BSBFIN501 Student Guide

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Australasian International Academy *

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BSBFIN501

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Accounting

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Apr 3, 2024

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STUDENT GUIDE MANAGE BUDGETS AND FINANCIAL PLANS BSBFIN501

BSBFIN501 Manage budgets and financial plans BSBFIN501 Manage budgets and financial plans | 2

BSBFIN501 Manage budgets and financial plans Contents Overview 4 Topic 1: Plan financial management approaches 5 Topic 2: Implement and monitor financial management plans 14 Topic 3: Review and evaluate financial management plans 29 AIA-BSBFIN501-SG-V1.0 Page | 3 of 32

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BSBFIN501 Manage budgets and financial plans Overview The Student Guide should be used in conjunction with the recommended reading and any further course notes or activities given by the trainer/assessor. Application of the unit This unit describes the skills and knowledge required to undertake financial management in an organisation or work area. It includes planning and implementing financial management approaches and supporting and evaluating effectiveness of financial management processes. The unit applies to managers in a wide range of organisations and sectors who have responsibility for the effective use of financial resources within work teams. They are responsible for ensuring that financial resources are managed in line with the financial objectives of the team and organisation. No licensing, legislative or certification requirements apply to this unit at the time of publication. Learning goals Learning goals include:  You are able to plan financial management approaches.  You are able to implement and monitor financial management plans.  You are able to review and evaluate financial management plans. AIA-BSBFIN501-SG-V1.0 Page | 4 of 32

BSBFIN501 Manage budgets and financial plans Topic 1: Plan financial management approaches Every successful business needs to manage its finances effectively so as to ensure the business can meet its commitments and overall objectives. Budgets and financial plans are a way of achieving effective financial management. There are many ways of defining budgets and financial plans and it’s important to understand the difference between the two. Financial plans Financial plans are also usually prepared for the business as a whole, whereas budgets will be prepared for the company as a whole, as well as different departments or activities such as projects. Financial plans are prepared to ensure the company has a clear direction to which it works and sets overall objectives for finances. Budgets Budgets are a type of financial plan for a defined period. A budget estimates revenue and expenses over a period of time. Budgets are prepared for many reasons, such as:  Planning to prepare for events such as cash flow shortages.  Coordinating between departments, e.g., if sales figures are estimated, then resource requirements for other departments can be planned.  Communicating financial objectives and goals.  Monitoring variations, e.g., if the budget has been set for a certain amount and that amount is exceeded, then the appropriate action will need to occur.  Motivating individuals to achieve performance levels through the setting of targets in budgets and financial plans. Budgets are developed by establishing assumptions for the period which the budget will cover. The assumptions are in relation to project sales trends and costs trends and will also factor in other information such as economic outlook or competitors. Note that budgets can also be static or flexible. A static one that remains unchanged during its life. A flexible budget takes account of changes in, for example, sales so that budget amounts can be varied according to sales and expenses. AIA-BSBFIN501-SG-V1.0 Page | 5 of 32 Image by Kelly Sikkema on Unsplash

BSBFIN501 Manage budgets and financial plans Types of Budget A financial plan is a financial plan and sets out overall goals and objectives and usually appears in one form. However, there are many types of budgets. These include: Sales budget  A sales budget is the expected amount of money that a company receives from the sale of goods/services during a period.  It is an estimate of sales for a financial period.  Used to set goals, estimate earnings and forecast requirements.  It will affect other operating budgets and the overall budget. Purchases budget  The following website explains the purchases budget, along with additional considerations: https://www.accountingtools.com/articles/what-is-a-purchases- budget.html Cost of goods sold budget  This is a breakdown of the cost of goods sold – separating the factors underlying the costs of goods sold.  The following website explains the cost of goods sold, along with an example: https://www.accountingtools.com/articles/2017/5/4/cost-of-goods-sold Expenses budget  Helps a business to track purchases.  Limits operating costs.  Co-ordinates expenditure with tax strategies.  Co-ordinates expenditure with cash flows.  Lessens the risk of overspending.  Expenses can be in the form of: o operating expenses such as goods or services used from operating a business. o administrative expenses such as wages, office supplies or maintenance expenses. o marketing and advertising, such as advertising and promotions. Cash budget  A cash budget is used to manage the cash flows – it's an estimation of inputs and cash outputs for a given period. Cash budgets help to avoid a shortage of money by looking at: o anticipated revenues. AIA-BSBFIN501-SG-V1.0 Page | 6 of 32

