Finance

Budget formulation process

define financial objectives which determine the direction and thrust of each departments operations establish goals for achieving these objectives within budgeted time frame identify the activities and quantify the elements needed to achieve established goals describe the factors and situations that may affect planned activities

modified zero based budgeting

spending levels are matched with services to be performed. uses cost identification and behavior techniques begins with a floor of expenses includes decision or add packages

Team

starting point: sales forecast, sales= sales revenue after composing sales budget we will budget for all costs Master Budget Purchases budget player salaries budget non-player salaries budget administrative cost budget cash budget

corporations

stock holders equity **finance issues could consider short- term liabilities and we will focus on long-term debt

Forecast

prediction of future events and quantification's for the purpose of budgeting

Guidelines for forecasting

relies on past relationships and making predictions from historical information.if relationship changes forecast becomes inaccurate develop several forecasts under different scenarios and assign a probability to each scenario and calculate a weighted average to arrive at acceptable forecast. often called sensitivity analysis longer planning periods tend to produce less accurate forecast. appropriate length of forecast depends on how often plans must be evaluated which depends on sales stability business risk financial conditions and organizations budgeting approach large interrelated items are more accurate than a forecast of specific itemized amounts.

practices in budgeting

should be a value added activity link budgeting to strategic planning since strategic decision usually have financial implications make budgeting procedures part of strategic planning during the budgeting process spend less time on collecting data and more time generating information for strategic decision making automate the collection and consolidation of budgets across the organization get agreement on summary budgets before you spend more time preparing detail budgets set up the budget so it will except changes quickly and easily design budget that will give lower managers some form of fiscal control over their own areas of responsibility leverage your financial systems by establishing a data warehouse that can be used for both reporting and budgeting

Program planning budgeting system

PPBS approach to developing a program budget one in which expenditures are based primarily on programs of work and secondarily on the character and object of the work program budgets group the traditional categories of expenditures used in line-item budgets under agencies or programs. goal of ppbs to link planning with budgeting systematically in the service of clearly identified goals associated with output budgeting which specific goals and objectives form the framework for a strategic process techniques include: identifying costing assigning a complexity of resources establishing priorities and strategies in a major program forecasting costs expenditures achievements in the immediate financial year or over a long period of time. Advantage: enables organization to allocate its resources purposfully, provides evidence to citizens of how a department is spending its tax dollars disadvantage: limits flexibility to shift dollars between programs, results in weak evaluation process due to program length

incremental budgeting

a form of a line-item budgeting often called the object of expenditure budget was the earliest type of budget format used in private public and non-profit entities. Line-item budget: a technique in which line items are the main focus of the analysis authorization and control **form of line-item budget in which next years budget is arrived at by either decreasing or increasing last years budget for each line item by the same percentage advantages: budget is stable and change is gradual managers can operate their departments on a consistent basis budget relatively simple to prepare and understand Disadvantages: activities and methods assumed to continue same was as before process provides managers no incentive to reduce costs changes in the priority for resources many not be reflected in the budget

reduced level budget

a percentage that the budget must be reduced

Budgeting

all budgets are projections of the future, therefore there are three terms that are synonymous Budget=forecast=projection quantifies planned revenues and expenses for a period of time. it includes planned changes to assets liabilities and cash flows

Timing periods

budget time horizon: immediate future which can be predicted with a reasonable degree of certainty on the basis of past business decisions and commitments. generally considered the next 12 months business planning horizon: period over which forecasts can be made with a reasonable degree of confidence. generally 3 to 5 years. strategic planning horizon: extends far into the future. planning for this time period focuses on the long-term aspirations of the sport organization and management

decision packages

discrete additions to the reduced level budget ranked in priority order, to maintain existing programs, serve increased workloads, or add new programs

planning

establishment of objectives and the formulation, evaluation, and selection of the policies strategies tactics and actions required to achieve those objectives.

base budget

expenditure level necessary to maintain last years service level at next years prices

keys to successful budgeting

input from the entire organization a means of sharing the budget across the organization

cash budget

looks upon cash as thought it were inventory **there will be a beginning balance (last period ending balance) we will add all cash in flows from revenues and other sources deduct cash out flows for player salaries deduct cash out flows for nonplayer salaries deduct cash out flows for administrative cost deduct cash out flows for profit distribution to the owners deduct cash amount for the minimum required balance 2 items as cash outlays: cash invested by owners, require ending balance for the cash amount must have minimal required balance if we have to small of an amount on hand we must borrow from the bank the amount to get us to the minimum required balance

dividends

periodic payments made to shareholders of a company as a way of distributing profits to shareholders

decision unit

where budget decisions are made

zero based budgeting

zbb approach and financial management strategy intended to help decision makers achieve more cost effective delivery of goods and services each budget period starts fresh budgets are zero unless managers make the case for resources every activity is questioned as if we were new before any resources are allocated each plan of action has to be justified in terms of total expected cost and benefit with no reference to past activities advantages: forces budget setters to examine every item, eliminates waste and budget slack disadvantage: complex time consuming, does not officially consider previous money outlays