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Learner guide Manage finances BSBFIM601 . Navneet Kaur Skills Institute Australia

Disclaimer While every effort has been made to ensure that the information contained in this product is free from errors and omissions and is not misleading in any way, Didasko Digital makes no representations or warranties and is not liable for any loss or damage or injury of any kind (however caused) under any theory of law including negligence resulting from or in any way connected with the use of its products. Version number 2.1 Copyright 2020 © This product and the concepts, information and material contained in it are the copyright of Didasko Digital ACN 167 648 062 and may not be used or reproduced in whole or in part without the prior written consent of Didasko. All rights reserved. . Navneet Kaur Skills Institute Australia

© 2020 Didasko Digital. All Rights Reserved. Contents Overview ........................................................................................................ 3 Section 1: Plan for financial management ...................................................... 3 Section 2: Establish budgets and allocate funds .......................................... 31 Section 3: Implement budgets ...................................................................... 45 Section 4: Report on finances ...................................................................... 75 Glossary ....................................................................................................... 85 Please note the following condition This Didasko learning resource should be used as a training tool for students and trainers. While the information contained within addresses the elements and performance criteria, and the knowledge and performance evidence of individual competencies it remains the responsibility of the training organisation to ensure it meets training framework requirements and to provide additional documentation where necessary. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 3 Overview There are some people who always seem to have enough money to pay their bills regardless of how little money they earn, while others who earn far more struggle. People who manage their money well, plan ahead. They look to the future and consider their income and expenses. They create budgets and then monitor their progress. They know exactly how much they are owed and how much they owe at any given time. They also take care to set some money aside just in case something goes wrong. In business, a good manager or owner will take a similar approach. They plan ahead and make allowances for problems that may arise, such as job loss, sickness, interest rate rises and unplanned additional expenses. The size or the type of business has little impact on its financial success. They can offer products services or a combination of both. The common feature among successful businesses is strong financial management policies, procedures and practices. A financial manager must understand the total financial management process, from developing approaches through to implementation, monitoring and reporting on financial activity. Let’s look at what you will learn on completion of this unit. Section 1: Plan for financial management Section 2: Establish budgets and allocate funds Section 3: Implement budgets Section 4: Report on finances Section 1: Plan for financial management In this section you will learn the following.  How to review and analyse previous financial data.  How to review reasons for previous profit and loss.  How to review business plan to establish critical dates and initiatives that will require or generate resources in next financial cycle.  How to analyse cash flow trends.  How to review statutory requirements for compliance and liabilities for tax.  How to review existing software and its suitability for financial management. 1 . Navneet Kaur Skills Institute Australia

BSBFIM601 Manage finances 2020 Edition 4 Financial management Click on the icon for more information. ‘Hello. I’m Ganwealth the financial wizard. I am here to help and guide you through the magic that is financial management. So my friends, what is financial management? Click on the scroll to find out.’ Financial management is the process of managing money. To begin this process, you need to have an effective plan in place for reviewing and analysing previous financial data. You can then determine which areas have generated a profit or loss and research the reasons why. Click to the next screen to learn the type of data you need to review. Financial data A thorough analysis requires you to have a good understanding of what to look for. It’s not just a matter of flipping through pages and reading the bottom line. You need to have a good understanding of what needs to be reviewed. Click on the icon to find out what you need to review and understand.  Budgets, forecasts and variances  Cash flow/profit and loss reports  Market valuations  Business plan What is a budget? In simple terms, a budget is a detailed financial plan that shows estimated revenue and expenses (glossary) for a given time period. The budget estimates whether the business will make a profit in the future. Click on the icon to find out more. A budget provides a plan for activities to be undertaken in the business and a means of comparing actual figures to budget forecasts to determine if the business, department or outlet has performed to expectations. They can be very simple: for the production or sales of a specific product or service, or for a small business such as a sole proprietor. They can also be very complex, for example, for larger businesses with multiple outlets, or organisations with a number of sites, such as a hotel chain. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 5 What is the purpose of a budget? A budget is both a planning and performance evaluation tool. It is prepared prior to a specific financial period to assist in the business’s planning processes and allocation of funds within a business. At the end of a period, the budget is then used to assess performance by comparing actual figures to those originally budgeted. Click on the icon to learn more. Budgets can be a very useful and powerful management tool. However, they’re only effective if they have been carefully researched and prepared prior to implementation. A budget allocates where the business’s funds will be spent and forecasts where and what revenue will be generated. If funds have not been allocated appropriately, expenses controlled or sufficient revenue generated, the business’s operation and profits will suffer. What are the different types of budgets? Businesses use different types of budgets to suit the nature of their operations. Click on the folders to identify each budget type.  Sales budget  Profit and loss (P&L) budget  Cash budget  Master budget  Operational budgets  Capital budget  Event or project budget You learned about how to prepare each of these budgets in the unit Prepare and monitor budgets . Test what you remember on the next screen. Review budgets, forecasts and variances Forecasting and budgeting are interrelated.  Forecasting is predicting what’s likely to happen in the future.  Budgeting is developing a plan of action for financial management. Past performance is one of the best predictors of future performance. Click on the icon to see an example. . Navneet Kaur Skills Institute Australia

BSBFIM601 Manage finances 2020 Edition 6 Profit and loss by quarter Look at this business’s sales, expenditure and profitability figures over a one-year period. As you can see, their business performs better in some quarters than in others. Income $ Expenses $ Profit/Loss $ Jul to Sep 520,000 515,900 4,100 Oct to Dec 980,310 870,010 110,300 Jan to Mar 781,000 760,000 21,000 Apr to Jun 760,000 750,000 10,000 TOTAL 3,041,310 2,895,910 145,400 How far back should you go? It’s not enough to just look at last year’s figures. Although they can help identify quiet and peak periods, it’s also important to look at figures over time. Reflecting on a five-year period can help you determine whether the business’s performance indicates growth, is staying the same or getting worse. Click on the icon to learn more. Year ending Income $ Expenses $ Profit/Loss $ 2010 2,128,917 1,447,955 680,962 2011 2,280,983 1,737,546 543,437 2012 2,585,114 2,171,933 413,181 2013 2,737,179 2,461,524 275,655 2014 3,041,310 2,895,910 145,400 From this information, you can generate graphs and reports which help identify patterns that exist in the tabled figures. These functions are performed by all standard accounting software and make it easy to compare figures in a few simple clicks. Click on the icon to see an illustrated version of these figures. . Navneet Kaur Skills Institute Australia

BSBFIM601 Manage finances 2020 Edition 7 Profit and loss graph A study of the graph tells you the following.  Each year income increases.  Expenditure is increasing at a faster rate than income.  Profit has decreased over time. If this pattern continues, the expenses will be greater than the income, meaning the business will run at a loss. Review operational budgets Operational budgets are usually short-term budgets which provide forecasts of revenue and/or expenses generated in the process of running the business. It doesn’t include revenue from other sources, for example, investments or expenditure such as long-term capital purchases. Click on the tabs to learn more. Budget breakdown Operational budgets can be targeted to specific areas: sales, labour or wages, purchasing, marketing and advertising. These budgets can be components of the master budget as well as being components developed for each operational outlet. They can assist with staff rostering, purchase of materials and maintaining cost of goods (glossary) ratios. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 8 Operational budgets The format, type and breakdown of information included can vary between organisations, depending on their individual needs. Operational budget Outlet: ______________ Period : _______ Number of customers 3,980 $ Breakfast 36,579 Lunch 59,035 Dinner 51,689 Total food sales 147,303 Alcoholic 21,805 Non-alcoholic 15,206 Total beverage sales 37,011 Total sales 184,314 Expenses $ Wages 95,850 Food and beverage cost (COGS) 38,600 Equipment maintenance 2,300 Utilities 4,420 Stationery / printing 1,900 Advertising 8,000 Total expenses 151,070 Review market valuations The ATO requires individuals and businesses to provide market valuations for certain items such as shares, property, vehicles and other assets of value. The process of preparing a valuation can range from simple to complex but the general principles remain the same. The definition of ‘market value’ can vary depending on which area of legislation you’re referring to but generally you should assess the market value at the highest and best use of the asset as recognised in the market. As the value of assets can depreciate or appreciate over time, it’s essential that you review existing market valuations on an annual basis (or more often if required by internal policy or legislation). You will learn how to depreciate the value of assets in the unit Manage physical assets . . Navneet Kaur Skills Institute Australia

BSBFIM601 Manage finances 2020 Edition 9 Extend your learning Go to the ATO website and search for ‘market valuation for tax purposes’. Here you will find everything you need to know about calculating market value. Then refer to Part D: Valuation reports , to find out the type of market valuations accepted by the ATO. Review business plan A business should have business, operational, marketing or production plans from previous years to refer to. These can be very helpful when planning financial management as they detail strategies for achieving long-term, ongoing goals and objectives. Click on the characters to see what information to review. Action plans These could be included in operational plans. They detail specific actions the business must take to achieve operational goals. For example, the goal may be to upgrade computer hardware. The action plan details all the tasks to be completed in this process, who is responsible for completing them, when by, what resources are required and costs involved. Business goals Vision and mission statements influence business goals. Individual areas of the business often have additional goals. This is especially true for larger organisations with multiple sites, stores or franchises, or sections within the business which offer different products and services. Competitor analysis Previous business and operational plans can contain an analysis of direct and indirect competition. Changes to competitors, market share and other factors can be re-evaluated to determine the success of previous plans and be incorporated into planning for the new business plan. Financing arrangements or financial targets Most businesses have long- and short-term financial targets. Previous targets can be used as a basis for future goals especially if they relate to ongoing strategic or operational plans. Long-term financial arrangements, such as loans or bank overdrafts, must be incorporated into any new planning documents. Management arrangements and/or personnel requirements Pre-existing human resource requirements and commitments all affect future planning. Issues, such as staff shortages or training requirements in previous plans, must be incorporated into new plans. . Navneet Kaur Skills Institute Australia

BSBFIM601 Manage finances 2020 Edition 10 Changes in wages, salaries, employee benefits or mandatory government schemes (for example, compulsory superannuation) must all be factored into the financial component of a business plan. Marketing approaches Previous operational, business and strategic plans could outline marketing plans. These would be connected to long-term goals, such as sales and revenue figures and business growth. The success or failure of marketing plans and campaigns can be analysed for future planning. Product or service research or analysis A common goal for any business is to expand and grow. This is usually achieved by increasing the range of products and services offered. Previous plans may have detailed ideas and researched new items. Future plans should include implementation of their results or recommendations. Alternatively, plans may detail why certain products or services are not viable. This means unnecessary time and manpower is not wasted on research during development of the new plan. Note When reviewing business plans, remember to look for critical dates and initiatives that will require or generate resources in the next financial period. Using the financial data Click on the icon for more information. ‘So my friends, you have stirred the pot and you now have all the financial data and reports in front of you. But what will you do with the financial data? Click on the cauldron to find out!’ You will see which departments are generating income and you will be able to identify whether the business has made a profit or loss. At a quick glance you can see whether or not the business is meeting budgeted figures or if expenses have blown out of control. If you are a supervisor of a department or team, this may be the only information you need to know. However, your role is to allocate and manage resources to achieve the required outputs for your business unit. This includes contributing to financial bids and estimates, allocating funds, managing budgets and reporting on financial activity. To do this, you must know what questions to ask when reviewing the financial information. Click to the next screen to get started. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 11 What do you need to review? Click on the financial supervisors to learn what type of questions they should be asking. Previous financial data  What were the previous forecasted figures and what information were those calculations based on?  What did the establishment actually achieve? Why did you get those figures?  Why and how did the establishment attain a profit or loss?  Which areas generated the most/least profit or loss? What caused their success?  Were there budget variances? If so, where? Is there a pattern or a trend to the variances? Cash flow trends  Do previous records indicate a trend in cash flow?  Are there peak periods in which the establishment is known to generate greater cash flow than others? If so, why and how does this affect the next financial cycle?  Does cash flow have an impact on other budgets, in particular the expenses budget? Have you allowed for this? Sales trends  What sales trends have emerged over previous budget periods? Have sales of that item been increasing or decreasing? If so, by how much?  Are sales seasonal, for example, do tours or other products sell more in summer than winter?  Will future in-house or external marketing affect sales?  Is the cost of purchase or production going up? Will this increase the selling price and potentially harm the number of sales? Business plan  Are there critical dates in the plan to be aware of?  What business initiatives require financial resources in the next financial cycle? Do you have the financial resources required?  Are there any initiatives that you know will generate financial resources in the next financial cycle? Future changes  Are there upcoming changes you already know about and can factor in?  Have you been notified of price rises, changes in suppliers or expenses such as equipment purchases? What do you need to research? Research why previous profit or loss was attained by analysing the internal and external environment. You learned what to look for in the unit Prepare and monitor budgets. Do you remember what you learned? . Navneet Kaur Skills Institute Australia

BSBFIM601 Manage finances 2020 Edition 12 You have 30 seconds to list the internal and external factors that can impact your business’s results. Click start to begin. List the internal and external factors that can impact your business’s results. How did you go? Compare your answers to these. Internal factors External factors  Human resource requirements  Organisational and management restructures  Organisational objectives  Scope of project or event  Customer service standards  Departmental plans  Shift in market trends  Competitors  Complementary industries  Technology  New legislation or regulation  Economy  Culture  Demographics  Supplier availability and cost What other information do you need to review? Once you’ve reviewed and analysed the business’s financial data, it’s time to review your compliance with the law. Click on the stamps to find out what you need to review.  Business compliance with statutory requirements  Tax liabilities You’ll learn more about each of these over the next few screens. How do you find out about statutory requirements? You can use your own observations, past experience, training, etc. to get information about laws and licensing for business operations. However, every workplace is different. You may need to consult your union or other outside sources to help you comply with regulatory requirements. Click on the pictures to learn where you can get the information you need. Internet You can use the internet in many ways.  Read about industry changes.  Follow legal discussions.  Obtain online advice.  Order resources and reference material.  Access information from lawyers, libraries, industry associations, business compliance experts, state and federal government departments, etc. . Navneet Kaur Skills Institute Australia