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BSBFIN501 Manage budgets and financial plans o operating expenditures. o sale and purchases of assets. o debt settlements. Master budget  All budgets get rolled up into a master budget which focuses on expected sales and expenses and cash in and outflows. How budgets are developed Budgets can be developed in simple software such as Excel or in accounting software. Activity: Research Have a look at some of these business budgets in Excel: https://templates.office.com/en-au/business-expense-budget-tm04035489 Then choose an accounting software of your choice and research how it can be used to create a budget. Make notes on your findings. Access budgets and financial plans As a manager, you will need to understand the overall financial plan for the business and be able to access this plan plus the budget allocated for your work area. You will also need to thoroughly evaluate the budget to check that it is achievable. A good way of checking that a budget is feasible is to consider past performance, available resources, and other constraints and the operating environment. For example, suppose past performance tells you that a figure assigned to a particular budget component is unachievable, e.g., sales targets or specific expenses such as telephone expenses. Then in that case, you will need to investigate this. It is also essential to check the accuracy of the budget, i.e. checking that all estimates of costs are current and considering any changes that may occur. Take a look below at budgeting methods. Budgeting methods Top-down budgeting is where a total budget is set and then broken down into components. Bottom-up budgets start with a plan or list of things that a company wants to do, which are then costed to identify the total budget. Zero-based budgeting is a popular method that has the assumption that a budget should be AIA-BSBFIN501-SG-V1.0 Page | 7 of 32

BSBFIN501 Manage budgets and financial plans Budgeting methods zero and built from scratch. This means managers must justify every single expense and avoid any expenditures that are not considered essential to the company's profitable operation. A rolling budget is where a budget is established at the beginning of an accounting period and is amended continuously reflecting variance from changing circumstances Activity: Research Research the advantages and disadvantages of each of the above budgeting methods. Evaluate budget and financial plans Those responsible for managing finances need a sound understanding of finances and their workings to confidently and professionally undertake the tasks required in the day-to-day running of financial activities. Therefore, you don't need the skills and knowledge of an accountant or bookkeeper; but you need a range of financial skills. Some examples of financial skills include:  Understanding fundamental financial concepts  Understanding and interpreting budgets and financial plans  Implementing systems and processes to support the finance function  Understanding and applying financial processes  Communicating financial processes to others  Understanding financial law such as income tax law  Understanding GST  Understanding your organisation's financial objectives by each department. Aside from understanding an organisation's financial requirements, it is also essential that you have the interpersonal skills and communications strategies in place to contact and evaluate with required personnel and key stakeholders in the workplace that the predicted financial outcomes are achievable, accurate, and understood by relevant personnel. Example 1 A sales manager will have a fair idea of calculating and project sales and income for their department. However, they may not know how a company's overhead cost is allocated at their department level. Therefore, the sales manager will need to comprehend how their department budget is allocated to tell if the documented budget outcomes are attainable and accurate. AIA-BSBFIN501-SG-V1.0 Page | 8 of 32

BSBFIN501 Manage budgets and financial plans Example 2 A coffee shop owner needs to prepare an annual budget. They must research and consider external business factors to work out their income and expenses forecast. Past transaction history also needs to be taken into consideration. The owner must look at how much they will invest in their business, staff expense, tax requirements, cost of goods, etc. Having a thorough understanding of what business incomes and expenses constitute plays a vital part in preparing an accurate and achievable budget. Example 3 Two partners in a pest control business want to prepare a budget. They want to market their services and the expenses that they will incur in this process. Additionally, they will have to decide how the profit between the two partners will be split. Therefore, the partners must agree and prepare a financial budget to meet their business and personal needs. There are several workplace personnel who you could contact to evaluate the budget and financial plan outcomes. Some examples are listed below. Examples of organisation personnel  Customer Service Manager  Program or Project Manager  Production Manager  Warehouse Manager  Training and Development Manager  Human Resources Manager  Workplace Health and Safety Manager  Informational Technology Manager  Managing Directors  Sales and Marketing Manager. Activity: Watch Watch the following video on How to Write a Financial Plan for Your Business Plan in 2021. Video: https://www.youtube.com/watch?v=AVZknOHPgO4 (04:19) Discuss the following in class:  What external and internal business factors must companies consider when planning budgets?  Why is it essential to prepare financial budgets at both organisational and department levels? AIA-BSBFIN501-SG-V1.0 Page | 9 of 32

