MASTER BUDGET

INTRODUCTION

     A budget is a fundamental tool for an event director to predict with reasonable accuracy whether the event will result in a profit, a loss or will break-even. A budget can also be used as a pricing tool.

There are two basic approaches or philosophies when it comes to budgeting. One approach focuses on mathematical models, and the other on people.

The first school of thought believes that financial models, if properly constructed, can be used to predict the future.

The focus is on variables, inputs and outputs, drivers and the like. Investments of time and money are devoted to perfecting these models, which are typically held in some type of financial spreadsheet application.

The other school of thought holds that it’s not about models, it’s about people. No matter how sophisticated models can get, the best information comes from the people in the business. The focus is therefore in engaging the managers in the business more fully in the budget process, and building accountability for the results.

The companies that adhere to this approach have their managers develop their own budgets. While many companies would say that they do both, in reality the investment of time and money falls squarely in one approach or the others.

The process of calculating the costs of starting a small business begins with a list of all necessary purchases including tangible assets (for example, equipment, inventory) and services (for example, remodeling, insurance),working capital, sources and collateral. The budget should contain a narrative explaining how you decided on the amount of this reserve and a description of the expected financial results of business activities. The assets should be valued with each and every cost. All other expenses are like labour factory overhead all freshmen expenses are also included into business budgeting.

Definition of a Budget  

    Is a quantitative expression of a plan of action.

       Is a tool aids managers in both their planning and control functions

       A budget provides a comprehensive financial overview of planned company operations.

      Also Budget represents the Entity’s Goals and objectives

Benefits of Budgets:

    1- Compels managers to think ahead by formalizing their responsibilities for planning.

2- Provides an opportunity to reevaluate existing activities and evaluate new ones.

3-Provides definite expectation that are the best framework for judging subsequent performance.

4- Aids managers in communicating objectives and coordinating actions across the organization. 

Human Relations Problems::

       1.  Low levels of participation in the budget process and Lack of acceptance of responsibility for the final budget.

      2.  Incentives to lie and cheat in the budget process.

      3.  Difficulties in obtaining accurate sales forecasts.

Sales Forecasting:

A sales forecast is a prediction of sales under a given set of conditions.

Sales forecasts are usually prepared under the direction of the top sales executive.

The sales budget is the result of decisions to create conditions that will generate a desired level of sales.

Factors to Consider When Forecasting Sales:

1-    General  economic  conditions

2-    Competitors’ actions

3-    Changes in the firm’s prices

4-    Changes in product mix

5-    Advertising and sales promotion plans

6-    Market research studies

7-    Past patterns of sales

8-    Estimates made By sales force

Types of Budgets based on their purposes:

Strategic plan                     Long-range planning               Master budget

Capital budget                      Continuous budget