BSBFIM601 Manage finances 2020 Edition 13 Be careful! It’s risky to rely solely on the Internet. Use a combination of resources to ensure that you tap into all areas related to business compliance. Professional networks Develop your professional networks and promote discussions with others.  Business associates  Experienced industry experts  Professional and industry associations  Colleagues  Suppliers  Contractors Reference books  Obtain these from industry experts, government departments, libraries, industry associations and suppliers.  Keep them in your work area or office.  Refer to them when revising policies and procedures that could impact on business compliance.  Ensure your reference material is the most current version available.  Never use old sources of information when making important decisions about your business operations. Media The media includes magazines, television, radio and newspapers.  Learn about government proposals to change legislation.  Listen to discussions from industry experts on legislation, regulations and licensing requirements which impact owners and managers.  Learn valuable lessons by reading or listening to the mistakes made by others. News reports and articles can alert you to the consequences of non-compliance. Codes of conduct or ethics These are usually established through consultation with industry representatives and the community. Industry associations and organisations Industry and employer associations know what’s going on in your industry. It’s their role to lead and represent the interests of travel, tourism, hospitality and events establishment owners and workers. If law, regulation or licensing requirement is about to change, you can be sure that they’ll know about it.  Australian Hotels Association (AHA)  Exhibition and Event Association of Australasia (EEAA)  Restaurant and Catering Australia (R&CA)  Accommodation Association of Australia (AAOA)  Star Ratings  Chamber of Commerce and Industry or Business Chamber (in your state or territory)  Australian Human Resources Institute (AHRI) . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 14 Industry accreditation operators When you subscribe to an industry accreditation scheme, you’re agreeing to comply with the minimum standards outlined by the accreditation body on an ongoing basis. Industry accreditation schemes lead to higher awareness of good business practice. Here are some examples.  International Organization for Standardization (ISO) accreditation  Accredited Visitor Centre or Information Centre  Australian Tourism Accreditation Program Industry journals  There are numerous journals you can obtain to keep updated about industry and legislative changes.  You can search for catalogues at the library, have them delivered to your workplace or obtain copies online.  Some journals need to be purchased, but many can be downloaded from the internet for free! Why not take the time to find the ones that are suited to your workplace and subscribe to them now? Legal experts Most legal firms specialise in certain aspects of the law so you can rest assured that you’re getting reliable (and current!) legal advice. Some legal advice is provided for free, others come at a cost. It pays to shop around for the best advice, not necessarily the most expensive. Start by searching the internet and telephone directory for legal experts in your area. Regulatory authorities Regulatory authorities deal in the area of administrative law. They regulate and supervise different business activities and enforce rules and codes of behaviour. A regulatory authority can be a government agency (public agency) or a private agency that operates independently. Some agencies have statutory authority to perform their functions. For example, Safe Work Australia is the independent statutory agency responsible for improving work health and safety and worker’s compensation arrangements across Australia. Local government offices Local government offices ensure the peace, order and good government of its municipal area. They manage the resources and facilities in a district and are responsible for implementing diverse programs, policies and regulations determined by state and federal government. Commonwealth, state and territory government departments The Commonwealth Government, also known as the Federal Government, passes laws which affect the whole country. Although the six states joined together to form the Commonwealth Government, they still each retain the power to make their own laws over matters not controlled by the Commonwealth. . Navneet Kaur Skills Institute Australia

BSBFIM601 Manage finances 2020 Edition 15 Territories are areas within Australia’s borders that are not claimed by one of the six states. Territories can be administered by the Commonwealth Government, or they can be granted a right of self-government. Self-government allows a territory to establish its own government in a similar manner to a state. For more information about the Australian Government and links to all government websites, departments and contacts, refer to the website www.australia.gov.au. What laws do you need to comply with? There are two categories of laws to comply with. Click on the tabs to find out what they are. Everyone’s business It’s everyone’s business to comply with a broad range of local, state, territory and commonwealth government laws.  Taxation  Australian Consumer Law (ACL)  Contracts  Superannuation  Insurance  Equal Employment Opportunity (EEO) and anti-discrimination  Environmental protection  Industrial relations  Work health and safety (WHS) Your business There are other laws, codes, standards and licensing requirements that impact on specific operators, depending on the nature of their businesses.  Responsible service of alcohol (RSA)  Responsible conduct of gaming  Food safety standards  Prevention of child sex tourism  Other business-specific regulatory requirements You’ll learn detailed information about each of these areas in the unit Research and comply with regulatory requirements . Over the next few screens you’ll learn about the areas of compliance that relate specifically to financial management. Australian Consumer Law (ACL) Click on the pictures to find out about ACL. . Navneet Kaur Skills Institute Australia

BSBFIM601 Manage finances 2020 Edition 16 What are the aims? Consumer protection law ensures business is conducted in a way that guards customers against unfair practices (fraud, unsafe products, price fixing, misrepresentation of goods and services). What’s the law? Australian Consumer Law (ACL) was introduced on 1 January 2011. This single, national fair trading and consumer protection law replaces provisions in 20 national, state and territory laws. It contains legal requirements that impact negotiations and agreements, including contracts. It includes the following.  A national unfair-contract-terms law covering standard form contracts.  A national law guaranteeing consumer rights when buying goods and services.  A national product safety law and enforcement system.  A national law for unsolicited consumer agreements covering door-to-door sales and telephone sales.  Simple national rules for lay-by agreements.  Penalties, enforcement powers and consumer redress options. Compliance How do you comply? Click on the pictures to find out what it means to comply with ACL. Bona fide supplier I’m guaranteed that the supplier has the right to be selling their service and will carry it out with reasonable care and skill within a reasonable timeframe. Goods are of acceptable quality Products I purchase should be acceptable in appearance and finish as well as fit for their purpose, free from defects, safe and durable. Descriptions are accurate All descriptions of products and services should be accurate. The business needs to supply me with products and services which match those described personally or in their catalogues, TV commercials, etc. If they can’t, they need to substitute a suitable product or service. Right to a refund If I cancel a service, I have the right to a refund minus any cancellation fees. If I buy a product with a minor problem, the supplier can choose between providing a repair, replacement or refund. If the problem is major, I have the right to a refund or replacement. In either case, I would need to show proof of purchase (glossary). . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 17 Warnings given about cancellation fees The business must tell me in advance if there’s a cancellation fee, how much it is, and in what circumstances they charge it . A crucial aspect to bear in mind is that terms and conditions of quotations and consumer contracts must be fair. How does this relate to financial management? When developing budgets and planning for financial management, it’s easy to take shortcuts in order to make a profit. In some cases, your shortcuts may breach the law and cost you a lot more than you bargained for! Click on the buttons to learn what practices are prohibited. Substituting products An establishment cannot substitute a product or brand with an alternative or cheaper brand than that which is advertised.  An establishment that sells alcohol can’t pour a cheaper brand into the bottles of a higher quality product and sell them at the higher price.  Nor could this establishment empty beer drip trays back into barrels. These practices and others like them are not only unethical, but illegal. Misleading pricing You cannot promote a product or service as a ‘sale’ or ‘special price’ when it’s not in fact a temporary sale price, thus creating an unwarranted sense of urgency to make an immediate purchase. False advertising The purpose of most advertisements is to encourage customers to purchase something. Some advertisements play with words to entice customers: Hot deal! Your dream destination! Get in quick, seats selling fast! There’s nothing wrong with using marketing and advertising to attract consumer attention, or with playing with words and pictures to sell products and services. What you cannot do is lie.  Don’t lie about the quality, standard or type of products and services available. For example, don’t say ‘a room with ocean views’ if the views are of a car park.  Don’t lie about the origin of products. For example, don’t advertise Australian made if it’s imported.  Don’t lie about the need for a product or service.  Don’t lie about the price or pretend to have a sale. . Navneet Kaur Skills Institute Australia

BSBFIM601 Manage finances 2020 Edition 18 Note Businesses who breach consumer protection legislation and deliberately mislead the public can expect legal action to be taken against them Where can I go for more information? Click on the states or territories to see each governing body. ACT Access Canberra www.accesscanberra.act.gov.au NSW NSW Fair Trading www.fairtrading.nsw.gov.au NT Northern Territory Government www.nt.gov.au QLD Queensland Government www.qld.gov.au SA Consumer and Business Services www.cbs.sa.gov.au Tas. Consumer Affairs and Fair Trading www.consumer.tas.gov.au Vic. Consumer Affairs Victoria www.consumer.vic.gov.au WA Department of Commerce www.commerce.wa.gov.au Extend your learning • For more information about the ACL or the Competition and Consumer Act 2010 , refer to the Australian Competition and Consumer Commission (ACCC) website. www.accc.gov.au. • Visit the ACL website www.consumerlaw.gov.au and familiarise yourself with the information available. Contract situations When managing finances, you must be aware of financial contracts you have with customers and suppliers. This is important so that any changes you make to budgets are not in breach of existing contractual arrangements.  Who might you enter into contracts with?  What situations in your business require contracts? You have 60 seconds to list as many situations or different parties as you can. Click start to begin. . Navneet Kaur Skills Institute Australia