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BSBFIN501 Manage budgets and financial plans Negotiating changes in the budget If you notice that the budget needs changes, you will need to discuss it with others in your organisation. The person you need to address an issue can vary; it may be another manager within the organisation or the person individually responsible for budgeting, such as the Finance Manager. When seeking to discuss and negotiate changes, you should ensure that:  You clearly outline the issue.  You clearly describe the change you are requesting and why.  You have taken into account the impact on the organisation as a whole. When discussing and negotiating changes, it's essential to use effective communication and negotiation skills. These are covered in Topic 2 but let’s look specifically at negotiation skills here. You can communicate without influencing, but you cannot influence without communicating. As a leader you will be required to negotiate as you seek to influence and then implement the outcomes of your negotiation using appropriate protocol and methods. Activity: Reflect What do you think of when you hear the word “negotiation”? Activity: Watch Watch the video showing a negotiation scene. Video: https://www.youtube.com/watch?v=0CdixDzE7I0 (01:00) Activity: Read Read the articles on negotiation skills and techniques: Article 1: https://www.skillsyouneed.com/ips/negotiation.html Article 2: https://www.pon.harvard.edu/daily/negotiation-skills-daily/top-10- negotiation-skills/ AIA-BSBFIN501-SG-V1.0 Page | 10 of 32 Image by Sora Shimazaki on Pexels

BSBFIN501 Manage budgets and financial plans Take notes and keep them for future reference. Contingency planning Budgets and financial plans need to take into account contingencies. Planning for contingencies means taking into account unexpected events that can occur. Contingency planning involves:  Analysing the potential risk.  Determining the likelihood of that risk occurring, the potential impact and the order they are most likely to occur.  Developing a contingency plan for each risk.  Reviewing and refining the plans regularly. Contingency plans may, for example, include accessing additional funds for unexpected costs, renegotiating costs, reducing costs, increasing sales or negotiating new timelines. Activity: Group project work – 1 Divide into small groups. Ensure you divide the work equally. Part 1 – Prepare a budget Review the information about the sales budgets for KEYBOARD COMPANY provided below. Use the figures provided to develop a graph or chart to show your team the current year's sales budget. Assume that the previous year's sales budget was down by 10% and indicate this on your chart. Prepare a short presentation about the sales budget using electronic spreadsheets as if you were presenting it to your team. The information for presentation is provided below. KEYBOARD COMPANY Sales Budget For the year ending 31/12/2021 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Forecasted unit sales 7,500 9,000 8,000 6,000 x Price per unit $10 $10 $11 $11 AIA-BSBFIN501-SG-V1.0 Page | 11 of 32

BSBFIN501 Manage budgets and financial plans Total gross sales $75,000 $90,000 $88,000 $66,000 - Sales discounts & allowances $1,500 $1,700 $1,260 $2,000 = Total net sales ? ? ? ? Part 2 – Negotiate budget Review the following information: John is the Sales Manager for Gardens r us. He has achieved his sales targets for the last year. A sales budget has been prepared for the upcoming year that mirrors the sales achieved plus 10%. Just last month, two new competitors have set up similar businesses, and there is an economic downturn. John is concerned about achieving the sales targets set for him and considers, if anything, that sales are likely to fall by 10%. Part 3 – Contingency plan Identify two contingencies for John's sales budget. Prepare a contingency plan if initiation plans need to be varied. Using your skills in effective communication and negotiation, prepare a short speech to present to the trainer. Imagine that John will use it with a manager to negotiate changes. Present your contingency plan to support the sales budget negotiation. The presentation should be visually appealing with transitions, animations, and consistent styles and colours. During the presentation, you must demonstrate effective communication skills, including:  speaking clearly and concisely  using non-verbal communication to assist with understanding  asking questions to identify the required information  responding to questions as required  using active listening techniques to confirm understanding. If you are undertaking this activity with a team, each person in the group must contribute equally to the design, development of the presentation, and also each member must take part in the delivery. The trainer/assessor will observe you conducting the presentation, ask questions at the end, and provide feedback on the information presented and the presentation style. AIA-BSBFIN501-SG-V1.0 Page | 12 of 32

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BSBFIN501 Manage budgets and financial plans Record keeping To end this topic, let’s briefly review record keeping requirements for businesses as this is also an important part of financial plan and budget management. Australian taxation laws require businesses to maintain proper records of their financial activities and present records when required by the government. By law, records for a company must:  explain all transactions.  be written or recorded in paper or digital format.  be written in English or a format that can be easily converted.  be kept for five years (some may be required to be held for up to seven years).  businesses incur penalties if obligations are not met. Activity: Research and discuss Research the Australian Taxation Office (ATO) website. Discuss your research outcomes for the following questions in class:  What types of records must companies keep?  What are the five rules for record-keeping?  What records do not need to be maintained for more than five years?  What records do you need to maintain for more than five years?  What are the benefits of record-keeping?  What are some examples of penalties for not maintaining records as per ATO requirements?  How do you maintain the security and safety of company records?  Explain why the ATO conducts audits. The trainer/assessor will facilitate a discussion about the outcomes of the research. AIA-BSBFIN501-SG-V1.0 Page | 14 of 32

