No reference required. There is an example solution for guidance, please don't write the same to it but can use its structure.
Subject: SITXFIN004 – Prepare and monitor budgets Project 1 Word count: 1250 words · Write a paper explaining why hospitality enterprises need to draw up budgets. In your paper address each of the following questions: 1. What types of budgets might be utilised and why are they necessary? 2. What information would be used to inform the budgets—both internal and external? 3. How might the different sections or personnel in an enterprise contribute to the budget? 4. How would you select the appropriate budgeting processes? 5. With whom might a draft budget be discussed and why? 6. Once the budget is finalised, to whom should it be communicated and why? 7. How, when and why should the budget be reviewed? 8. If the review shows that the budget is not achieving its intended objectives, what action might be taken? Hospitality businesses need to draw and manage their budgets for effective operation and management of the enterprises. Budgeting is critical for strategic planning, budget control and measuring operating results of the business. Types of budgets There are several types of budgets that the hospitality businesses can utilize: 1. Cash flow budget- It predicts how cash will flow in and out of a business within one financial year. This budget is critical for organizations to effectively manage and control its accounts receivables and accounts payable and determine if they have sufficient cash to continue with the business operations. 2. Operating budget- These are budgets that enable the hospitality enterprise to project its revenue and expenses over a given period, which may be weekly, monthly, quarterly, semi-annually or annually. It includes production, labor, materials, logistics, operations, etc 3. Financial budget- Hospitality enterprises need to develop a financial budget to manage its assets, income, expenses and related financial aspects. A financial budget shows the overall financial health of the enterprise, its spending, revenue from operations. A positive financial budget shows that the firm is stable and the business is good. 4. Sales Budget- This budgets stipulates the expected sales quantities, sales revenue and expenses within one financial year. 5. Production budget- This budget takes care of the stock and product that needs to be produced in the enterprise. It caters for sourcing of materials and manufacturing the product, and ensuring that there are sufficient stock level. Effective management of production budget keeps the production cost low and determines the product price in the market. 6. Personnel budget- This budget takes care of the salaries and payments for employees and manpower in the hospitality enterprises. It is used to pay salaries for permanent and temporary staff, consultants and contractors within the business. 7. Marketing budget- This is assigned to the marketing department for marketing campaigns and promotional activities of the hospitality business. The budget takes care of marketing and branding activities, events, campaigns, and advertising aimed at supporting the sales department to achieve their set targets. Information for budgeting The hospitality enterprise needs accurate information to guide the budget preparation process. The information can be sourced internally and externally. Internal data sources of information include performance data from the previous operating periods, internal management policies and procedures, financial proposals derived from key internal stakeholders, estimates and predictions from sales department, internal enterprise guidelines on budget preparation, and management commitments in different operation areas. External data sources and information may be collected from competitor research, customer and supplier research, financial information collected from suppliers, guidelines and limitations from grant financing, industry and economic performance. Personnel contribution to the budget While involving all the employees in the budgeting process is time consuming, it has the potential of encouraging employee participation, motivation and ownership of the budget. The bottom-up approach is important since employees provide credible and reliable information in their functional areas, which is critical to the budgeting process. A budget committee comprising of employees from all the functional areas should bear the responsibility of compiling, developing and approving the master budget. It is important to provide all the colleagues and employees with adequate notice for participation and contributing to the process of budget planning. Selecting appropriate budgeting process The appropriate budgeting processes varies from one enterprise to another. However, there is a standard process that firms follow while establishing the budgeting cycle. This include: 1. Prepare budget information including determining nature and scope of budget planning activities with colleagues, identifying, accessing and interpreting information and data, and analyzing internal and external factors impacting the budget. 2. Preparing the budget which include drafting the budget based on the collected information, estimating income and expenditure, assessing and presenting options, presenting recommendations, integrating enterprise objectives and circulating draft budget for input. 3. Finalizing the budget which include negotiation in accordance to the firm policy and procedures, incorporating feedback and modifications, completing the final budget and informing employees and colleagues on the final budget. 4. Monitoring, evaluation and review of the final budget which include regular reviews, control and corrective actions in case of deviations, analyzing internal and external changes and incorporating them in the budget. Discuss draft budget The draft budget should be circulated to appropriate colleagues, functional heads and departmental managers for review and comments. this is important because the departmental managers offer insights, comments and suggestions for modification and make a decision on whether the budget is feasible over the budgeting period. It is important to agree with the departmental teams and incorporate modifications, before approving the draft budget. Communicating final budget The finalized budget from the departments and functional areas should be sent to the finance director. The upper level finance director reviews and considers the draft budget for approval. Once this has been approved by the finance director, general manager and the top executive team, it is compiled into a master budget. The budget committee oversees the compilation and approval of the final master budget. Colleagues and departmental managers are then informed of the final approved budget and their responsibilities for reporting, financial control and management. Budget review It is important to conduct regular review of the budget by comparing and evaluating actual performance against the planned and estimated performance and develop relevant and accurate financial reports.It is important to investigate and analyze both internal and external factors in the business environment during the budget review and incorporate the necessary adjustments in the budget. All financial commitments should be incorporated promptly in the budget and the resulting financial reports. It is important to collect and document all the relevant information that could be utilized in informing future budgets. Budget not meeting set objectives In the event the review reveals that the budget is not meeting its intended objectives, it is important to take appropriate corrective action to address the deviations. This might include implementing additional control measures, adjusting the operations plans, and cutting the surpluses to avoid unnecessary expenditures.