BSBFIM601 Manage finances 2020 Edition 19 Who might you enter into contracts with? What situations require contracts? List your answers. How did you go? Compare your answers to these. Who might you enter into contracts with?  Suppliers  Sub-contractors (gardeners, cleaners, maintenance such as electricians, plumbers, etc.)  Agencies (advertising, marketing, employment, travel, real estate, etc.)  Service providers (security, insurance, utilities, etc.)  Service or maintenance requirements (external contractors for maintenance of large equipment or computer systems)  Financial institutions or services (banks, building societies, credit card companies, credit providers, financial advisors, etc.)  Airlines  Corporate clients What situations might require contracts?  Making a major purchase (capital expenditure items such as large equipment, software, etc.)  Renovating or refurbishing your building  Constructing a new building  Hiring or leasing of equipment, cars, buildings  Booking a room in a hotel  Booking a function  Taking out a business loan  Placing an order for supplies  Purchasing equipment  Engaging a contractor Does this list surprise you? All of these situations are contractual arrangements and all are enforceable by law. You’ll learn more about contracts in the unit Research and comply with regulatory requirements . Make sure you know which contracts impact on your management of financial data. Superannuation (super) Under the Commonwealth Superannuation Guarantee Charge Act (1992) and the Superannuation Guarantee (Administration) Act (1992) , all employers have a legal obligation to pay super contributions on behalf of their employees. This is in addition to the salary payment made to employees. You’ll need to be aware of this statutory requirement when analysing wages budgets and allocating financial resources. Not sure what superannuation is? Click on the icon to find out. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 20 What is super? Over the course of a person’s working life, their employers pay ongoing monetary contributions into a super fund for them in retirement. The Australian Government encourages people to make additional voluntary contributions to their super fund. Contributing to a super fund is an effective way of saving money to provide people with an income when they’re no longer working due to retirement or permanent/temporary disability. Some super funds also provide additional benefits, such as life insurance, which provide financial security to that person’s beneficiary (glossary) if they die. Super is paid to employees aged 18 or over, who:  are paid $450 (before tax) or more in a calendar month, and  work full-time, part-time or casually. Super is paid to employees under the age of 18, who:  earn $450 (before tax) or more in a calendar month, and  work more than 30 hours per week. The minimum amount of super that must be paid is 9.50% of the employees’ ordinary times earnings each quarter until 30 June 2021. This is known as the super guarantee. From then on, it will increase by 0.5% per year until it reaches 12%. For more information about superannuation and how it relates to your workplace, refer to the unit Research and comply with regulatory requirements . [Source: www.ato.gov.au, accessed August 2016.] Tricky tax jargon As a finance manager, you must be aware of tax law and how it impacts your business. Before you learn about the law, let’s make sure you understand some of the jargon. Click on the tablets to learn the different acronyms. ABN Australian Business Number: Your business’s unique identifying number used for certain dealings with the Australian Taxation Office and other government departments and agencies. ATO Australian Taxation Office: The Federal Government’s main revenue collection agency. Their role is to manage and shape tax systems that fund public services for Australians. BAS Business Activity Statement: This is the form businesses use to report their business tax entitlements and obligations (GST, FBT and PAYG withholding and instalments). CGT Capital Gains Tax: Tax you pay if you profit from selling an asset. In most cases, it doesn’t apply to the sale of your primary place of residence. FBT Fringe Benefits Tax: Tax on non-salary benefits employees receive from their employer (cars, subsidised meals, extra super, low interest loans, etc.). GST Goods and Services Tax: A broad-based tax of 10% on most supplies of goods and services consumed in Australia. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 21 PAYG Pay As You Go: This is a way of paying income tax throughout the year. TFN Your Tax File Number is a unique number the ATO issues to individuals and organisations to improve the administration of tax and other Australian government systems. Even if you change your circumstances or name, this number is yours for life. Taxation and the law For a complete list of laws and up-to-date information, refer to the ATO website www.ato.gov.au. In the meantime, here are some of the most important ones to be aware of. Click on the tabs to find out more. Federal laws Taxation  Income Tax Assessment Act 1936  Income Tax Assessment Act 1997  Income Tax Rates Act 1986  Income Tax Act 1986  Income Tax Assessment Regulations 1997 Goods and Services Tax (GST)  A New Tax System (Goods and Services Tax) Act 1999  A New Tax System (Goods and Services Tax Transition) Act 1999  A New Tax System (Goods and Services Tax) Regulations 1999  A New Tax System (Goods and Services Tax Transition) Regulations 2000 Fringe Benefits Tax (FBT)  Fringe Benefits Tax Assessment Act 1986  Fringe Benefits Tax Act 1986  Fringe Benefits Tax Regulations 1992  A New Tax System (Medicare Levy Surcharge – Fringe Benefits) Act 1999 State/territory taxation laws To access information on state/territory taxation laws, contact your relevant revenue office.  ACT: ACT Revenue Office www.revenue.act.gov.au  NSW: NSW Office of State Revenue www.osr.nsw.gov.au  NT: Territory Revenue Office www.revenue.nt.gov.au  QLD: Office of State Revenue Depwww.treasury.qld.gov.au  SA: Revenue SA www.revenuesa.sa.gov.au  Tas: State Revenue Office www.sro.tas.gov.au  Vic: State Revenue Office www.sro.vic.gov.au  WA: Department of Finance www.finance.wa.gov.au . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 22 What is taxation? There are many rules and exemptions to taxation law, but basically everyone has to pay tax on the taxable income they earn from work, a business, investments or government benefits. Taxable income is the total amount of money your business earns during a financial period, less any allowable deductions. Allowable deductions are deductions for certain expenses that you incur in order to run your business. Click on the questions to learn more about tax and the law. What are the aims? Employers giveth and the government taketh away! No one likes to hear the word ‘tax’. We all understand it to mean that the government is taking away a portion of our hard-earned money. But do you know why? As much as we don’t want to part with our money, the government uses our taxes to pay for public services. This is a short list to give you an idea of what gets paid for with your money.  Public hospitals  Public schools and universities  Police  Roads  Railways  Airports  Payments for unemployed people, carers and single parent families  Australia’s Medicare system How do you comply?  Comply with all requirements of the ATO and State/Territory Revenue Office.  Make sure all of your employees have a registered TFN.  Calculate GST, CGT, FBT properly.  Submit your BAS on time.  Calculate and lodge payments and forms by set dates.  Calculate and deduct the correct amount of PAYG withholding from your employees. This varies depending how much the employee earns, their conditions of employment and the state/territory they work in. It also changes regularly, so read any information you receive from your state/territory revenue office and access their website for updates.  Issue every employee with a payment summary (group certificate) by 14 July each year. This document shows how much you paid the employee throughout the financial year and how much tax you withheld.  Pay your business’s tax. What are the taxation commitments? All businesses have tax reporting requirements. Some are prepared annually, others quarterly. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 23 Some of the taxes you might be required to report on include the following.  Pay as you go withholding (PAYG)  Company tax  Goods and services tax (GST)  Fringe benefits tax (FBT)  Capital gains tax (CGT)  Payroll tax You’ll learn more about the different types of tax shortly. What are the record keeping requirements? You must keep tax records for five years, so establish a good paper-based or electronic record keeping system. You can use software to help you complete your tax returns or BAS. Standard Business Reporting (SBR) software is particularly helpful, as it allows you to lodge statements directly to the ATO.  Expenses (cheque stubs, receipts, invoices, credit card statements, petty cash logs, etc.)  Income and sales records (records of cash sales, cash register tapes, receipt books, invoices, etc.)  Records regarding employees (wages, allowances, super payments, etc.)  FBT calculations  TFN declarations or withholding declarations  Contracts and agreements  Asset purchase records or register  Year-end records (depreciating assets worksheets, debtors/creditors lists, etc.  Bank records (loan documents, bank statements, etc.)  Diaries and log books of minor deductible expenses  GST records (tax invoices which include dates, names, addresses, ABNs, prices and product/service descriptions and adjustment notes) Who checks compliance? The Australian Taxation Department and State Revenue Offices enforce harsh penalties for businesses and individuals who do not comply with taxation law. Breaches are considered offences against the general public. It’s unfair to expect honest taxpayers to make up for the shortfall of dishonest people.  If you submit late payments or activity statements, or provide incorrect, false or misleading information, you’ll be fined and penalised.  If you deliberately submit fraudulent information, lie or withhold important information, you can expect much harsher punishment, including imprisonment or closure of your business. The Australian Taxation Office has disclosed all penalty related information on their website www.ato.gov.au. For information about state/territory penalty rates, refer to your state/territory revenue office. Do you need specialist advice? It’s not essential for you to understand all of the requirements of taxation law. This role and this responsibility are usually best handled by a professional accountant or tax agent. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 24 For example, you can appoint an internal accountant, registered tax agent or qualified BAS service provider to complete your BAS. Remember, you are ultimately responsible for the accuracy of information reported in your BAS statements. The law makes you liable for any penalties imposed as a result of a mistake made by your registered tax or BAS agent. What is PAYG? Click on the tabs to learn more about PAYG. PAYG withholding This is the amount of tax an employer deducts from their employees’ pay and forwards to the taxation department. At the end of the financial year, the employee must complete a tax return so the taxation department can determine whether or not enough, or too much, tax has been deducted throughout the year. You need to report and pay amounts you withhold to the ATO and lodge this information in your activity statements. To calculate the correct amount to withhold, refer to the ATO website www.ato.gov.au. PAYG instalments Tax isn’t withheld from significant amounts of interest, rent or dividend income. PAYG instalments allow you to pay tax on this income in instalments during the year. What is GST? The Australian Taxation Office also has an interest in the financial affairs of businesses operating in Australia. Businesses are required to collect and pay GST (Goods and Services Tax) on most goods and services. GST is normally included in the purchase price of goods and services. You can calculate GST by dividing the purchase price by 11. Click on the icon to see an example. Sutherland Resort purchases 12 bottles of 2004 Grange Hermitage Wine for $8,470 GST inclusive. GST is calculated as follows: $8,470/11 = $770 The GST amount on the Grange Hermitage Wine is $770 GST-free price $7,700 + 10% GST $770 = $8,470 Does GST only apply to company purchases? GST is a tax collected by business on behalf of the government, and therefore must be charged both when you buy something and when someone buys from you. For example, Sutherland Resort, sells house wine for $5.50 per glass. This includes GST of 50 cents. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 25 Click on the icon to learn more about GST. Organisations do not keep GST. An organisation’s quarterly GST is calculated by subtracting GST paid from GST collected. If an organisation collects more GST than it pays, it owes the government GST. In contrast, if an organisation pays more GST than it collects, the government will refund the difference. These amounts are calculated in the BAS (Business Activity Statement). Not all products and services are liable for GST. GST is not charged on fresh fruit and vegetables or on wages. How do you calculate GST liability? GST liability is calculated by subtracting the GST paid from the GST collected. Click on the icon to check out the formula in action. You receive payment for goods and services totalling $882,200 including GST of $80,200. All expenses for the same period that required the payment of GST were $23,560 (excluding wages and interest expense). Here's how to calculate the GST liability. GST liability = GST collected - GST paid GST liability = $80,200 - $2,356 GST liability = $77,844 You must set aside enough to cover this liability and for other tax liabilities. There are penalties for late payment. How do you pay GST? Most organisations have a bank account set up to put aside money to pay their GST liability. Click on the tabs to find out more. What are the reporting requirements? GST liability payment information must be recorded on the BAS form provided by the ATO. You can find an example of a BAS form by accessing the Australian Taxation Government website www.ato.gov.au. Are there other requirements? BAS statements are only one reporting requirement. Organisations are also required to report periodically to the government on their income so that the amount of tax payable can be calculated. The current company tax rate is 30%. This is another legal requirement that must be addressed. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 26 Extend your learning Go to the ATO website. Click on the 'business' tab, followed by 'PAYG withholding'. Here you will find detailed information about PAYG requirements. Use the website's search facility to locate the 'Tax tables'. This will show you how much tax you need to withhold from your payments to employees. Now use the website's search facility to locate the 'Tax withheld calculator' and have a go at using it. Try the following example by entering the following information. The payee has provided a tax file number. The payee is an Australian resident. The payee has claimed the tax free threshold and has no tax offsets. The payee is not claiming exemption from the medicare levy variation, is not claiming a reduced amount of levy and does not have a spouse. The payee's income is more than the relevant amount in table A. They have no dependent children, no HELP or TSL debt and no financial supplement debt. The payee's monthly gross earnings is $7,000 (ie. 12 x $7,000 = $84,000 per annum.) Click on 'Calculate' at the bottom of the screen to work out how much tax is applicable. The applicable tax is $1,729. This means that at the end of the month the employee is paid a Net take-home pay of $7,000 - $1,729 = $5,271. The remaining $1,729 must be sent to the ATO on the employee’s behalf early in the following month. What is company tax? Companies must pay income tax on their assessable income (profits). 30% is the current tax rate applied to companies. You can check this rate for changes each financial year by accessing the website www.ato.gov.au. Click on the icon for a simple illustration of how company tax is calculated. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 27 Sales or revenues $2,300,000 Less expenses (which are permitted as allowable deductions by ATO) $1,800,000 = Net profit before tax $500,000 Less estimated tax expense (30%) $150,000 = Net profit after tax $350,000 What other conventions do you need to know about? In addition to Australian legislation, there are other conventions which may impact on your budgets and must be taken into consideration depending on the nature of your business and operations. Click on the headings to learn more about them. World Trade Organization (WTO) determinations The World Trade Organization (WTO) deals with the global rules of trade between nations. The goal of WTO agreements is to help producers of services, exporters and importers conduct their business as smoothly and freely as possible. The member countries receive the assurance of knowing that the agreements are supported by governments in the majority of the world's trading nations. Free trade agreements Free trade agreements (FTAs) can cover multiple regions and participants or just two economies (bilateral agreements). The purpose of FTAs is to benefit the parties by helping exporters access new markets and expand trade in existing markets. Despite its name, free trade agreement does not mean it's 'free' trade. Although parties have preferential arrangements, tariffs, quotas and other subsidies are not completely removed. They are simply reduced for parties to the agreement. Bilateral and regional trade agreements Bilateral and regional trade agreements typically seek to reduce trade barriers between partner countries by determining purchase guarantees, removing tariffs, import quotas and other trade barriers. Parties to the agreement are given preferential treatment when facilitating trade and establishing commercial relationships. Extend your learning Go to the Australian Government Department of Foreign Affairs and Trade website www.dfat.gov.au. Click on the ‘Trade and investment’ tab and click on any of the links to find out more about trade agreements in Australia. Can you see how many bilateral agreements Australia has in force? With what countries? How many regional agreements does Australia currently have in force? Who are they currently negotiating with? . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 28 International Commercial Terms (INCOTERMS) To minimise confusion and miscommunication between the nations, the International Chamber of Commerce has created Incoterms. Incoterms are like a universal language that help global traders communicate effectively. There are eleven different terms that are used to indicate different situations regarding the purchase, movement and shipping of goods internationally. Incoterms also deal with global trade documentation and specify who is responsible for completing which documents. Search for 'Incoterms' in Google images. Click on one of the images to see how Incoterms might relate to your business's activities. Warsaw Convention The Warsaw Convention is an international convention regulating the liability and compensation for victims of air travel disasters. It was originally signed in 1929 in Warsaw, hence the name. In 1999 the Montreal Convention was signed by the International Civil Aviation Organisation, an agency of the United Nations. It amended and essentially replaced the Warsaw Convention’s rules for the international carriage of passengers, baggage and cargo and the compensation to victims of travel disaster. The Montreal Convention provides greater protection to travellers and provides airlines with clarity about the rules that affect their liability. For more information, visit IATA’s (International Air Transport Association) policy page and search under the ‘Montreal Convention’ www.iata.org Is it time-consuming to produce financial data? These days, most organisations use computer software packages for preparing taxation and financial reports. Even small businesses are enjoying the time-saving benefits of accounting software. What once took days to prepare can now be processed with the simple click of a button. Click on the icon to find out how the system you use affects the production of reports.  The type of system used varies greatly from one business to the next. Some use a stand-alone accounting package, such as MYOB, which operates separately to the front office in-house system and point of sale terminals.  Others use a more sophisticated system that integrates information from all of the departments. A hotel, for example, might use an integrated system, which allows cashiers in the bistro to automatically update customer accounts with room service charges, without the need to manually transfer dockets to the front office.  Standard Business Reporting (SBR) software is particularly helpful, as it allows you to lodge statements directly to the ATO. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 29 Is your system the right system for your business? Technology is always advancing. It's important you keep up to date with recent developments to ensure the system used in your workplace is the best and most current available. This doesn't mean you need to spend thousands of dollars implementing a new system. Simply look at what's out in the market, talk to others working in the industry and speak to software product providers. Click on the pictures to find out more.  Know what financial data you need to collect and report on.  See if there are products on the market which will make this process easier, quicker or more cost-effective for you and your employees.  Don't assume that the latest is best. Review the positives and the negatives of the different software options.  Make sure your staff have the skills to use the software. If it's too complicated, errors could occur when producing financial reports.  Develop procedures that explain when and how the technology should be used.  Trial any new software programs before implementing them across all departments. Note Choosing the right software and accounting system for your workplace will alert you when the business is in trouble while you still have the opportunity to do something about it! What functions should you look for? This depends on the size of your business, the skills of your staff and the nature of operations. Click on the checkboxes for some of the functions to consider when choosing which software is right for you.  Does the software calculate all payroll requirements?  Does the software track stock, orders, quotes?  Does the software allow for multiple users?  Does the software allow for multiple bank accounts or trading names?  Can the software be integrated with other systems used by the business?  Does the software have an integrated customer relationship manager system (CRM)?  What financial reports can you produce?  Does the software generate ATO compliant reports?  Will my staff be able to use the software?  How much will it cost and are the benefits worth the financial investment? . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 30 End of section You have reached the end of Section 1. Click to the next section to continue. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 31 Section 2: Establish budgets and allocate funds In this section you will learn the following.  How to prepare budgets.  How to use previous financial data to determine resource allocation.  How to make informed estimates of new items for inclusion in budget. Establishing budgets Click on the icon to learn more. Have you ever prepared a budget? Have you ever planned to achieve a goal, worked out how much you can afford each week and what expenses you might have to pay to reach the goal? You might know more than you think. Click on the scroll and my words shall become clear! Planning a holiday is a lot like planning a budget. You decide on your destination (the goal), calculate your expenses (airfares, accommodation, new clothes, spending money) and establish a plan for how to earn the income required to achieve your holiday. Using budgets in the business world is essentially the same. They are a common and important management tool, helping you achieve your organisational goals by setting targets to be achieved within specific timeframes. They also allow you to evaluate your performance against those targets and make adjustments for the future. What is a budget? You learned about the purpose and different types of budgets in Section 1 of this unit. Do you remember what you learned? You've got 30 seconds to record a simple definition of a budget. Click start to begin. What is a budget? Type your simple definition in the space below. How did you go? In simple terms, a budget is a detailed financial plan that shows estimated future revenue and expenses for a given time period. The budget estimates whether the business will make a profit in the future 2 . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 32 It provides a plan for activities to be undertaken in the business and a means of comparing actual figures to budget forecasts to determine whether it has performed to expectations. What is the budget cycle? The budget cycle is the process undertaken from starting to develop a budget to the final transaction in the budget period. Since resources are allocated to budgets on an annual basis, the cycle covers costs or expenditures for a single year. A ‘year’ can mean different things in accounting terms. Click on the calendar dates to see what they are.  A financial year (1st July to 30th June)  A calendar year (1st January to 31st December) Budgets for shorter periods (such as a quarter, month or week) are developed from the information contained in the annual budget. Types of budgets As mentioned earlier, the budgets a business chooses to use is dependent on their internal structure, external reporting requirements, type of operation and business philosophy. Every operation uses a variety of budgets to suit its specific needs, but there are a number of commonly used budgets. Click on the tabs to learn more about each one. Sales budget This is one of the most important budgets, as it can determine whether the business makes a profit or loss and is often the starting point for all other budgets. Sales budgets are forecasts of income/revenue targets to be achieved from the sale of the business’s goods or services. They are usually developed as monthly, quarterly, fiscal (glossary) or calendar year budgets. Click on the icon to see a sales budget example. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 33 Sales budget example Sales budget Outlet: ______________ Period: ________ Breakfast Lunch Dinner TOTAL No. covers 1,410 2,090 1,375 4,875 Average spend per cover: food $ 18.85 23.94 35.41 25.70 Average spend per cover: beverages $ 3.50 6.10 8.90 6.17 Average seat turnover 1.25 1.5 1.0 1.25 Food sales $ Breakfast 26,579.00 Lunch 50,035.00 Dinner 48,689.00 Total food sales 125,303.00 Beverage sales $ Alcoholic beverages 6,805.00 Non-alcoholic beverages 13,116.00 Total beverage sales 29,921.00 TOTAL SALES 155,224.00 Click on the icon to learn how other reports support the sales budget. How other reports support the sales budget The example provided is a departmental budget; it outlines the targets for the whole department for the entire period. This budget would be supported by other more detailed budgets, which could give breakdowns of how those sales figures are to be achieved. These budgets could give specific targets such as: 1. Sales to be achieved for specific meal periods: breakfast, lunch, dinner. 2. Breakdowns of sales into categories of menu items: cooked or continental breakfast, entrée, main course, dessert, coffee, wine, beer, mixed or pre-mixed drinks, non-alcoholic juices, soft drinks, etc. Purchases budget This budget comprises a series of smaller budgets which are then accumulated into an overall budget. The smaller budgets would focus on individual categories or purchases for a specific area or outlet. For example, budget categories could include food, beverages, equipment, cleaning products or linen. Alternatively, each outlet could have its own purchasing budget based on its particular requirements. Larger organisations often have both types of budgets. Departmental purchasing budgets are developed based on anticipated purchases needed to achieve the targets specified in the sales budget. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 34 Category budgets are then developed from the figures in all departmental budgets, giving organisation-wide goals. Click on the icon to see a purchase budget example. Purchase budget example Purchases budget - food Period: ________ Amount $ Fruit & vegetables 2,294.00 Dairy products 3,670.00 Meat, fish & poultry 6,423.00 Fish & seafood 2,890.00 Dry goods - food 2,560.00 Dry goods - other 1,345.00 TOTAL PURCHASES 19,182.00 Click on the icon to see a departmental budget example. Departmental purchases budget Purchases budget Outlet: ______________ Period: ________ Food purchases Amount $ Fruit & vegetables 10,695.00 Dairy products 13,690.00 Meat & poultry 19,460.00 Fish & seafood 9,890.00 Dry goods - food 5,600.00 Dry goods - other 3,045.00 Total food purchases 62,380.00 Beverages - alcoholic Wine - white 4,550.00 Wine - red 5,680.00 Beer 11,050.00 Spirits 2,780.00 Liqueurs 1,255.00 Fortified 920.00 Pre-mixed 7,265.00 Total alcoholic 33,500.00 Beverages - non-alcoholic Juice 2,630.00 Post-mix 1,560.00 Bottled soft drink 7,850.00 Water 1,465.00 Total non-alcoholic 13,505.00 Total beverage purchases 47,005.00 Tableware Cutlery, crockery replacement 150.00 . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 35 Purchases budget Outlet: ______________ Period: ________ Glassware replacement 200.00 Cruets:new range 400.00 Table numbers 50.00 Total tableware 800.00 Cleaning products Chemicals 150.00 Small equipment 30.00 Total cleaning products $ 180.00 Total departmental purchases $ 110,365.00 Labour/wage budget Labour costs are a major expense for any hospitality, tourism or events business, and, as a result, it’s important that the labour budget is based on accurate, up-to-date data such as current pay rates, salaries and anticipated staffing levels. However, wages are not the only expense which needs to be considered. Other costs (often called on-costs) that must be included in a labour budget are superannuation, WorkCover contributions, payroll tax and leave entitlements. These additional expenses can add up to thousands of dollars a month and must be paid, so ensure you include them in your planning. Click on the icon to see a labour budget example. Labour budget example Labour budget Outlet: ______________ Period: ________ No. staff Gross wages $ Super $ Leave entitlements $ TOTAL COSTS $ Full-time staff 3 7,150.00 643.00 595.00 8,388.00 Part-time staff 2 2,600.00 234.00 216.00 3,050.00 Casual staff 2 1,730.00 156.00 1,886.00 Total costs 11,480.00 1,033.00 811.00 13,324.00 Overhead expenses budget Overheads are business expenses which cannot be directly linked to the production of a product or service (indirect costs). They are part of the total cost of running, staffing and maintaining a business. Examples include rent, electricity, gas, repairs and maintenance, telephone and public area cleaning. Sometimes expenses which may have been included in other budgets will also be included in the overheads budget, for example, advertising and employment expenses. This allows the business to gain an overall picture of all indirect or fixed costs while giving the marketing and human resource departments an understanding of all expenses associated with their area. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 36 Click on the icon to see an overhead expenses budget example. Overhead expenses budget example Overhead budget for the month of June Expenses Amount $ Operating expenses 20,501 Motor vehicle expenses Motor vehicle – fuel 5,869 Motor vehicle - insurance & registration 1,930 Motor vehicle – repairs & maintenance 3,353 Total motor vehicle expenses 11,152 Services & utilities Electricity 12,841 Gas 8,636 Telephone & internet 7,520 Rates 1,468 Total services & utilities 30,465 Employment expenses Staff amenities 814 Superannuation 3,244 Training & seminars 2,470 Uniforms 542 Workers compensation 574 Wages 61,483 Employee benefits 654 Total employment expenses 69,781 TOTAL OVERHEAD EXPENSES $ 131,899 Master budget (whole of organisation budget) The master budget is a comprehensive amalgamation of all operational and financial budgets. Projected revenue and expenses figures from all the other budgets are accumulated to give a global picture of the business’s target for that period. It’s an essential document when planning the future operation of the business, determining if resources have been allocated appropriately, assessing the financial viability of the business, and gauging if the objectives outlined in the strategic and business plans are being met. Normally, master budgets are prepared for a specific period (usually the financial year) and would include other budgets such as the profit and loss and cash flow budgets. These would be reported officially in the company’s financial documents. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 37 More information and an example of a master budget are provided in Section 3 of this unit. Click on the icon to see how the master budget is interconnected to other areas, departments and their budgets. How the master budget is interconnected to other areas, departments and their budgets Profit and loss budget The Profit and Loss Budget can also be called the Income Statement Budget; the terms are interchangeable. The Profit and Loss Budget summarises the anticipated revenue and expenses for a budget period, usually a fiscal quarter or year. This is a very useful accounting tool, as it shows what volume of sales or revenue you need to achieve to make a certain profit. You can then break the annual budget down into monthly and weekly targets for departments to achieve. The smaller targets give staff an idea of what they are expected to achieve over shorter timeframes, making the targets seem more realistic and providing regular feedback on performance. Departmental budgets Food purchases Beverage purchases Equipment, etc. Purchases budget Food sales Beverage sales Other sales Sales budget Labour Human resources Marketing Overheads Cash flow budget MASTER BUDGET Profit & loss budget Balance sheet budget Capital expenditure budget . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 38 Profit and loss budgets are often used to support applications for business loans, and grant funding as it shows the business’s ability to generate a profit. Click on the icon to see a profit and loss budget example. Profit and loss budget example Profit and loss budget for the month of June Sales Amount $ Sales: food 45,878.50 Sales: beverages 23,212.50 Discount received 500.00 Total income 69,591.00 Less cost of sales Food cost 13,763.55 Beverage cost 5,338.87 Total cost of sales 19,102.42 GROSS PROFIT 50,488.58 Less expenses Cleaning 1,227.27 Insurance 2,090.91 Laundry 477.27 Other overhead expenses 19,678.31 Rent 5,454.55 Uniforms 575.00 Utilities 2,861.80 Wages & on-costs 14,760.15 Total expenses 47,125.26 PROFIT/LOSS $ 3,363.32 Cash flow budget A cash flow budget is based on information from the sales and other operational budgets and predicts the cash flow into and out of the business. This allows you to determine how much cash or funds are available or must be outlaid during any given period. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 39 You can plan for periods of increased cash outflow, assess your ability to finance additional projects such as renovations or capital purchases, or determine if you need to apply for a bank loan or overdraft (glossary) to meet your commitments. A cash flow budget can be prepared for all levels of a business and is one of the most important budgets used by managers. Click on the icon to see a cash flow budget example. Cash flow budget example Cash flow budget F&B outlets Period: January - March quarter 20XX Cash inflow Amount $ Cash sales 1,109,130.00 Accounts receivable: payments received 137,084.00 Government incentives: conservation grant TOTAL INFLOW 1,246,214.00 Cash outflow Food & beverage purchases 317,846.20 Accounting fees 6,000.00 Wages & salaries 382,375.00 Advertising 60,000.00 Insurance 3,411.25 Telephone 4,666.67 Postage 3,600.00 Stationery 6,900.00 Rent 119,000.00 Utilities 39,000.00 Repairs & maintenance 12,937.50 Bank loan repayments 8,500.00 TOTAL OUTFLOW 964,236.62 Cash surplus/deficit 281,997.38 BANK BALANCE Opening bank balance 64,554.17 Cash surplus/deficit 281,997.38 Closing bank balance $ 346,551.55 . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 40 Are there any other budgets? There are two other budgets which are commonly used. Click on the tabs to learn about each one. Capital budget Use this budget to plan for long-term financial outlays, which are not covered by operational budgets. Examples can include the purchase of fixed assets, such as equipment and machinery, fittings and fixtures. As this budget is used for larger resource acquisitions, often the purchase price must be over a pre-determined value (such as $2,000) for it to be included in a capital budget. You'll often use this budget in conjunction with a project budget. Project or event budget A project or event budget is developed for a specific task, goal or event such as renovations, an annual function, extensions, etc. What are your budget requirements? There are certain requirements you need to comply with when preparing budgets. Some of these relate to the law and others relate to your specific workplace. Click on the tabs to learn more about them. Statutory requirements  Delegated authorities  Internal control procedures  Limits on volumes and types of financial transactions  Reporting of duty, excise and other overseas government changes  Reporting periods  Taxation and payment timing Organisational requirements  Financial analysis assessments  Financial management manuals  Legal and organisational policies, guidelines and requirements  Occupational health and safety policies, procedures and programs  Price and exchange parameters  Quality assurance and/or procedures manuals  Recording and filing systems  Reporting requirements  Standard financial analysis techniques . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 41 Recording allocation of resources Part of your role involves maintaining detailed records of resource allocation. Why record resource allocation? Click on the dot points to find out.  To track performance  To analyse efficiency and productivity  To manage costs and cash flow  To identify and rectify deviations  To report on opportunities for future improvements How you record the allocation of resources depends on the monitoring and recording system used in your workplace. What are your budget priorities? Every business has specific areas they want to focus on in the short term, in a certain budget period, or over a longer period such as a financial year. Priorities are determined by departmental goals and/or the primary concerns of business owners, shareholders or financial backers. These may fluctuate during busy periods or when in the process of growth or change. To manage finances and allocate resources, you need to know what these priorities are, and how they relate to the budgets. Click on the tabs to find out more. Profitability Every business wants to be profitable. This is the aim (and ultimate goal!) of all budgets. Expenditure Most businesses make controlling and reducing expenditure a priority. Sales Again, maximising sales is the aim of any business. However, sales of specific products or services, or increasing the number of customers for a service period might also be a priority. Marketing Promoting your business is always important. However, the type or method of marketing may change, or what you wish to promote can vary. New products or services, new facilities, or the refurbishment of your workplace could all become a priority for a particular budget period. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 42 What sources of information do you use? Budgets aren’t the only source of information relating to where resources are allocated and controlled within a business. How many other sources of data can you think of? List as many as you can in 30 seconds. Click start to begin. List as many sources of data you can think of in the space below. How did you go? Compare your list to the examples provided on the next screen. Sources of data used to allocate resources Click on the checkboxes to learn the main sources of data.  Performance data from previous budget periods: actual versus budget results from previous, similar periods of operation  Income and expenditure for previous time periods  Previous departmental, event or project budgets  Customer or supplier research: price trends, customer spending patterns  Competitor research: what the opposition is doing  Management policies and procedures: stock control procedures, staffing levels, service and operational procedures  Financial information from suppliers: changes to contractual obligations, bill payment requirements, product-pricing trends  Organisational guidelines on budget preparation: legal, corporate or franchisee accounting requirements  Declared commitments in areas of operation: upcoming events, projects or minimum standards of service within the business, financial commitment  Grant funding guidelines or limitations  Financial proposals from key stakeholders: injections of funds, share releases  Purchasing documents  Payroll and superannuation records  BAS statements and other taxation records  Business agreements and contracts . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 43 The importance of reviewing previous financial data If you’re preparing an incremental budget, then the previous period’s figures are a cornerstone of your future budget. It’s essential you know as much as possible about those budgets and their results. Click on the pictures to find what you need to find out.  Previous forecasted figures: what were the forecasts and what information were those calculations based on?  Actual figures: what did the establishment actually achieve? Why did you get those figures?  Budget variances: where did the variances occur? Is there a pattern or a trend to the variances?  Reasons why the variances occurred: understanding why you were under or over budget previously helps your future calculations.  Known future changes: are there upcoming changes that you already know about and can factor in? Have you been notified of price rises, changes in suppliers or expenses such as equipment purchases? Note These figures from past budgets can then be adjusted for expected changes in future conditions such as a percentage increase in sell price or costs (due to inflation), or expected changes in the volume of activity (due to expected increase or decrease in market demand or market share). Where do you find the data? Click on the icon to find out the answer. Most of the financial data is easily retrieved from computerised systems. Accounting, POS, purchasing and front of house systems are programmed to produce specific reports on a daily, weekly or monthly basis. This allows the business to know exactly how many of every product or service they have sold for a given period. Businesses without a POS (glossary) system often use electronic cash registers that have several categories for most products or services sold; they may use pre-set keypads or PLU (glossary) systems. Sales reports are generated from the cash registers at the end of a service period or day. These figures are then accumulated using a spreadsheet or other software packages to provide monthly and annual statistics. Manual systems can also use spreadsheet software to record and accumulate data and statistics from paper-based sources. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 44 Limits of using previous data There are times when previous financial data won't provide you with the information you need. Click on the sign to see some examples.  When planning new business activities or services  When acquiring new assets or facilities.  When repairing or renovating assets or facilities.  When opening a new department or establishing a new work/project team.  When planning an event. Any other situation that you have not encountered in the history of your operation. Although in fairness this one’s pretty unlikely. How do you allocate resources for new items? Research is the only way to gain reliable estimates for new items in your budgets. Click on the icon to find out what you need to do.  Speak to suppliers and other service providers to accurately determine acquisition costs.  Consult with colleagues to ensure you haven't overlooked any factors which may impact the budget further.  Double-check your calculations. Particularly when calculating break-even costs and selling prices for new items.  Ensure you consider all resources: human, financial, time and physical.  Make sure you update all relevant financial records that are affected by the new item. You learned detailed formulas and processes for calculating sales, expenditure and labour costs in the unit Prepare and monitor budgets . Additional information is provided in the unit Manage finances within a budget . In a nutshell Don't guess figures. Make informed estimates by accessing reliable sources of information. End of section You have reached the end of Section 2. Click to the next section to continue. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 45 Section 3: Implement budgets In this section you will learn the following.  How to circulate budgets and ensure managers and supervisors are clear about budgets, reporting requirements and financial delegations.  How to manage risks and ensure systems are in place to properly record all financial transactions.  How to review profit and loss statements, cash flows and ageing summaries.  How to revise budgets and deal with contingencies.  How to maintain audit trails to ensure accurate tracking and to identify discrepancies between agreed and actual allocations.  How to ensure compliance with due diligence. Circulate the budget Once the budget is finalised, circulate it to ensure managers and supervisors are clear about their responsibilities, reporting requirements and financial delegations. Click on the checkboxes to find out what information they need.  The budget targets that directly affect their area of control, for example, sales, revenue, expenditure, purchasing targets.  Other budgets affected by the targets to be achieved in their area, for example, profit and loss and cash flow.  How they can achieve their goals and if any assistance is provided, including marketing or promotional campaigns.  Budget breakdowns, such as monthly sales budget figures broken down into daily and weekly targets.  Factors that can affect their budget outcomes.  Reporting requirements, including weekly status reports, monthly budget reports, deviation reports and management meeting summaries.  Their responsibilities: targets they’re responsible for achieving, which are influenced by others, who they should report deviations and problems to, level of ability to make changes in their area of control to achieve budget targets.  Risk management procedures and internal policies related to financial record keeping. 3 . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 46 In a nutshell It's impossible to achieve budget targets without the support and assistance of your colleagues. Make sure you distribute the budgets to all key stakeholders. Let's look at who this includes on the next screen. Who do you distribute the budget to? Click on the people to find out. The general manager This person is responsible for and understands the operation of the entire business. Finance experts This includes accounting staff, an accountant or a finance manager. The purchasing manager If your suggestions affect purchasing procedures, involve the purchasing manager in any decision-making processes. The marketing manager Again, if the suggestions directly affect their area and how the business is marketed internally and externally, consult marketing personnel. The management team You may informally consult other managers to obtain feedback or present recommendations to the management team at one of the business's regular meetings. Which budgets do you circulate? Who gets what budget depends on their position, their reporting and financial management role and responsibilities, and the relevance to their work area. Click on the folders to see an example of how various budgets might be distributed in a hotel.  The hotel manager receives a copy of every department’s budgets as well as all master budgets for the hotel.  The accounts department manager and the head accountant receive a copy of all budgets.  The operational managers receive sales and labour budgets for their relevant work area, as well as either a food and beverage or rooms division purchases budget.  The head chef has a copy of the food purchases budget.  The purchasing manager has all purchasing budgets for the hotel and the capital expenditure budget. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 47 Maintaining system integrity Why is system integrity important? Click on the light bulb to find out. It's important to maintain the ‘integrity’ of the business’s accounting and management information system. Otherwise, as the saying goes, 'You put garbage in, you get garbage out!' There must be checks and procedures in place to ensure that information about transactions are recorded accurately, reliably and securely or else the door is left open to fraudulent behaviour by customers or staff. These internal controls are used to safeguard the business’s assets and the integrity and reliability of the financial records. It's the external auditor’s responsibility, in part, to help ensure this is functioning properly. How do you manage risks? Taking a risk management approach ensures systems are in place for correctly recording financial transactions and which minimise the risk of misappropriation of funds. Click on the manager to find out more. As the manager, I'm responsible for the business's risk management processes. This is a big task, and one I cannot afford to get wrong. Risk management is all about reducing the risk of non-compliance with legal requirements and minimising errors. This is achieved by identifying practices that may potentially infringe laws, and taking action to control those practices and minimise risks. This includes checking to make sure there are no opportunities for misappropriation of funds which may jeopardise the organisation’s future viability. If I fail to do this task correctly, we could also be in big trouble with the ATO and our records will be in a big mess! What is risk management? You can’t avoid risks in business but you can manage them effectively. For the purposes of compliance, risk management means reducing the risk of non-compliance by using three simple steps. Click on the numbers to learn what they are. Step 1 : Risk identification Step 2 : Risk assessment Step 3 : Risk control . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 48 RISK IDENTIFICATION A risk is any situation or thing that has the potential to harm a person or your business. Risk identification is the process used to identify all of the possible situations in the workplace where compliance breaches are exposing you (or could expose you) to potential litigation. Click on the icon to see the different risk situations.  Breaching contracts  Not paying the correct amount of tax  Being underinsured  Not submitting BAS statements on time  Taxing employees at the wrong rate  Misappropriation of funds  Record keeping errors  Failing to maintain and/or secure records RISK ASSESSMENT There are many risk assessment tools and templates available. They’re similar in design and some address industry-specific risks. You can obtain software programs that help you manage your risks more effectively. Click on the dot points to see what the risk assessment tool should underpin.  Effectiveness of current compliance and record keeping systems  Likelihood that a breach of legal requirements or internal policies will occur  Severity of the consequences to the business  Urgency to take action . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 49 What does a risk assessment template look like? Risk assessment template Click on the numbers to learn about each section of the risk assessment template. Risk assessment Date of assessment: _____________________________________________________ Name of person completing assessment: ______________________________________ Department/work area/task assessed: _________________________________________ Risks identified Potential harm or consequences Level of risk Risk controls Person responsible for action Date completed Likelihood Severity Risk priority (1) Date of assessment The date of assessment helps monitor how much time has elapsed between conducting the assessment and taking action. It also allows management to look at the frequency of assessments being conducted throughout the establishment. (2) Name of person completing assessment The person conducting the assessment may not be the department supervisor or manager. It could be an employee or external accountant. Include this information in case the report needs to be followed up or more detailed information is required. (3) Department/work area/task assessed A risk assessment may relate to an entire department, one particular work area (front office, accounts department) or a specific work task (accounts receivable procedures). Management needs specific information about what areas or tasks are included in the risk assessment. 1 2 3 4 5 6 7 8 9 . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 50 (4) Risks identified This is where you list all of the risks you identify. If you’ve already completed a risk identification checklist, you can transfer the information from your checklist directly into the risk assessment template. (5) Potential harm or consequences Collect sufficient evidence of the harm posed. Consider the consequences that could result from non-compliance. (6) Level of risk The level of risk is determined by following three steps. Step 1: Determine how likely it is that a breach of legal or licensing requirements will occur. Step 2: Determine how severe the consequences to the business could be. Step 3: Using a risk priority chart, match the likelihood of breach and severity to rank the risks in terms of their priority. (7) Risk controls Risk controls are the steps you plan to take to eliminate or minimise the risk. (8) Person responsible for action The person responsible for taking action may not be the person completing the risk assessment. For example, an accounts manager might conduct a risk assessment and record the action to be taken by the department supervisor or manager. Recording these details makes someone accountable for the action required. (9) Date completed Once the required action is taken, close off the report by inserting the completion date. Management can then see that the risks have been appropriately controlled and determine if any further action is required. You'll learn more about compliance and the risk management process in the unit Research and comply with regulatory requirements . How else can you manage risks? This is where your financial record keeping becomes important. For example, if you keep records on contracts and agreements, you can monitor compliance of both parties by taking account of contractual Key Performance Indicators (KPIs). These are quantifiable measurements of performance that reflect adherence to agreements. Through reviewing super, tax, WorkCover, sales records, etc., you can see which areas of your business's financial system are working well and where there’s room for improvement. We'll look at more control mechanisms shortly. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 51 What is misappropriation? Misappropriation (also referred to as embezzlement, fraud, theft or 'cooking the books') is dishonestly or unfairly taking something that doesn't belong to you. If someone has misappropriated funds in the workplace, it basically means they have taken the business's money for personal use. There are many ways a person can misappropriate funds. Unfortunately, most managers are completely unaware that misappropriation is occurring because it's a crime usually committed by someone in a position of trust. Click on the red crosses for examples of misappropriation of funds that are both unethical and illegal.  An employee pocketing a cash sale  An employee accessing the business's or client's bank account to withdraw funds for personal use  Making false receipts for petty cash claims  Changing the total on a customer's account without their knowledge and keeping the extra money for personal use  Using a company credit card for unauthorised purchases  Being trusted to invest or distribute company funds or customer payments but using the funds for unauthorised personal use or investment  An employee setting up dummy supplier accounts to falsify purchase transactions  Undercharging family members or friends  Taking business property (postage stamps, stationery) for personal use  Using company accounts to pay for large internet downloads or make long-distance personal calls Can you prevent misappropriation? Now that you know what misappropriation means, how are you going to prevent it in the workplace? See how many strategies you can think of in 30 seconds. Click start to begin. List the strategies you might implement to prevent misappropriation of funds in the workplace. How did you go? Compare your list to the tips provided on the next screen. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 52 How can you prevent misappropriation? Click on the checkboxes for some tips to minimise the misappropriation of funds at your workplace.  Implement internal control systems. You'll learn more about this shortly.  Restrict access to financial records. Only select employees should have access to financial information.  Review bank and credit card statements. Scrutinise transactions before reconciling and insist that receipts be provided.  Reconcile accounts payable and receivable on a regular basis to detect discrepancies early.  If your business receives cash payments, implement a secure system for recording receivables and depositing funds.  