BSBFIN501 Manage budgets and financial plans Topic 2: Implement and monitor financial management plans Implementing financial management approaches refers to applying the financial plans of the organisation. The aim of implementing a financial plan is to ensure that:  the managers and staff have the knowledge required to achieve the finical budget.  the staff understands their responsibilities and can maintain costs and increase their productivity to achieve positive financial outcomes. Communicating budget and financial plans The first step in implementing financial management approaches involves communicating agreed budget/financial plans to team members. It’s important to understand that not all team members will be directly involved in the management of the financial budget. Therefore, it is can be useful as part of communicating information about the financial plan and budget to communicate key financial terms i.e. fundamentals to enable non-finance employees to understand finance plans better. Let’s look at some financial fundamentals so that if these terms come up during a financial plan/budget discussion, you can explain the meaning of these terms to your team. Financial fundamentals Assets Assets are items of value or economic benefits owned by a business. Assets are also divided into current and non-current assets, as explained below. Current assets refer to cash or other assets that can be easily converted into cash or consumed during a short period, for example, the upcoming year. Non-current assets refer to items that are not current and are used in business for an extended period. Examples of this include building, plant and equipment, motor vehicles, and so on. Liabilities Liabilities are any financial expense or amount owed. Just like assets can be classified as current or non-current liabilities. Current liabilities are debts to be paid by the business within a short period, such as a year. For example, current liabilities are accounts payable, creditors, bank overdrafts, and short-term loans. Non-current liabilities are long-term debts, for example, mortgages. AIA-BSBFIN501-SG-V1.0 Page | 15 of 32 Image by Lukas on Pexels

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BSBFIN501 Manage budgets and financial plans Double-entry bookkeeping A double-entry bookkeeping system is a set of rules used for recording financial information in a financial accounting system. Every transaction or event changes at least two different nominal ledger accounts. Equity Equity is the residual assets amount left in the business after the deduction of its liabilities. Financial statements The financial statement represents the financial position, for example, balance sheets and profit and loss statements are financial statements. Balance sheet A balance sheet lists all of a business's assets and liabilities and works out the net assets. It communicates information about the financial position of a business at a specific point in time. It is essential to understand that balance sheets are only one part of users' information. It should be read in conjunction with other relevant financial information such as profit and loss statements. Profit and loss statement This measures the profit or loss by subtracting the expenses from revenues to arrive at the profit or loss. Cash flow statements The cash flow statement is used to provide information about a company's gross receipts and gross payments for a specified period. Chart of accounts A chart of accounts is an index of the accounts. The chart is used to classify transactions. Each account represents business transaction e.g. asset, liability, owner's equity, income, and expense. Fixed costs Fixed costs are costs that remain the same for some time regardless of the level of sales activity. An example would be rent. Variable costs These change in total in proportion to changes in the level of activity. The cost per unit remains constant over the relevant range. The relevant range is between zero and normal capacity. Outside this range, the cost relationship may alter. AIA-BSBFIN501-SG-V1.0 Page | 16 of 32

BSBFIN501 Manage budgets and financial plans Journals Journals record transactions. Different journals record different groups of transactions, e.g. sales, purchase, and cash receipts journals. Transaction amounts are transferred or posted from journals to a ledger. Ledgers There are typically two types of ledgers: general ledger where all accounts are maintained and subsidiary ledger consists of specific account information Ageing summaries This is the accounts payable portfolio that debtors have not paid over a period. GST taxation Goods and services tax (GST) is a broad-based tax of 10% on most goods, services, and other items sold or consumed in Australia. Cash accounting  Cash accounting tracks the actual cash money coming in and out of business.  If you get an invoice for something in cash accounting, the cost is not recorded in the business's books until the invoice has been paid. Similarly, when an invoice is sent to a customer, the sale is not recorded until the money is received.  A simple system that keeps track of business cash flow mainly suitable for smaller businesses that mostly handle transactions in cash, e.g. a small takeaway shop or barber  Gives a picture of how much money there is in the till and in bank accounts.  It does not capture money that is owed or money owed to others.  The simplicity of the system is also a disadvantage as there is less control over transaction posting. Accrual accounting  Accrual accounting is when you record expenses and sales when they take place instead of when cash changes hands.  Better suited to businesses that don't get paid straight away.  A system that tracks true financial position as it captures money owed and money owed to others.  Helpful if dealing with lots of contracts or large amounts of money.  More complicated than cash accounting. Accounting principles on which the calculation and reporting of deprecation is based The Cost Principle requires that the depreciation expense is reported on the income statement. The asset amount reported on the balance sheet should be based on the historical (original) cost of the asset and not on the amounts based on the cost to replace the asset or on the asset's AIA-BSBFIN501-SG-V1.0 Page | 17 of 32

