P6 Illustrate The Use Of Budgets As A Means Of Exercising Financial Control Of A Selected Company

2156 words - 9 pages

Dear Adam and Josh,

As you have said you are facing trouble with making a profit in the small business of Riverside then I will look at your accounts and see where they can be improved. Also just to say thank you for coming to me with your issues.
A budget is an estimate of expenditure for a set period of time. Small businesses like yourself prepare budgets for many reasons, firstly the reason being budgets set targets so then the business can successfully save some of the profit they generate and then can save up for stuff in the short term and long term. This is a very good idea and way of budgeting as if you save up the profit from Riverside then if the business does go into any debts ...view middle of the document...

The last major reason is that with the budgeting properly the business can start to make a reasonable profit margin. This can then be put back into the business and ensures the future success of the business. Budgets are so important for a small business like Riverside as they fully analyse what is being spent and what its being spent on, also so you can carefully analyse what needs to be spent on anything and how much exactly it costs, this is very good for the business as if any money is being unnecessarily taken out of the business then either one of you can see that and take note. Another reason is that as a small business does not have much money and they do not want to be wasting it on expenditures that they do not need, this will also save them a lot of money. Budgets are so important for small businesses such as Riverside because as no small businesses have a lot of money to waste this means that you can’t afford to waste any money. Also, with keeping a budget and setting out costs etc then you can see how many items per day/week/month that you need to sell. This will indicate clearly the goals that you two and the rest of the employees need to try and achieve. This point is for every business but even more for a small business, the main reason for any business setting up a budget is to make sure the business makes profit and to obviously maintain the cash flow. The main problem with the businesses budget is the amount of stock being brought. The amount of stock that was actually brought compared to the predicted budget, this alongside the lack of sales is resulting in costing Riverside a lot of money. The way you can resolve this is to do a different technique of buying the products, for example you two can only buy when needed. This will reduce waste of the ingredients and the waste of money. Remedies that I can suggest to be able to budget properly and start making a profit for you two are firstly to go and find another cheaper supplier, and as stated above to do the just in time method, the method is that you only buy stock when you need it, instead of ordering a big bulk load at one time. This will decrease the amount of money wasted on stock each month. If either of you do not feel comfortable with the idea of this then I do still suggest going to a cheaper supplier as the stock is far too expensive, I am not sure if this is due to you two ordering too many products or that you are over paying big time on products. Moving on to the rent, this cannot be changed until your contract is up with the landlord. (Otherwise the owner could end up suing you.) I believe after your contract is up then you need to look for a cheaper premises, this will save you a lot of money and could even help expand the business if it is a better property; even though this isn’t a major concern. (If you believe the property is good enough and don’t mind paying a bit over the odds if it’s in a good location.) But if possible and the location and property...

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