Password-protect computer files and be sure to delete passwords of employees who no longer work for the business.  Conduct background checks or reference checks before hiring accounts and managerial staff.  Monitor suspicious behaviour in the workplace.  Test any systems you put in place to make sure there are no loopholes for manipulating funds.  Have a second person authorise large transactions and amounts.  Spot-check accounting records. What are control systems? Having systems and procedures in place ensures staff know how to record financial transactions correctly. Click on the buttons to see the types of activities to include in your financial systems and procedures.  Recording transactions  Checking and reconciling figures and reports  Cash management and banking procedures  Invoicing  Managing cash flow  Managing accounts receivable  Managing accounts payable  Managing financial audits  Completing and managing budgets  Controlling stock . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 53 Reviewing the figures There’s no point going to the trouble of developing a budget if you're not going to regularly update it and use the information produced. So your next step is to review the actual figures against the various budgets and determine any variances (glossary). Click on the tabs to find out more. Why record and compare figures?  To find out if the budgets are being adhered to  To discover if the resources you’ve allocated are appropriate to the level of business generated  To work out if the budgets are realistic Can you really predict the future? No! The manager who prepared the budget may have been far too optimistic or conservative when making their projections. Therefore, the budget may not reflect the real operational situation. Also, the conditions in which the original budget was developed may change. These changes can have a significant impact on the budget outcomes.  External factors such as economic climate, price rises and bad weather  Internal issues such as equipment breakdown or loss of key staff When do you record the figures? When you record the figures depends on three things.  The type of budget  Who is doing the recording  The policies and procedures of the individual workplace What systems do you use? Another major factor is the use of computerised systems such as POS, purchasing and accounting systems. Many establishments today have computers with spreadsheet software or computerised front and back of house systems, so updating budgets can be a relatively easy task. Computerised systems provide quicker turnaround times compared to manual systems. Why? They can more quickly process, update and distribute information (especially when the various systems are linked together and can share data). A performance report is essential in determining variances. Click to the next screen to learn more. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 54 What is a performance report? This report allows you to compare actual to budgeted figures for specific budgets in a simple format, making it easy to distinguish results. Initially, you can make a direct comparison of budgeted figures against actual performance and determine if or where variances have occurred. Before you do this, you need to know how to calculate variances in dollar terms and as a percentage. Click on the tabs to learn how. How do you calculate variances? Variance figures in budgets and other financial documents are expressed either as a number or a percentage (or sometimes both). Click on the tabs to learn how to calculate variances. Calculating a dollar value variance Actual $ – budget $ = variance $ Example $10,150 (actual sales) – $11,000 (budget) = a variance of ($850). As the actual figure is less than the budgeted figure, the variance is a negative value. Some accounting systems express this as ($850) to clearly show it is a negative amount as sometimes a minus symbol is hard to see in a row or column of figures in budgets, and other reports. We will use that system in our sample budgets. Calculating a percentage variance: sales (Actual $ – budget $) / budget $ x 100 = variance% Example: sales ($10,150 – $11,000) / $11,000 x 100 = a variance percentage of (7.7%) This method is used to calculate variance figures for money coming into the business. You use this formula when calculating profit, revenue, income or sales variance figures. Calculating a percentage variance: expenses (Budget $ – actual $) / budget $ x 100 = variance% Example: courier expenses ($4,000 – $3,775) ÷ $4,000 x 100 = a variance percentage of 5.6% This method is used to calculate variance figures for money going out of the business. You use this formula when calculating all types of expenditure, such as wages, parts, materials, utilities and administration expenses. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 55 Calculating variances with spreadsheets Example ($10,150 - $11,000) / $11,000 ($10,150 – $11,000) ÷ $11,000 x 100 If you are using a spreadsheet to calculate this formula, you must include brackets to show which part of the formula must be calculated first. What does a basic performance report example look like? Basic performance report example Performance report For period 01.10 - 31.10.20XX Actual Budget Variance Variance % No. of covers 5,000 5,500 (500) (9.1) Sales $235,200 $250,000 ($14,800) (5.9) Wages $100,800 $93,750 $7,050 (7.5) Cost of goods sold $38,600 $38,750 ($150) 0.4 Electricity $11,400 $11,875 ($475) 4.0 Gas $4,100 $4,375 ($275) 6.3 Water $2,900 $3,125 ($225) 7.2 Rent $8,000 $8,000 - 0 Profit/loss $69,400 $90,125 ($20,725) (23.0%) How do you interpret positive and negative variances? Now you need to determine whether these results are favourable or unfavourable for your business operation. A negative variance does not automatically mean it is unfavourable. The key is to consider what impact that it will have on the ‘bottom line’, net profit. There are some basic rules when trying to determine if a variance is favourable or unfavourable. Click on the pictures to see what they are. Income variances A positive figure for income-related variances (sales, revenue, profit) is a favourable result; it’s indicating you are above budget. A negative variance figure is unfavourable; it’s showing how much you are below budget. This applies to both the dollar and percentage variance figures. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 56 A positive variance here means you have received more income than you planned. This is good! A negative variance means you have not achieved your targets: not so good. Budget - Mar Actual - Mar Variance Budget - Apr Actual - Apr Variance Sales $23,000 $21,500 ($1,500) $24,500 $26,700 $2,200 Expenditure variances The results of expenditure-related variance calculations (purchasing, marketing, rent, utilities) appear slightly differently to income variances in a budget variance report. As with income variances, a positive dollar variance means you are above budget. However, for expenditure, this is an unfavourable result as it means you have spent more than budgeted for. A negative dollar variance is favourable as you are below the budgeted figure: basically the reverse interpretation of income variances. As with income-related percentage variances, the percentage variance figure indicates if it is a favourable or unfavourable result. A negative figure indicates an unfavourable result whereas a positive figure is a favourable one. To summarise, a positive dollar variance and negative variance percentage means you are over budget and have spent more than planned. Unless you have a good reason, you could have some explaining to do. A negative dollar variance and positive variance percentage means you are under budget; you have not spent as much as planned and saved money. Most managers consider this to be a good outcome. Budget Actual Variance $ Variance % Stock purchases $115,700 $135,450 $19,750 (17%) Electricity $47,350 $44,980 ($2,370) 5% Click on the icon to see how to interpret the variances. Interpreting variances Let’s look at an example of budget variances and how to interpret the results. Budget $ Actual $ Variance$ Variance% Result Sales 129,100 111,750 (17,350) (13%) Unfavourable Stock purchases 42,603 34,642 (7,961) 19% Favourable Administration 12,500 13,600 1,100 (9%) Unfavourable Gas & electricity 16,783 14,528 (2,256) 13% Favourable Total expenses 71,886 62,770 (9,116) 13% Favourable . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 57 Hot tip If you are unsure how to interpret the variance results, one method is to look at the original budget and actual figures. If the actual figure is higher than budgeted for income activities, this is a good result. When looking at expenses, this is not a good result. Alternatively, look at the percentage variance. A positive variance is good, a negative variance is bad, whether for sales, revenue or expenses. How do you review profit and loss? To begin, let's look at part of the expense budget from a small business for the first three months of the financial year. Expense budget Expenses June July August Budget $ Actual $ Budget $ Actual $ Budget $ Actual $ Rent 2,000 2,000 2,000 2,000 2,000 2,000 Insurance 2,800 3,700 Wages 8,750 9,250 8,750 10,200 8,750 14,000 Electricity 780 890 Stocks and supplies 12,400 14,800 12,400 15,900 12,400 17,800 Telephone 1,500 1,850 Advertising 100 120 100 120 100 120 Monthly totals 27,550 31,720 23,250 28,220 24,030 34,810 Variance $ 4,170 4,970 10,780 Variance % 15.14 21.38 44.86 What does this information tell you? Click on the icon to find out. Budget synopsis In this example you can see that the business has met their budget for rent. They've spent more than allocated on other expenses including wages, electricity, stock and supplies, telephone and advertising. Their total expenses are 15.14%, 21.38% and 44.86% higher than expected. Is this reason for concern? Click to the next screen to find out. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 58 Is there reason for concern? To answer this question, you must compare the expense budget in relation to the revenue or sales budget. Click on the icon to see the sales budget for the same three-month period. Sales budget Month Department 1 Department 2 Monthly totals Budget $ Actual $ Budget $ Actual $ Budget $ Actual $ Difference $ % Variance July 19,000 24,000 12,000 13,000 31,000 37,000 6,000 19.35% August 19,000 25,500 12,000 14,050 31,000 39,550 8,550 27.58% September 19,000 32,000 12,000 15,000 31,000 47,000 16,000 51.61% Now it becomes clearer why many of the expenses were so much higher than expected. The sales were also much higher than expected. In this situation, there's no need for concern! How does this relate to review of profit and loss? The sales and expense budgets and figures help by giving you a chance to measure your performance throughout the year. It's important to look at both when reviewing outcomes and measuring performance. The profit and loss statement combines both sales and expense figures in the one report for you. Click on the icon to see an example of the profit and loss figures from the previous business example. Budgeted sales $ Budgeted expenses $ Budgeted profit/loss $ Actual sales $ Actual expenses $ Actual profit/loss $ Difference between actual profit and budgeted profit $ Variance % Jan 19,200 12,000 7,200 18,000 11,400 6,600 (600) (8) Feb 17,600 11,000 6,600 17,000 9,900 7,100 500 8 Mar 20,800 13,000 7,800 19,000 11,050 7,950 150 2 Apr 19,200 12,000 7,200 17,000 9,600 7,400 200 3 May 20,800 13,000 7,800 17,000 10,660 6,340 (1,460) (19) Jun 22,400 14,000 8,400 18,000 11,340 6,660 (1,740) (21) Jul 24,000 15,000 9,000 16,000 12,450 3,550 (5,450) (61) Aug 22,400 14,000 8,400 15,000 11,060 3,940 (4,460) (53) Sep 20,800 13,000 7,800 15,000 10,920 4,080 (3,720) (48) Oct 19,200 12,000 7,200 14,000 9,360 4,640 (2,560) (36) Nov 19,200 12,000 7,200 13,000 10,080 2,920 (4,280) (59) Dec 19,200 12,000 7,200 10,000 9,480 520 (6,680) (93) 244,800 153,000 91,800 189,000 127,300 61,700 (30,100) (33) . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 59 As you can see, in some months, February, March and April, the business made a slightly higher than expected profit. In the other months, the business made a significantly lower than expected profit. The results are clear; this business needs to take action! What might have impacted these figures? When reviewing profit and loss statements and revising budgets, you need to consider all of the possible things that may have impacted on the results. What factors can you think of? You have 30 seconds to list as many as you can. Click start to begin. List the external factors which might impact on your net profit. How did you go? Compare your answers to these.  Changes in the cost of living  The introduction of competitors  Decreased demand for your products or services  Changing customer preferences  Increase in the cost of supplies  Changes to laws and regulations  Tax rate increases  These are just a few examples! What else do you need to review? The profit and loss statement gives you some insight into the business's income, sales and expenditure. This is important, but doesn't tell you if you can pay your bills from one month to the next. To do this, you need to examine the cash flow budget. You'll learn how over the next few screens. Why are cash flow budgets important? Click on the icon to find out the answer. Picture this. Your business purchased products from a supplier at the start of the month. You have to pay the supplier for the products 30 days after purchase, but your customers aren't likely to buy the products until later in the month. If the customer is paying on a business account, then you might not receive payment until more than one month after purchase. So basically, your business has to pay for the products long before they earn any revenue from it! . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 60 You have to work out how to have enough cash flow in time to purchase what you need so the business can generate enough income to pay for the next lot of purchases. Click to the next screen to see two examples of how you can work this out. Cash flow examples A cash flow budget helps businesses plan when they will receive cash so they can coordinate their payments. Careful planning is required so you don’t drain all financial resources and place the business in jeopardy. Click on the cash flow diagrams below to enlarge them. 1 June 30 June 1 July 31 July Product Customer Supplier Customer purchased purchases paid pays from supplier product account Cash on hand Inventory and materials Accounts receivable Product or service Sale . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 61 Accounts receivable Click on the tabs to find out more about accounts receivable. Cash inflows How most businesses receive cash  Cash and direct debit sales  Credit card sales  Collection of accounts receivable Cash outflows Typical cash outflows a business must plan for.  Payment of operating expenses (wages, suppliers, utilities, etc.)  Repayments on any loans and leases  Payment of all taxes (GST, PAYG, payroll tax, company income tax, etc.)  Payment of dividends (glossary) to shareholder  Provision of funds for future investment opportunities Note Once you understand how much and when cash comes into the business, you can construct an accurate forecast to compare cash inflows and outflows. Let's look at this in more detail on the next screen. Outstanding payments It's very important to know the value of credit sales that is outstanding at any time. Click on the icon to look at an example. 40% of a business's sales are credit sales and the cash inflow occurs through the collection of accounts receivable. Their payment terms are 30 days and their annual sales figure is $2.82 million. To calculate the annual credit sales, they use the following formula. Total sales of $2,820,000 x 40% credit sales = $1,128,000 of sales where cash is received through the collection of accounts receivable per annum. So how do you calculate the estimated balance held in accounts receivable every month? It’s done like this. (30 days payment period ÷ 365 days per year) x $1,128,000 = $92,712 which is outstanding in accounts receivable every 30 days. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 62 This helps determine how much money might be readily available to pay for expenses and how much is yet to be received. However, when a business develops a cash flow budget, they also need to know when they'll actually receive payment. When is payment received? The most common business trading terms are referred to as net 30 days. This means that payment is due 30 days from the month of the invoice. For example, an invoice dated 1 st July is due for payment on 30 th August, an invoice dated 20 th July is also due for payment on 30 th August. However, it doesn’t guarantee the invoice will be paid on time. Some businesses pay quickly, others will stretch payment to 45, 60, 90 or even 120 days. A standard accounting practice is to ‘age’ accounts. Ageing accounts reports those debts not yet due for payment, those that are overdue and by how many days. Click on the icon to see an example of accounts receivable ageing. Accounts receivable ageing Accounts receivable ageing 0 to 30 31 to 60 61 to 90 Over 90 Total Client 1 1,750 1,750 Client 2 5,850 1,250 7,100 Client 3 9,950 9,950 Client 4 2,200 2,200 Client 5 3,008 3,008 Client 6 2,750 2,750 Total $10,608 $1,250 $12,700 $2,200 $26,758 This example shows that only half of the debtors pay on time (clients 1, 2 and 5) and nearly half of the accounts receivable amounts aren’t received until 61 to 90 days after the sale. This has serious consequences for cash flow and must be budgeted for. Ageing also identifies who the problem customers are. The business might need to reassess the credit worthiness of their debtors (e.g. Client 4), and to review their collection procedures and focus attention on reducing payment periods to ensure they receive payment faster. This may be done by offering a 2% discount for early repayment. How is cash flow affected? Let's continue with the results shown in the previous example of accounts receivable ageing. If debtors paid on time, this month’s invoices would become next month’s cash inflow. However, the account ageing shows this is not the case. Click on the icon to see what they must do. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 63 The business must consider the effect overdue payments have on their cash flow. They need to plan to have either sufficient cash flow from other sources or to keep cash from the previous period to cover shortfalls and be able to pay for their own operating expenses. Figures shown in sales budgets indicate how much revenue the business earns but not the inflow of cash. Managers must understand that not all of the revenue they’ve ‘earned’ has actually been received in the form of cash due to the impact of credit sales. Only a portion is available for immediate use to pay expenses. The higher the amount outstanding in accounts receivable and the longer the payment period, the greater the cash flow problems. Sales figures may give the impression that the business is doing well, but slow payments can cause serious cash flow issues. Accounts payable Accounts payable are creditors who the business owes money to: suppliers, utility suppliers, accountant, printer, cleaning contractor and web designer. As payment of accounts payable involves cash outflow, you want to maximise value for money. Deciding who to deal with and reviewing payment policies can help you. Click on the tabs to see what to consider. Buying bulk Some suppliers offer a discount as an inducement to place larger orders. This helps suppliers plan their own buying and production activities and keep costs down. Investigate the benefits and disadvantages of buying in bulk. You might increase par stock levels and consider the costs associated with storing additional stock versus the savings gained from cheaper purchase prices. Just In Time Alternatively, you could use Just In Time (JIT) inventory systems. This means the business only orders stock as it's needed. As a result, you only store the minimum stock required at any time, reducing your storage costs and space required. To use a JIT system effectively, you must do the following.  Know how long it takes for items to be delivered after ordering.  Find out if there are additional delivery fees.  Work out what the minimum par stock levels should be.  Carefully monitor stock levels to ensure you don’t run out. Let’s negotiate It's more beneficial to purchase stock from companies that you can negotiate with. Discussions should include unit price, discounts, delivery charges and account payment. Longer trading terms (60 days) allows you to use the stock without paying for it immediately. The funds used to pay accounts straightaway can now be used in other areas of the business. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 64 When does the business pay? Finally, you need to consider when the business will pay the creditors. This requires careful consideration, as you must ensure sufficient cash inflows to enable the business to pay all financial obligations when they become due. Some creditors offer discounts as an incentive to pay early. 10% off the net amount, for example, if the account is paid within 10 days. Over a period of time, early payments could save the business a lot of money. When you pay the account will affect their cash flow, just as when your debtors pay affects yours. Some businesses charge late penalties if accounts are paid past the due date, and this additional cost can affect cash flow and profits, especially if payments are regularly late. However, the greater cost might be to the relationships you have with creditors. Consistent late payments are likely to ruin any trust and goodwill developed. What procedures help improve the cash flow budget? To help the cash flow and make sure you maximise income and profits, you must have well-established accounting policies and procedures. One of the most important areas is the business's credit policy. This details who you offer credit to and what your terms and conditions are. Click on the tabs to look at some of the topics covered in a credit policy. Offering credit Not everyone should be allowed to become a debtor (credit customer). The business must determine whether they think the customer is a risk worth taking. (Will they pay?) Most businesses have a policy requiring customers to apply for credit before granting approval. The credit application form usually sets out the terms and conditions of credit as well as both parties’ rights and obligations. Part of the approval process is assessing the applicant’s credit worthiness (glossary). This can involve checking if they already have previous history with the business, obtaining a credit rating (glossary) from a credit reference agency, or asking industry sources for feedback on their previous history. Credit limit Most businesses set a limit on how much credit any one debtor is allowed. This avoids carrying large sums in their account receivable. This is similar to a credit card limit, where you wouldn’t be allowed to make any more purchases on credit until some or all of the account has been paid. Credit status Consider cutting off access to credit if a debtor’s accounts are overdue by a specified period, for example, over 90 days. The ramifications of this policy have to be carefully considered before a business makes any changes, as it could damage relations with important clients. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 65 Credit terms To try to reduce aged debtors’ accounts, consider the benefit of offering discounts as an incentive to pay earlier or on time. If this doesn’t have the desired result and the business still has a high percentage of overdue payments, consider instigating overdue account fees. Payment How an account is paid can affect how much money is actually received. Some forms of payment, such as credit cards, have fees associated with them. Consider whether you're willing to absorb those fees or pass them on to clients who pay with a credit card. If you pass them on, do you charge a flat fee surcharge or percentage of the account total? Collection procedures Businesses need to have clear procedures on how they collect money. If they send an account to a client and don’t follow up later, it's likely they'll have a high number of aged debtors. By listing the steps to follow when collecting payments, you're likely to receive faster payment. This also keeps you aware of potential problems so you can be proactive, rather than reactive, when chasing payments. Late payments The last stage is deciding what to do if an account is seriously overdue and collection procedures haven’t resulted in payment. You have three options.  Write off the debt.  Place the account in the hands of a debt collection agency.  Take legal action. A key consideration is the size of the debt. Writing off the debt may seem the easiest option. However, you don’t want to appear to be a ‘soft’ target to other debtors, increasing the possibility of more bad debts. You must also weigh up the costs associated with the other two options, as obtaining payment in these ways may cost more than the actual amount owing. Establish contingency plan What’s contingency planning you ask? Good question my young apprentice! To paraphrase another wizard, ‘Expecto The Unexpectum!’ Click on the scroll to learn more about this area. Contingency planning is a risk management system where you identify potential problems and how they affect the organisation’s ability to meet budget goals. Businesses develop plans to minimise or prevent the risk and overcome the problem if it occurs. Establish contingency plans for operational issues such as equipment breakdown, power failure and suppliers unable to supply key stock items. If you plan ahead, you can keep unexpected additional costs to a minimum, lower potential customer complaints, and reduce the impact on budgets and profits. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 66 Use a continuous improvement system to effectively deal with contingencies. Click to the next screen to learn how. Continuous improvement systems It's important to compare actual to budget performance at appropriate times in the operating cycle. Waiting until the end of the quarterly or annual operating cycle before making changes to day-to-day work practices may be financial suicide. You need timely, accurate information on how you're performing so managers can make immediate changes to control and improve their operation. There are two forms of control systems used by most businesses. Click on the arrows to learn what they are. Post action control This involves making adjustments to daily or monthly operations after the cycle has been completed and the results are known. This is a reactive method of control, as changes are only made once a situation becomes apparent. Continuous action control Continuous action controls are part of the continuous improvement system. They’re an ongoing measure of performance and improvement where results are sought and acted upon throughout an operational and budget cycle. For example, you might measure the success of a new service on a daily and weekly basis even though your budget cycle is monthly. Continuous corrective action ensures that the business is always brought back into line to meet its objectives. Continuous action control Post action control . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 67 How can continuous improvement systems help the budgets? Using continuous improvement systems ensures ongoing refinement of systems and procedures. You can identify areas for improvement long before any issues actually arise, reducing unfavourable budget variances and tightening control systems. This helps keep expenses down and improves quality standards. This, in turn, leads to an increase in customer satisfaction, return business and, eventually, profits. Corrective actions The profit and loss statement (P&L) shows whether the business has made a profit or a loss for the budgeted period in both a particular area and the business as a whole. Results from the P&L are then reported into the balance sheet. The balance sheet shows the net worth of the business, its financial viability and ability to continue operation. There are a number of ways of improving performance which can increase the bottom line in the P&L. Click on the numbers to find out what they are. Increase volume of business To increase volume, you need to increase the number of product and service sales.  Use up-selling techniques to gain more revenue for each item sold.  Use product combinations to sell more items and increase overall profit, for example, cake and coffee, meal and glass of wine.  Use incentives to sell more, such as loyalty cards and membership deals.  Improve or change products and services to make them more competitive or one-of-a- kind.  Change packaging or marketing techniques to increase saleability and recreate interest.  Increase the number of dedicated sales staff.  Reduce selling price. This is a last resort, as reducing price might increase volume but decrease profit margins. Create more output  Use resources better with more efficient rostering, allocation of duties, planning of events.  Increase working hours with consideration to overtime and other wage costs.  