BSBFIN501 Manage budgets and financial plans current market value. The Matching Principle requires that an asset's cost be allocated to the depreciation expense over the asset's life. The asset's cost is divided up with some of the cost being reported on each of the income statements issued during the life of the asset. By assigning a portion of the asset's cost to various income statements, the accountant matches a portion of the asset's cost with each period in which the asset is used. This will also ensure that the asset's cost is being compared with revenues earned by using the asset. How to communicate with the team There are several methods to communicate and share information with team members. Whichever methods are used to disseminate information, your aim must be to ensure all relevant team members understand the budget or the financial plan. It is therefore important to provide information:  To create awareness so that employees are well-informed about the and financial objectives and strategies.  To establish understanding so that the employees recognize business financial performance expectations.  So that employees can contribute to achieving financial objectives. Working with the team and communication skills Understanding how to work with a team and communication skills also play an essential role in providing details of the budget and financial plans to your team as outlined below. Team leaders need to follow key principles for working with their team to ensure that that their team members are accountable for their roles and responsibilities. Key principles include: Providing a common purpose Why are we doing this? Why does it matter? Providing clear expectations What are we doing and who is doing it? Compliance with policies and procedures. Communicating Keeping the team focussed. Providing direction and leadership. Collaborating AIA-BSBFIN501-SG-V1.0 Page | 18 of 32

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BSBFIN501 Manage budgets and financial plans Encourage team cohesion. Accountability for roles and responsibilities. Visibility Openly discuss positive and negative outcomes. Individual performances. A great manager, supervisor or team leader is someone who not only possesses knowledge, but is able to share that knowledge effectively and appropriately. To be an effective communicator you should:  engage with your audience in a respectful and relevant way, adapting your style to suit the audience  motivate others to communicate respectfully by considering the needs of everyone involved including differences in perspective  explain complex information positively to influence others, presenting information in a succinct, clear and persuasive manner  address communication barriers and negotiate a final outcome. Communication styles Activity: Read Read the article on communication styles: Article: https://www.forbes.com/sites/markmurphy/2015/08/06/which-of-these-4- communication-styles-are-you/?sh=48d5e7913adb Take notes and keep them for future reference. Activity: Reflect What is your communication style? Have you ever experienced difficulty communicating in a workplace or community setting? While everyone is different and will communicate in a way that reflects their personality and leadership style, you may need to adapt your communication style as you interact with a variety of audiences. AIA-BSBFIN501-SG-V1.0 Page | 19 of 32

BSBFIN501 Manage budgets and financial plans Activity: Watch Watch the video on adapting communication styles. Video: https://www.youtube.com/watch?v=TAi15RPlTa8&feature=emb_logo (02:08) Take notes and keep them for future reference. When establishing the intended audience of any communication, consider:  the person/group relevant to the communication (e.g. personality type, ability, cultural background, preferred method of communication)  previous communication that has occurred in relation to the topic (e.g. task description)  environmental factors (e.g. workplace culture)  the urgency of the required communication  likely response to the communication  legislative and organisational process and procedural requirements. Activity: Read Read the following articles on:  Effective communication: o https://www.helpguide.org/articles/relationships-communication/effective- communication.htm/ o https://www.skillsyouneed.com/ips/negotiation.html  Working in teams and groups: o http://www.slideshare.net/tejasyahremie/managing-work-groups-and- teams-64856791 Take any notes to summarise what you have read and keep for future reference. Activity: Watch Watch video on how to effectively communicate your strategy. Video: https://www.youtube.com/watch?v=9XXmT5Bms6k (03:41) Answer the following questions: AIA-BSBFIN501-SG-V1.0 Page | 20 of 32

BSBFIN501 Manage budgets and financial plans  Identify your target audience needing information on financial plans.  What are some communication strategies that you can use to disseminate information to your target audience?  Now think about the time when your organisation released information on financial plans. o What information was disseminated to you? o How did you use the information to achieve your company's financial plans? o What are some advantages of ways your organisation shares financial plans with their staff? o How can your company improve its disseminating strategy? Activity: Brainstorm Assume you are a manager of a customer service team. You would like your team to know more about the new financial budget. 1. Prepare a brief budget for your team. This must show income and expenses for your team. 2. Your budget must include:  New budget for training and development by $4000 for the financial year.  Reduce printing cost $5,000 by 50%.  What tools will you use to prepare the budget?  What tools will you use distribute the budget to the team?  What expectations will you have of employees after you have distributed the budget to them? Why? Support to team members to perform management of finances It is also vital that your team receive support to ensure that they can competently perform their required roles to help achieve financial expectations. Team support may focus on several areas. These can include but are not limited to, enabling staff access to resources and systems to understand financial concepts or help the team understand financial procedures. As a team manager and responsible for finances, you may need to determine and then access a range of resources and systems to assist you. Financial management processes include financial planning, finance controlling, and making financial decisions. AIA-BSBFIN501-SG-V1.0 Page | 21 of 32

