Controlling a Budget
Financial Reference Sheets
Future Practice Owner.
Declaration
Please note:
All financial information shared in this document is fictional data that has been created for learning purposes. It is not representative of any true financial data for Vets for Pets or Companion Care. This reference sheet has been based on the initial ‘controlling a budget’ created by the CMI, and hosted as part of Management Direct.
Original content and information is, therefore, copyright 2017 Chartered Management Institute.
Future Practice Owner.
Controlling a Budget
What is budget control?
Budget control is the process in which you compare actual costs, revenues and outcomes with those initially forecast, taking corrective action and implementing changes where required to stay within budget. The main purpose of budget control is to drive profitable spending to achieve desired results and outputs, highlighting what is required to maximise profits or service levels to manage finances effectively. As a future practice owner, your role will involve implementing budgetary policies, forecasting or accessing long-term budgets for your practice, and taking accountability for initiating action when problems are identified to address them in good time.
Budegt Control SKills
Gathering and using information
Understanding warning signs
Decision making
Monitoring results
Future Practice Owner.
Controlling a Budget
What is budget control?
Budget Examples
Income/revenue budgets Expense budgets Profit and loss budgets Cash budgets Project budgets Capital expenditure budgets Fixed and flexible budgets
Budget control checklist 1.Understand the figures
It’s important that you understand how figures in the budget are created. You need to have clear accountability for what you can control, what you can influence, and what it outside of your control.
The minimum requirements are: Types and amounts of authorised expenditures Purposes for which expenditures are made Planned means of financing expenditures.
It is also advised that you familiarise yourself with chart of accounts and main accounting terms including revenue, turnover and cost of sales.
Future Practice Owner.
Controlling a Budget
Budget control checklist
2. Liaise with the accounts department
Contact the relevant accounts department for your practice, to understand what reports can be generated. This will support your understanding in terms of what can be provided, at what periods, which may include account charts and monthly management accounting reports - i.e. cash flow statements.
3. Early warning systems and indicators
Early warning systems will support you keep track of costs and income. Therefore, you will need to shape control procedures relevant to your practice, using the correct systems, or utilising those available to you. A key consideration hers is for it to be cost effective, while providing the right information, to the right colleagues at the right time.
4. Decide on the appropriate time to monitor budgets
It’s important to get the time scale right in terms of when you decide to monitor your budgets - over-monitoring can result in wasted time and efficiencies, while under-monitoring may reduce your control and visibility. Depending on how you perform vs budget, you can increase or decrease the frequency of monitoring. Some recommendations by the CMI for general budgets are provided below, some, but not all may be applicable to your specific practice.
Future Practice Owner.
Controlling a Budget
Budget control checklist
Potential review periods
Weekly Monthly Periodically
Quarterly Annually
Monthly
Weekly
Sales & Revenue: Determines whether sales goals are being met Labour: Control direct and indirect labour-associated costs Cash flow statement: Control borrowings and determine cash management efficiency. Debtors aged list: Credit control and monitor budgeted limits of accounts.
Overheads: Enables you to control and manage overhead costs. Selling expenses: Control and maintain selling expenses. Creditors aged list: Control borrowings and monitor budgeted limits of accounts.
Future Practice Owner.
Controlling a budget
Budget control checklist 5. Understand variances
“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” Ayn Rand
Ensure you use the information collated to identify variances from the budget - both positive variances and negative variances. A negative variance suggests you have spent more than forecast, while a positive variance indicates you’ve under spent. It’s important to not assume a positive variance is a good thing - rather, it could be due to a blip, as opposed to a trend, or due to a missing one off payment. Therefore, regardless of the variance, it’s recommended to do a deep dive and explore the root cause of the output.
6. Communicate with the right people
If you notice an issue or a problem, it’s imperative that the information is passed to the correct people so the appropriate action can be taken - after all, as individuals, we may not be aware of issues or potential problems unless informed. If there are variances, discuss with the appropriate people to understand why these have arisen.
Future Practice Owner.
Controlling a budget
Budget control checklist
Options when taking action
Do nothing - if you anticipate the budget will shortly come back inline. This expectation should however be well-founded.
Prepare a forecast - or revise a existing one of where you expect to be vs the budget.
Suggest corrective action - to bring income and expenditure back in line with the original budget. I.e. cut costs.
7. Take action and communicate any changes
Regardless of the situation, appropriate action will need to be taken. As a practice owner, you will need to understand therefore what information needs to be provided to different audiences, and what action needs to be taken as a result of variances, and performance vs budget. If and when a forecast is changed or amended, ensure all budgetary stakeholders are informed, especially if they need to take action themselves as a result of the change.
Future Practice Owner.
Controlling a budget
Budget control reccomendations & considerations
Keep monitoring
Monitoring the budgets will be an ongoing and continual process. It’s important to continue monitoring a budget to ensure it stays in line, and doesn’t get out of control - after all, just because you fix one problem doesn’t mean another won’t arise.
Take sufficient time
Avoid acting rashly, without thinking through all the implications. If a decision needs to be made, or action taken, ensure you consider the extent of this, and what options you have available to yourself.
Use support available
Remember there are multiple resources and people available to you to support, and therefore, ensure you utilise these when it comes to effective decision making or when there is an issue or problem that you are struggling to rectify yourself.
Ignore problems
Ignoring and neglecting problems won’t resolve them - they’ll still be there, and won’t go away by themselves. The more proactive you are when these issues occur, the more likely you’ll be able to remedy them, and prevent them from escalating.
Future Practice Owner.
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