Employ more per shift. This is only an option if the work site has the capacity for increased numbers resulting in increased production; otherwise increased staff numbers may only lead to inefficiencies and waste. In most establishments staff numbers are increased in direct ratio to increased customers.  Buy or lease equipment to either increase efficiency, speed of production or production capacity. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 68 Change price structures Increasing prices should increase profit margins, assuming expenses remain the same.  You could increase prices of all or specific products and services. However, make sure customers will accept an increase. The business could lose sales if the item becomes too expensive.  Placing surcharges on orders under a specific quantity or charging a set fee based on order quantity.  Reducing price discounts for bulk orders. Improve profitability  Increase the sales of more profitable items: those with the highest profit margins. Use internal or external marketing techniques to achieve higher sales of targeted items which create the most income for the business.  Use staff incentive schemes to increase sales.  Reduce expenses to increase profit margins. As you've learned so far, this isn’t as easy as it sounds! Investigating variances It’s rare to achieve exactly the same figures as those in your budget targets. Budget variances are common. However, not all deviations have to be investigated. Small variances in the budget comparisons usually don’t require follow up. Ask yourself one key question: is the variance a significant cause for concern? If the variance in your electricity budget is relatively small (0.9%), it may not be worth further scrutiny. However, if the variance is significant (18%), more investigation would be required. When should I investigate variances? When reviewing budgets and financial reports, you need to determine what constitutes a problem and the indicators or trigger points which lead to further investigation. Click on the pictures for points to help you decide whether a variance is significant and worth further investigation. Regularity of variance If a variance occurs only once, it may not be an issue. However, regular variances can indicate problems with the following.  Budget targets  The method or type of information gathered  The accuracy of the information used  An outlet or area isn’t performing as expected Size of the variance If a variance is substantially different from previous reporting periods, then investigation is often warranted. This is especially true if there’s no obvious cause for the variation. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 69 Cost of investigation Is it worth looking into the variance further? Are the costs in time, effort and manpower worth the potential benefits of finding out the cause? This partially depends on the size and regularity of the variance. Consequences of investigation Are you prepared to take action once the cause of the variance is located? Do you have the authority, or can action be taken by others? If variances are occurring due to personnel or contractor issues, does your business have the human resources skills or legal ability to take action? What operational factors can cause variations to budgets? There’s one basic question you need to ask: Why were the sales and expenses above or below budget? Often factors which cause a variation in sales figures also cause deviations in expenses. But wait! Don't fall into the trap of not looking at each variance independently. Click on the icon to find out more. Per unit Master budget Flexible budget Actual Variance Number of units 10,000 units 8,000 units 8,000 units $ $ $ $ $ Sales 10 100,000 80,000 82,500 2,500 (Favourable) Variable costs per unit 6 60,000 48,000 50,000 2,000 (Unfavourable) Gross profit 4 40,000 32,000 32,500 500 (Favourable) Fixed costs 25,000 25,000 25,000 Nil Net profit 15,000 7,000 7,500 500 (Favourable) In the above flexible budget, it is clear from the first line that the actual level of activity (sales) of 8,000 units was well below that which was anticipated in the budget of 10,000 units. It's obviously incorrect to conclude that since the budgeted variable costs were $60,000 and the actual variable costs were $50,000, that one should record a favourable variance of $10,000! These costs were lower because you sold fewer units. To make a valid comparison, you must 'flex' (glossary) the master (or static) budget at the end of the period to be restated at a level of activity equal to the actual level of sales. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 70 In this case: actual sales of 8,000 units at the budgeted cost of $6 per unit, should have cost $48,000. The actual cost of $50,000 means that the variance is $2,000 unfavourable! These costs were more than what you expected or hoped! Why is it important to investigate variances? Variances directly affect cash flow and profitability, either positively or negatively. This, in turn, affects the long-term viability of a business. Every business aims to stay in business for a long time. The only way to survive in a very competitive marketplace is to keep an eye on what you earn, and control what you spend. Maintain an audit trail In a small business, the preparation of budgets may well be an informal exercise conducted by the business owner/manager, perhaps with some input from an accountant. What happens as the business becomes larger? As the business becomes larger, it's more likely to be a formalised process, where the budget is administered by a senior management accountant. They will then facilitate discussions with other senior managers about the business's expectations or targets and how this translates back to what is required from their individual segments in the organisation. This senior accountant gathers information and data from past reporting periods, to prepare a budget for the coming year. During this process, they need to make a number of assumptions and estimates when putting together a quantitative model of where the business is heading over the next 12 months and beyond. At some point, a manager is bound to ask, ‘Where or how did you get that number?’ If you've maintained an accurate and reliable audit trail you can ensure accurate tracking and reporting of figures. Click to the next screen to learn how. How to maintain an accurate and reliable audit trail When preparing a budget it is imperative to follow these four principles to ensure an accurate and reliable audit trail. Click on the tabs to see what they are. Research thoroughly before making an estimate. Exercise due diligence to demonstrate that you are professional in your approach and can reasonably and logically justify the assumptions you make at the time of reporting. Record all of the assumptions that were made. You can learn from significant variances. However, if you haven't recorded assumptions along the way, you run the risk of repeating past mistakes. Keep records of assumptions and include explanations for variances. You can then refer to these records in the future. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 71 Learn from and record your mistakes It's not likely your first budget will be perfect. However, if you vow to never make the same mistake twice, then (like most things in life) you'll continually improve your skills and ability in this area. Be transparent and keep a written record of lessons learned. Be systematic 'Where did I file that?' 'What did I call that?' How often are the files on your USB or computer directory in a state of total disarray? Be systematic in:  your approach to the task  your calculations: showing the step-by-step process you used  your filing of data: so it's easier and quicker to retrieve when required. In a nutshell Follow these four principles so you can confidently present the budget to all levels of management. If anything 'goes wrong', you can accurately diagnose what caused it. And, if you leave the organisation, or are away for a certain period, someone within the organisation will have access to your records and notes enabling them to pick up the reins and take your place. How do you identify discrepancies between agreed and actual allocations? We have already discussed the importance of identifying variances between budgeted and actual figures. The audit trail of the business can help to investigate why some discrepancies have occurred. Click on the pictures to see the sort of things to look out for. Absence of auditable trail As you've just learned, absence of an auditable trail is a big concern. You need accurate and reliable records to learn from mistakes, explain the figures you've obtained and make realistic assumptions for the future. Expenditure report mismatches Sometimes discrepancies in expenditure can be justified and explained. However, if someone within the organisation is exceeding their allocated budget or misappropriating funds, you'll want to know about it. Analysing your agreed and actual expenditure allocations is the best way to do this. Speak to department managers to find out why their expenditure is above or below their allocation and take necessary action when required. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 72 Inappropriate authorisations and payments Imagine the implications if every employee could authorise payments, terms and conditions of contracts, purchase and expenditure requests, etc. Certain managers are allocated this responsibility for good reason. They are familiar with their budget allocation and are responsible for ensuring that they adhere to it. Keep a look out for discrepancies. If department managers can't offer a valid reason for the discrepancy, and believe the activity or payment was unauthorised, it's likely you have an internal control issue to address. You'll need to check who authorised the payment and take action as required. Incorrect report formats The structure of the financial reports must reflect the organisation’s business structure in order to be a useful tool to evaluate managerial performance. If there is a managing director for each state in Australia, for example, you'll need a budgeted income statement on a state by state basis as well as a consolidated Australia wide report. For example, a casino complex would have reports for the various segments of the business: High Roller Gaming, Gaming, Accommodation, Restaurants. Each of these segments would be managed by different employees, whose performance would be evaluated by comparing actual results with budgeted targets. Unreconciled cash flow and operating statements A Statement of Cash Flows shows the relationships between two consecutive balance sheets and the profit and loss statement and how the figures in these reports can be reconciled. If the bank statement shows expenditures (outflows) which have not been reflected in the profit and loss statement or balance sheet then there is something obviously wrong. Fraudulent behaviour is likely to have occurred within the organisation. You must detect such behaviour and take action according to your establishment's procedures. The more carefully designed your internal controls, the more difficult it is for staff to commit such fraud. Variances from budget and phasings Sometimes longer term projects are broken down into stages, or phases. The construction of a building, for example, has various stages of completion such as foundations, frame and roofing, lock-up and completion. There are planning and budgeted costs for each phase of the project. Rather than wait for the completion of the building to see if you are performing over or under budget, the actual cost is compared to the budgeted cost at the end of, and even during, each phase of the project. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 73 What is due diligence? Due diligence is the steps and effort you take to avoid committing an offence. It's the process and care you take to ensure you implement effective systems and processes and minimise the likelihood of a breach occurring due to complacency, ignorance or miscommunication. How can you prove due diligence? Proving due diligence can be difficult as you are essentially trying to prove a negative: the absence of any illegal or dishonest activity and the absence of any errors or problems. The best way to ensure compliance with due diligence is to continually ask yourself the following questions.  How would this report/activity/decision look to someone outside the organisation?  How would it look to an auditor?  Have I taken care and made a reasonable effort? What is financial probity? Where due diligence relates to your steps, processes and care, financial probity means you are responsible morally and ethically. Due diligence is somewhat easier to prove, as you can demonstrate or 'prove' the steps you've taken to ensure compliance. However, financial probity relates to management qualities that are difficult to see on paper. Your integrity and honesty is something you must continue to uphold by demonstrating strong moral principles, and adhering to your organisation's code of ethics at all times. End of section You have reached the end of Section 3. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 75 Section 4: Report on finances In this section you will learn the following.  How to ensure structure and format of reports are clear and conform to requirements.  How to identify and prioritise significant issues in statements.  How to prepare recommendations to ensure financial viability of the organisation.  How to evaluate the effectiveness of financial management processes. What do you report on? Part of the budget process is reporting on performance, the results from the various budgets used, and analysing the information you’ve gained from them. You’ve learned about the different report types in the unit Prepare and monitor budgets . Do you remember what you learned? You’ve got 30 seconds to list as many financial reports as you can think of. Click start to begin. List as many financial reports as you can. How did you go? Click to the next screen to see how many you remembered. What are the different types of financial reports? Different reports are used for different purposes and can vary depending on your workplace. Click on the tabs to learn about the different reports you may use. Annual general meeting reports This is a comprehensive report on the organisation’s activities for the year: what they have achieved, profit or loss, etc. The report is usually distributed to shareholders and other key stakeholders (directors and managers) who have a vested interest in the financial performance of the business. Most annual general reports include the following type of information.  General information  Balance sheet  Cash flow statement  Profit and loss statement  Any notes on financial statements 4 . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 76  Chairperson’s statement  Director’s report  Operating and financial review  Audit results Board reports A board report contains similar information to a general report but is typically not to be distributed to shareholders. Funding acquittals in relation to grants received Organisations that receive funding grants have specific reporting requirements to show how the funds were utilised and outcomes achieved. Grants are often used to fund special community events, fundraising events or projects. Detailed information on expenditure, strengths and weaknesses is valuable to assess the success of the event or project and for the funding body to review how funds are allocated in the future. Taxation commitments All businesses have tax reporting requirements. Some are prepared annually, others quarterly. Some of the taxes a business might be required to report on include the following.  Goods and services tax (GST)  Pay as you go withholding (PAYG)  Fringe benefits tax (FBT)  Company income tax  Capital gains tax (CGT)  Payroll tax Periodic budget performance reports Budget analysis reports are prepared at the end of each budget period: monthly, quarterly, annual reports. These reports compare actual performance against budget, indicate variances and outline possible causes for the deviations. They may also discuss actions to be taken to reduce the impact of deviations, or changes which should be made to ensure the variances don’t reoccur. Planning reports These reports outline plans for the future based on trends identified in budget outcomes or external to the business. This could include changes to systems and procedures, long- term capital expenditure planning such as renovations or extensions, or new marketing strategies. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 77 Statistical reports You can produce a variety of statistical reports from analysing budget results, sales patterns, customer purchasing trends and your spending on expenses. Examples include trend analysis reports on sales of individual menu items, customer spending analysis, break-even analysis on your menu items or accommodation rooms, marketing demographics, changes in cost of goods and budget variances. Profit and loss statement The final profit and loss statement for the budget period indicates if you’ve made a profit or a loss. It summarises revenue and expenses and, if compared to previous periods, can also be used to show trends in the business’s operation. Balance sheet The balance sheet provides an indication of the business’s financial viability at a specific point in time. It is a statement of the businesses assets, liabilities and stakeholders’ equity. The balance sheet is an important financial document for use both internally and externally for reporting to a corporate head office, boards of directors, shareholders, financial institutions and government bodies. Flash report Many establishments, especially within larger organisations or with multiple outlets, produce an internal daily report called a flash report. This report shows budget performance at that point in time within the budget period, for example, a daily revenue summary report. It indicates sales and/or revenue achieved the previous day, an accumulated period-to-date figure and the budget period’s final target. It helps managers and staff track their performance and provides an opportunity to take corrective actions as soon as a trend or deviation begins to appear. Note There are other reports which may be prepared and used. Every establishment has its own reporting systems and requirements. Some are legal requirements for business accounting and reporting, or taxation purposes; others are developed internally. Ensure you comply with the requirements specific to your organisation. What are the different formats? Different reports are prepared using different formats. Click on the buttons to see some examples of the different reports you might prepare.  Audit reports  Profit and loss statements  Balance sheets  Cash flow statements . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 78  Electronic forms  Financial year reports  Operating statements  Spreadsheets  Statutory forms Many of these reports you’re already familiar with from Section 2 of this unit and the units Manage finances within a budget and Prepare and monitor budgets . You may like to revisit these units to revise what you learned before moving on. Extend your learning Go to the ATO website and find the different forms you are required by law to complete. This might vary depending on the nature of your business but is likely to include reports such as BAS, CGT and GST. Keep a record of what you found for future reference. What information should you include in a report? Reports need to include all relevant data specific to the topic you’re reporting on. Lack of information or irrelevant information doesn’t allow the management team to make important informed decisions. Click on the icon to see what to include in a report. Report checklist  Statement of purpose: why and what you’re reporting  Methods: how you went about collecting the information included in the report  Costing trends: changes in wages, materials, overheads and other relevant expenses  Market trends: identified shifts in the industry, competitors and markets  Outcomes: the results and how they affected the business  Distribution list for the report: who the report is prepared for and given to  Daily, weekly, and monthly transactions and reports  Income and expenditure  Recommendations for improved budget controls  Causes of variance: possible reasons for variances; whether they’re one-off situations or ongoing causes for concern; short-term and long-term effects on the business  Staff and wages costs  Performance of department, project, products and services  Sales performance and sales returns  Commission earnings and commercial activity accounts  Covers and financial return  Occupancy rates and financial return  Stock levels  Wastage  Yield management . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 79 What format should you use? A report should provide clear, concise and relevant information. It should be easy for the reader to understand and enhance their ability to make decisions and take corrective action. Ensure the format of the data and any analysis conforms to organisational and statutory requirements. The format should be appropriate to the formality of the report as well as the type and amount of information being presented. Click on the icon to learn more. Don’t forget the diagrams! A report doesn’t need to be in a totally written format. Often financial and statistical information can be more clearly represented pictorially using graphs, charts and other diagrams. Many software packages include this facility as part of their standard features to assist business operators in understanding the sometimes complex or diverse information they are assimilating. How do you report information clearly? The information prepared in reports should be clear and address the needs of the user. Decision-making and operational staff generally require more detailed reports than frontline staff who need only be aware of general budget performance. Top management may require a lot less detail on individual aspects of the operation; their information may be summaries of overall performance with graphs or charts to relay information and trends. Click on each tablet to find out the answers to the following questions. What makes a good report? Reports should be user-friendly, using simple and appropriate language for the intended recipient. If reports are too complex or unclear, those reading them will have difficulty in deciphering the information and determining appropriate actions. What causes a bad report?  Relevant information omitted  Irrelevant or inaccurate information included  Inappropriate format for the intended reader  Duplication of information  Missing attachments or appendices  Information and statistics not presented clearly or in a logical sequence The what and when of a report Click on the supervisor's questions to find out the answers. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 80 What information should you record for the future? A budget performance report records not only actual performance but also reasons for any deviations, and possibly any corrective action taken. This information helps you understand current budget performance as well as keeping a record for the future. You can then refer to the information when preparing budgets in the future to help achieve more accurate, achievable and realistic budget targets. When does the report need to be prepared by? The purpose of the report is the main factor when allocating timelines for preparation and distribution. Some reports are prepared daily (such as a flash report), while many are completed on a regular basis throughout the financial year on a monthly, quarterly or annual basis. Who is the report distributed to? This depends on who needs to know the information contained within it, if the report relates to their area of responsibility, if they are required to take action, or are affected by the consequences of decisions made within the report. It also depends on the purpose of the report; is it designed to inform the recipient or is it required for making significant business decisions? Click on the dot points to see who might need a copy of your completed reports.  General manager  Finance manager  Department manager  Purchasing manager  Human resource manager  Business owner  External agencies such as the ATO  External providers such as your business accountant or insurance broker How is the report distributed? With increasing use of electronic communication systems, many reports are now distributed via email irrespective of whether the target audience is internal or external to the business. Formal reports to external clients may need to be presented bound or in a folder, in which case Australia Post or a courier service is used. General reports on budget performance may be posted on noticeboards or in staff communication books so that staff can easily access the information provided. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 81 How do you identify issues? It’s one thing to be able to prepare reports, but what’s far more important is the ability to read and understand the information they contain. You need to know the consequences of the numbers contained within the report. It’s that understanding that turns data into ‘INFORM—ation’! Once you have a clear understanding of the information you’re looking at, you can begin to identify issues that may impact the business. Click on the exclamation marks to learn the types of issues you may identify in statements and other financial reports.  Cost structures  Internal controls  Losses and returns  Profitability  Statutory obligations  Suppliers and markets How do you prioritise issues? Perhaps a good analogy is the process of ‘triage’. When a number of injured people are brought into a hospital emergency room, a doctor looks quickly at all the injured people and must prioritise who to attend to first, second, third and so on. The sequence is determined by a number of factors such as how critical the injuries are and whether there are adequate resources available to immediately help the patient. The process of prioritising financial issues is much the same. When reading financial reports (particularly variance reports) you must be able to follow three steps. Click on the three steps to understand each process. 1. Identify the issue and related problems for the business. 2. Rank these problems with regards to how serious the consequences would be if you failed to address them and in consideration of the immediate resources you have available. 3. Make recommendations to management about which issues to address first and, ideally, what the business can do to improve the situation. Getting the system in order The right prescription can only follow a proper diagnosis of the medical condition. To continue with the medical analogy, the human body is only able to function well when every system within the body is functioning well: the heart, lungs, kidneys, liver, brain, etc. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 82 Similarly, a business will only remain financially viable (glossary) if every aspect of its internal systems is working effectively and efficiently. Click on the icon to see the make-up of a healthy business. A business can only succeed and be profitable in the long term if:  It’s providing goods or services that customers want and are willing to pay for.  The price for these goods and services are seen as reasonable given the existence of competitors.  The costs (expenses) of providing these goods and services are kept under control.  The business is maintaining a sufficient cash flow to pay its bills on time.  The business is earning enough profits to pay interest back on any loans used to finance the purchase of fixed assets. With so many critical (and overlapping!) factors you need to monitor, it’s obvious that, except for a small business where the manager is directly responsible for every managerial decision, the management information system (primarily the budget) must provide information that is relevant, reliable, accurate and timely. What recommendations do you make? This depends on the problems you’ve identified! If you’ve identified a cash flow issue, you’re going to make recommendations about how to manage cash flow over the period of concern and how to minimise expenditure during this period. If the business is planning to move production to other locations or sites, you’re going to review existing labour costs and make recommendations on how the organisation can manage these costs and sustain future revenue to cover these costs while maintaining financial viability. Click on the icon to see what other areas your recommendations may relate to.  Cash flow  Changes in business activity including markets, goods and services traded  Consolidation  Expenses and overheads  Labour costs including decisions to move production to other locations or sites  Profit or loss  Write-offs How do you evaluate the effectiveness of the system? Ultimately, ‘the proof is in the pudding’. If the product is good, then the process in preparing it is good. Similarly, if a business continues to thrive and generate a profit, then it’s a reasonable assumption that the financial management system is working effectively. . Navneet Kaur Skills Institute Australia