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BSBFIN501 Manage budgets and financial plans Examples of resources and system that support team members  Job description – provides clarity on employee roles and responsibilities in achieving expected behaviour, attitude, and performance level that is key to achieving personal, professional, and organisational goals. Employees must have a copy of their role description to work towards achieving the expected results.  Training – provides employees with learning opportunities so that they can excel in their areas of performance. Training builds employees' skills, knowledge, and can even boost staff productivity.  Instructional documentation – provides procedures, processes, and standards and guidelines on how to perform tasks to achieve desired results.  Mentoring – is a long-term volunteer, relationship-based training approach where an experienced person transfers their skills, knowledge to a less experienced person. The less experienced person seeks to mentor to achieve their future personal and professional aspirations.  Coaching – focuses on training a candidate who needs to build their skills and knowledge in a particular work area. Coaching is a short-term relationship based on the training needs of the candidate.  Technology – includes accounting software, the Internet, computers, printers, scanners, etc.  Personnel – includes IT personnel, financial accounts, management accountants, debtors’ receivables or payables teams, etc.  Organisational policies, procedures, standards, and templates – these documents act as boundaries or guidelines on expected behaviour and performance and stipulate how tasks are performed in a company.  Other resources are stationary such as notepad, pens, calculators, workstation and office chair, etc. Activity: Watch Video: https://www.youtube.com/watch?v=riP7uBRbXbY (01:15) Discuss the following in class:  What a financial management system?  What are the benefits of a good financial management system? AIA-BSBFIN501-SG-V1.0 Page | 22 of 32

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BSBFIN501 Manage budgets and financial plans Activity: Report Write a report on providing support to employees to increase their competency in management of finance. Your report must include:  Discussion on how the following can provide clarity, direction, or support to employees in finance management: o Establishing key performance indicators at the individual performance level. o Training on employee ethics and compliance with accounting principles. o Access to finance reporting templates such as management reports. o Mentoring program for the aspiring management accountant. o Coaching on how to prepare department finance reports. Your report should be between 1–2 pages long and written in clear and concise English. Submit your report to your assessor trainer/assessor for feedback. Legal requirements All workplaces must ensure they abide by legal requirements in relation to financial management. Legal requirements can vary depending on the type of company but key legal requirements that all business must comply with relate to taxation law and GST. For example, the law from which GST arises is A New Tax System (Goods and Services Tax) Act 1999. Activity: Read Have a look at the following links on the ATO website to find out more about GST and requirements: https://www.ato.gov.au/Business/GST/ Activity: Research  Using the Internet, look up the associated Act for each of the following, then complete the activities that follow: o Income Tax Assessment Act o Privacy Act o Corporations Act AIA-BSBFIN501-SG-V1.0 Page | 23 of 32

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BSBFIN501 Manage budgets and financial plans o Fair Work Act o Superannuation Guarantee Administrations Act o Fringe Benefits o Tax Assessment Act. Provide an example of how each of the above Acts applies to Financial Management. List all taxation laws administered by the Australian Taxation Office. Briefly explain how you would register for an Australian Business Number. Briefly explain how to apply for a Tax File Number and why employees need this. What is the minimum rate required to be paid by Employers for superannuation in Australia? How does GST work? Implement processes to monitor financial activities Monitoring and controlling aspects of financial management is related to having good governance and management of a company's finance function in the separation of owners and management . Monitoring and controlling of finances is an essential component of the finance management process. Monitoring and controlling expenses will help determine if an organisation's resources are used efficiently. Whereas monitoring income will help determine if the organisation is meeting its performance targets to achieve its goals. Suppose company finances such as expenses and incomes do not meet the budget. In that case, management can intervene to work out solutions or alternative pathways to meet their performance targets. Therefore, the implementation of processes to monitor actual expenditure and control costs across the work team is necessary. Monitor cost variations and expenditure overruns Actual expenditure and costs must be monitored on an agreed cyclical basis to identify cost variations and expenditure overruns. As discussed earlier, finance monitoring and controlling:  measure and report on actual performance  compare actual performance with budgeted (planned) performance  determine and implement appropriate action. AIA-BSBFIN501-SG-V1.0 Page | 24 of 32 Monitor expenses and revenue Measure and report on actual performance Address budget variance Use contingency plan

