepared has follows: Cash Budget   Annual Opening Cash ? 12,737.07 Sales ? 399,168.00 Diesel (15 % of Total Sales Revenue) ? 54,432.00 Maintenance Costs (? 120 per taxi per month) ? 3,960.00 Annual Road Tax and Licence Fee (3 x ? 600) ? 1,800.00 Drivers' Salaries per Month (9 x ? 24,000 / 12) ? 198,000.00 Office Staff's Salaries per Month (4 x ? 16,000 / 12) ? 58,666.67 Drivers' Social Security (10 % of Gross Annual Salary) ? 19,800.00 Office Staffs' Social Security (10 % of Gross Annual Salary) ? 5,866.67 Utility Costs ? 4,500.00 Rent ? 18,000.00 Local Property Tax Charges ? 5,000.00 Drawings ? 30,000.00 Advertisement ? 6,000.00 Closing Cash Balance ? 19,594.40 Cash Sales 50 % and Credit Cards and On Account 50 % Apr - 13 May - 13 Jun - 13 Jul - 13 Aug - 13 Sep - 13 Oct - 13 Nov - 13 Dec - 13 Jan - 14 Feb - 14 Mar - 14 Apr - 13 ? 15,120 ? 15,120   May - 13   ? 15,120 ? 15,120   Jun - 13     ? 15,120 ? 15,120   Jul - 13       ? 18,144 ? 18,144   Aug - 13         ? 18,144 ? 18,144   Sep - 13           ? 18,144 ? 18,144   Oct - 13             ? 18,144 ? 18,144   Nov - 13               ? 18,144 ? 18,144   Dec - 13                 ? 18,144 ? 18,144   Jan - 14                   ? 18,144 ? 18,144   Feb - 14 ? 18,144 ? 18,144 Mar - 14                       ? 18,144   ? 15,120 ? 30,240 ? 30,240 ? 33,264 ? 36,288 ? 36,288 ? 36,288 ? 36,288 ? 36,288 ? 36,288 ? 36,288 ? 36,288 List of References Albrecht, W.S., Stice, E.K. & Stice, J.D., 2008. Financial Accounting: Cocnepts and Applications. Mason: CENGAGE Learning. Dury, C., 2008. Management and Cost Accounting. Mason: SOUTH-WESTERN CENGAGE Learning. Horngren, C.T. & Harrison, W.T., 2009. Accounting. Upper Saddle River, NJ: Prentice Hall. Jiambalvo, J., 2010. Managerial Accounting. Hoboken: John Wiley & Sons, Inc. Read More