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BSBFIM601 Manage finances 2020 Edition 83 A business may fluke a few successful years. However, when a business grows, or when market conditions change, problems will occur if the basic principles of sound financial management are not followed. There should be no sense of ‘who’s driving the bus?’ if your system is working effectively. It should be very clear who is steering the organisation and making sure everyone stays ‘on track’. Click on the icon to learn more. ITT, one of the largest manufacturing companies in the world, grew to prominence under the direction of a man called Geneen. He ran the company ‘strictly by the numbers’. His slogan was ‘No surprises!’ Such an effective financial management and budget system can only be prepared by people with skill and understanding. Even then, it takes time as they learn from and continually strive to improve the process. It would be trite to say that a budget has ‘reached perfection’ when all the year-end variances are equal to zero! This will never happen! No one can predict the future. But the five P’s of success will always be true. Prior Preparation Prevents Poor Performance. End of section You have reached the end of Section 4. Click to the next screen to read the unit summary. Summary Managing a business’s finances is a great responsibility. It requires your keen eye for detail, knowledge of systems, processes, accounting software, legislation and reporting requirements. This is not a job for someone who lacks integrity, financial probity or decision-making skills! Know what’s going on in every area of the business. Be diligent. Analyse figures and question results. The financial viability and future of your business is counting on you! . Navneet Kaur Skills Institute Australia