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BSBFIN501 Manage budgets and financial plans Budget variance A budget variance can be seen as the difference between the estimated amount for expense or revenue against the actual amount. Causes of variance can be from:  exceeding expectations  underperforming expectations. The budget variance is favourable when the actual revenue is calculated as higher than the one budgeted OR when the actual expense is less than the budget. Contingency Plan: Budget variance and maintaining financial objectives Contingency plans are used when there are unfavourable changes that occur, and they impact on the financial objectives. A contingency plan must address the following:  Matching the actual scenario that was predicted on the contingency plan. If the scenario was not planned, the team must brainstorm to work out the best possible solution.  Identify the triggers or the problem.  Provide an action response to the problem.  Information on key stakeholders to be notified of the problem.  Delegate the responsibilities of the contingency plan.  Include timeline by the hour, day, and weeks to achieve change in outcomes. Whether a variance is favourable or unfavourable, the difference should be analysed to investigate the cause of the variation. Possibilities could be:  Poor budgeting.  Changes in conditions (such as supplier cost increase).  Poor management. Asking questions about why this occurred can narrow down precisely what changed to understand how it impacted the business. For example:  Did the market change?  Have the customer needs changed?  Did prices change?  Were terrible decisions made? Fixing budget variances will involve finding the variance and establishing the difference. For example:  Actual figures vs Budget figures.  Actual figures vs Forecasted figures. AIA-BSBFIN501-SG-V1.0 Page | 25 of 32

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BSBFIN501 Manage budgets and financial plans  Trend variances such comparison of periods. Small variances can often occur; however, large variances need addressing. Analysing the reason for the variance will be the result of:  A price that differed from expected or budgeted.  An amount that was different from expected or budgeted. Once the cause of variance is understood, then action can be taken. To fix budget variances, undertake variance analysis to isolate changes and then take remedial action. Any budget variances should be reported and communicated to all stakeholders. Reporting on budget and expenditure Reporting on budget and expenditure per organisational protocols is necessary for the following reasons:  Measure actual vs projected performance of the company.  Identify areas of improvement.  Make decisions about the future investment decision.  Stop doing what is not working; keep doing what works well. The needs for reports must be predetermined before preparing reports so that analysts know what data is useful and accordingly extract them. Predetermining reporting requirements also saves time and effort. Standardising reports is also beneficial as it provides management a basis for comparing data. Some standard reporting features include trend analysis and comparisons of ratios. These are discussed below:  Trend analysis: o Trend analysis is usually used where past information is available. It involves identifying a base year and starting from there. It is used to monito performance over time. The analysis can be either horizontal or vertical.  Horizontal analysis makes comparations like items at different points in time or, in some cases, different periods.  Vertical analysis identifies relationships between essential items or activities. For example, how does the relationship between gross profit and cost of goods change from period to period or year to year?  Ratio analysis: o In isolation, financial ratios are meaningless, and they need to be compared with other ratios. For example:  A comparison with past financial ratios will identify trends and is generally known as a historical comparison.  Comparison with financial ratios of similar firms in similar industries provides an opportunity for benchmarking. AIA-BSBFIN501-SG-V1.0 Page | 26 of 32

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BSBFIN501 Manage budgets and financial plans  Comparison with 'rule of thumb' standards indicates how a business compares with commonly accepted standards. o Numerous ratios can be used when monitoring and controlling budgets and financial plans. Common ratios are:  Liquidity ratios (the ability of the business's assets to be converted into cash)  Profitability ratios (profit margin, return on assets)  Leverage ratio (the degree to which the business relies on debt to survive). Activity: Read Read the following articles on:  Trend analysis: https://www.dummies.com/business/accounting/horizontal-and-vertical-analysis/ https://www.fool.com/knowledge-center/how-to-calculate-static-budget- variances.aspx  Monitoring financial performance: https://www.business.qld.gov.au/running-business/finances-cash-flow/ managing-money/monitoring-performance  How to Calculate Static Budget Variances: https://www.fool.com/knowledge-center/how-to-calculate-static-budget- variances.aspx o Brainstorm budget variances that could occur. o How is budget variance calculated? Take any notes to summarise what you have read and keep for future reference Activity: Group project work – 2 Budget Outcomes Read the following scenario information, then complete the tasks on Microsoft Excel or another software of your choice. Scenario Below are the actual and budgeted figures for the financial year ending 2020 for Canny Computer Equipment: AIA-BSBFIN501-SG-V1.0 Page | 27 of 32

