Question

HOW WOULD YOU BUILD A BUDGET FOR:

A.) FOR A FOR PROFIT FIRM, I.E. SAY A RESTAURANT

B.) A NON-PROFIT, SAY A NON-PROFIT CHARITY TO HELP STUDENTS IN DISADVANTAGED AREAS WITH AFTER SCHOOL PROGRAMS WHAT WOULD YOU DO,

HOW WOULD YOU SET IT UP?

PLEASE GIVE DETAILS AND THEN PUT IN AN EXCEL SHEET AS WELL

Answer 1

Introduction

Budgeting is a form of financial planning in which we try to set a budget for our expenses and revenues based on various factors like industry trend, prior years experience, etc.

We compare the budgeted operations with the actual operations to understand the performance of a company at the end of a period.

A budget should be realistic to be helpful.

Key points to be considered while making a budget:

1. Time period for which the budget is to be made should be clear. i.e is it a monthly budget, weekly budget, etc.

2. The estimated budgeted costs and revenues should be realistic based on company experience and trends.

3. The company should set up the budget first by setting up the types of costs the company may incur and the types of revenue it may earn.

Budget of a not for profit concern - School

1. Set the time period for which the budget is made.

2. Set the nature of costs that will be incurred

3. Set the budgeted sources of income i.e contributions, grants,etc

4. Estimate how much contribution is expected based on past experience, economy,etc. While making this decision 1 should be realistic and consider various factors like past experience, new deliberations being made for receiving contributions, financial positions of the key contributors, agreements with the contributors,etc.

5. Estimate the amount of grants that will be received. This should also be based on factors like grants which are under process and likely to be received, grants for which application is made and their likelihood, previous grants received and terms of grants.

6. Estimate the salaries to be paid to the teachers and other staff. This should be made depending on various factors like do we need to increase/decrease the work force, what will be the increment rates,etc.

7. Cost on books that will need to be incurred. This should be based on various factors like the no of students admitted, the no of students that will be admitted during the period, the increase in proces of books,etc.

8. The rent cost. This should be estimated considering the effects of escalations in the rent, if any.

9. Cost of awareness programs to be carried to motivate students for after school programs. This should be based on factors like what are the various programs the organisation plans to carry, what locations it plans to cover, how will the programs be conducted eg.plays,advertisements,etc.

Budget of a profit concern - Restaurant

1. Set the time period for which the budget is made.

2. Set the nature of costs that will be incurred

3. Set the budgeted sources of income i.e income from rendering of services

4. Set up a budget of what revenue will be earned. This should be based on factors like the previous period trend, the market condition, no of customers expected, demand-supply chain etc.

5. The budgeted cost of purchase of material i.e food items and ingredients. This should be based on factors like the government policies and taxes, past period trend, increases/decreases in prices, changes in menu and based on that change in the cost of material

6. Cost for printing of fresh menu if any.

7. Budget for the advertising cost. This will be based on the strategy the company plans to use, the mode of advertisements,etc.

8. Estimate the salaries to be paid to the chefs and other staff. This should be made depending on various factors like do we need to increase/decrease the work force, what will be the increment rates,etc.

9. Estimate of the maintenance and repairs costs

10. Estimate for any investments that are needed.

11. The rent cost. This should be estimated considering the effects of escalations in the rent, if any.

Conclusion:

In case of any budget, main steps would be determining the timing and objective of the budget, estimating the major costs and revenue components and than setting up the amounts for the costs and revenue components based on various factors.