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GLOSSARY didasko.com 2020 Edition 85 Glossary Word Meaning Beneficiary The person/s nominated to receive the benefit or money from a fund, trust or policy. Cost of goods The direct costs attributable to the production of goods sold by a business; for example, materials used and direct labour costs associated with producing the goods. Credit rating An assessment of the credit worthiness of individuals and corporations. It is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities. Credit worthiness The demonstrated ability of the individual or company to meet their obligations on time. Dividends An amount distributed out of a company’s profits to its shareholders in proportion to the number of shares they hold. Expenses Costs incurred by a business in earning revenue, for example, rent, advertising, wages, etc. Financially viable Having sufficient cash flow to pay all financial obligations on time. Fiscal year An accounting period of one year, not necessarily coinciding with the calendar year. Flex Flexing is when a budget changes in response to changes in sales and expenses. You alter the format of the budget from a fixed budget to a flexible budget by modifying it to reflect the changed conditions. Refer to the unit Manage finances within a budget to revise how. Ordinary times earnings What employees earn for their ordinary hours of work as outlined by their industry award or enterprise agreement. It can include overtime and penalties. PLU Price Look Up: a code assigned to each sale item POS Point of Sale: a computerised ordering system. Proof of purchase Something that verifies that a customer actually bought a product from the retailer – a receipt, bank statement, credit card bill, invoice, shop’s packaging, witness account of purchase, etc. Revenue Monetary value of goods or services sold. Revenue can be earned through cash or credit sales. Variance In financial terms, a variance is the difference between a budgeted, planned or standard amount and the actual amount incurred/sold. Variances can be calculated for both costs and revenues. . Navneet Kaur Skills Institute Australia

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