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BSBFIN501 Manage budgets and financial plans Develop a budget on a spreadsheet containing calculation for this activity. Part 2 Write a performance report. Assume that Canny Computer Equipment has hired you to review the company's finances and to create a performance report for the company that includes final calculations of:  Sales  Cost of sales  Gross profit  Promotional expenses  Administration expenses  General expenses  Total expenses. They would also like you to:  show the variances in dollars and as a percentage;  indicate whether the variance is favourable or unfavourable;  make recommendations based on your analysis for addressing any unfavourable variance; and  include contingency plans that could be implemented to address unfavourable variances. Use the guide to prepare your report:  Provide an introduction to the performance report. AIA-BSBFIN501-SG-V1.0 Page | 28 of 32 Expected Actual Sales $300,000 $320,000 Cost of Sales $150,000 60% of budgeted sales Promotional expenses $70,000 15% of budgeted sales Administration expenses $41,000 $32.000 General expenses $12,100 $21,000

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BSBFIN501 Manage budgets and financial plans  Complete the following table using a spreadsheet and appropriate formula for calculations.  Provide a summary of the variances.  Provide an analysis of the variances and your recommendations.  Provide a graphical overview of the variances. Your report must be clear and concise. It must be professionally written. Expected Actual Variance $ Variance % Favorable (F) or Unfavorable (U) Sales Cost of Sales Gross Profit Promotional expenses Wages expenses General expenses Total Expenses Net Profit Part 3 Draft an email to Canny Computer Equipment. Attach your budget from Part 1 and the performance report from Part 2 to the email. The email text should summarise the contents of the attachment and be in grammatically correct English, written in an appropriate (polite, business-like) style. Send the email to your trainer/assessor who will provide feedback on your work. AIA-BSBFIN501-SG-V1.0 Page | 29 of 32

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BSBFIN501 Manage budgets and financial plans Topic 3: Review and evaluate financial management plans A financial management review determines and appraises the adequacy and effectiveness of an organisation's financial management processes. Evaluation can occur at any time, for example, annually. What should the evaluation include? The evaluation could include: How the business has performed since the previous review.  How effective the bookkeeping and accounting systems are (any problems or improvements that can be made).  Comparing the budget vs actual (any significant divergence from the budget).  Targets (budget targets successfully achieved).  Effectiveness of employees (how they contributed/strengths/weaknesses, training needs).  Analysis of any successes.  Review if goals and strategies are still aligned with the financial management system.  Any external impacts or factors affecting the organisation.  Internal controls review. What information can be used to inform the evaluation? A range of information could be used to inform the evaluation process. Staff feedback can be particularly useful. For example, a staff survey may ask staff to respond to the effectiveness of the budgeting process. All comments would then need to be reviewed and assessed to determine if there were any issues. For example, such a review could uncover that managers considered the budgets provided to them were not realistic. This, therefore, indicates that there is an issue with the budgeting process that needs to be investigated. AIA-BSBFIN501-SG-V1.0 Page | 30 of 32 Image by Charles Deluvio on Unsplash

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BSBFIN501 Manage budgets and financial plans Activity: Research What would be other types of data collected to identify issues with financial management processes? Analysing variance Once all the data has been collected, it will need to be analysed to evaluate the financial management approach. The analysis is conducted between the actual and budgeted finances to determine the success or the shortcomings of the initial financial plans. Variance was covered in detail in the previous topic. Making recommendations and implementing improvements Once data has been analysed and issues investigated, it will be possible to make recommendations on how to improve the financial management approach. For example, an investigation on the shortcomings of a financial plan could reveal that not enough research was conducted in estimating current costs. Therefore, the expected results were not achieved. Thus, the recommendation to be implemented would be that costs need to be carefully researched and realistic costs included in budgets. Examples of improvement include software reviews, processes and systems review, staff performance review, etc. Activity: Research Research a financial management approach to budgets and financial plans used by a company of your choice. You are then to critique the effectiveness of that approach, making recommendations for change. As discussed earlier, several elements in an organisation can be improved to make the financial management processes effective. Regardless of which factors are reviewed, you must ensure that response to the review outcomes is always mapped to the work teams' financial objectives and the organisation. Some examples of factors that can be reviewed to make financial management process effective are discussed below.  Staff competency One of the key elements to consider is staff competency. It is crucial to discuss the staff competency requirement with human resource personnel. This will help you address issues where training existing staff or recruiting/hiring personnel is required. AIA-BSBFIN501-SG-V1.0 Page | 31 of 32

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BSBFIN501 Manage budgets and financial plans  Assess the business situation Another critical question to ask when evaluating financial processes and outcomes is whether the business has current and reliable information and data sources. It is crucial to review the sources and currency of information to build establish realistic financial plans.  Ethical practices Time and again, the management and staff practices must be audited to confirm everyone's obligation to comply with the company and government rules. This can be done by assigning an ethics audit team independent of financial teams, e.g. an audit from an independent account company, or a consultant.  Staff and management feedback Depending on the organisation, the software such as SurveyMonkey can collect and analyse staff and management views to determine the business practices, processes, and standards on financial management. AIA-BSBFIN501-SG-V1.0 Page | 32 of 32

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