task 02 we can make our own budgets
BSBFIM601 BSBFIM601 MANAGE FINANCES BSBFIM601 Manage Finance Review and analyse previous financial data to establish areas which have generated a profit and loss If an organisation intends to make profit there must be a sound financial management structure and high-level financial planning. When developing budgets for the next fiscal period it will be necessary to review and analyse financial data from the previous periods and to establish areas which have generated profit or loss. It will then be necessary to identify the reasons for previous profit and loss. Information gleaned from these analyses and from cash flow trends, product/services costing etc will all contribute to a determination of what the organisation can do over the next period and what needs to be incorporated into the budget to support the organisational goals BSBFIM601 Manage Finance Type of information Organisations need reliable financial information about past performance, current trends and forecasts which enables them to determine: ★ what to do ★ how to do it ★ what is necessary to do. ★ what it is not necessary to do ★ how it can best be done ★ when it should be done ★ who should do it ★ how well it is currently being done ★ what resources have been uses ★ what resources are available ★ what resources will be needed BSBFIM601 Manage Finance Financial Data Financial data inform organizational, strategic and operational plans and support resource requirements in every area of the organization. Data must be gathered from both the external and internal environment. Financial data which business operators and their employees need to review to find reasons for previous profit and loss are: ★ previous budgets and forecasts ★ budget reports which identify incoming and outgoings, budget variations, profit and loss, debtors, and reasons for profit and loss figures ★ cash flow/profit reports ★ financial/operational statements and reports (expenditures and receipts, profit and loss statements) ★ market valuations ★ statutory and regulatory information that included national and international business/trade conventions and regulations BSBFIM601 Manage Finance Review business plans Logs, ledgers, journals and spreadsheet- based records Wages and salaries payments and record keeping Petty cash records Credit card statements and records Banking processes and the verification of bank statements Debt collection and debt recordings All organizations have a business plan, and that business plan should be reviewed to help establish critical dates and initiatives that require or will generate resources in the next budget period. All companies should research about the data relating to assets, credit analysis, GST transactions, inventory management, invoices and accounts etc, which are to be collected and analyzed so that management can monitor and control cash flow, production and productivity, solve problems, plan implement, implement quality control procedures and plan future strategies BSBFIM601 Manage Finance Analyse cash flow trends Financial report, more specifically cash flow can give us a useful snapshot of the current financial situation and a brief, comparative history of the organisation or of the cost centres within the organisation. These information can be recorded in the report: ❑ What is owned today? Cash, cars, machinery, equipment, property, etc. ❑ What is owed today? Bank loans, investors, money owed to suppliers, etc. ❑ What resources flow in? Sales of products, bank interest, any other revenue sources, etc ❑ What resource flow out? Wages paid, electricity paid, rent, phone bills, etc. BSBFIM601 Manage Finance Statutory requirements for compliance and liabilities of tax A range of legislation and statutory requirements impact on all businesses. These need to be reviewed in the light of a proposal for new budget. Organisations must identify and review their compliance with legislation and statutory requirements and with taxation liabilities. Requirements relevant to financial management of Australian organizations can include those relating to: ✓ Internal control procedures ✓ Limits on the volume and types of finance of transactions ✓ Reporting of duty, excise and other overseas government charges ✓ Reporting periods ✓ ATO requirements (including the collection of GST and payroll tax ✓ Consumer protections ✓ Audit requirements ✓ Superannuation, etc ✓ International Agreements ✓ International standards and legislation in other countries BSBFIM601 Manage Finance ATO Requirements • The ATO is Australia’s governing body, responsible for collecting the Commonwealth Government’s main revenue stream. The ATO is the statutory body responsible for any and all administration involved with the Australian taxation system. • Some of the ATO’s main roles include managing and moulding the tax revenue and superannuation systems, along with administering legislation for taxes and superannuation. • The ATO also supports and oversees the delivery of other services, including; • Private Health Insurance • Family Assistance •Energy Grants • Valuation Services BSBFIM601 Manage Finance Taxation • All Australian business organizations, both private and non-profit and the individuals working must comply with the Australian Taxation legislation which is overseen by the Australian Taxation Office. Companies earn money, and in the case of non-profit organisations, they receive money as a result of grants, etc. When dealing with their incomings and outgoings they are bound, by legislation, to make appropriate accounting and to follow specific reporting procedures to pay their liable tax amount. BSBFIM601 Manage Finance Goods and Service Tax (GST) Requirements The financial management function within each organisational business entity will also be responsible for ensuring that Goods and Service Tax (GST) is applied as required. The GST in Australis is a value added tax of 10% on most goods and services transactions. The GST in Australia is a value added tax of 10% levied on most goods and services transactions in the production process but is refunded to all parties in the chain of production other than the final consumer. Businesses with an annual turnover of $75,000 or more must register for GST Businesses with an annual turnover of less than $75,000 may elect to register for GST Not for profit businesses with an annual turnover of $150,000 must register for GST Taxi operators must register regardless of turnover. BSBFIM601 Manage Finance Other requirements: PAYG: PAYG stands for ‘Pay As You Go’. It is where employers are required to withdraw a part of their employee’s wage to pay to the ATO as the tax amount on their pay. PAYG instalment is a system that allows a business to meet their income tax obligations through regular payments, i.e., instalments made throughout the year. In this system, tax is collected from business and/or investment income. On the other hand, PAYG withholding is a system that allows a business to withhold income tax from an employee or contractor’s salary or wages and pay all these withheld amounts to the ATO later on. In this system, tax comes from the withheld salaries or wages. BSBFIM601 Manage Finance Legislative Requirements: • Corporation Act: The Corporations Act is the principal legislation regulating companies in Australia. It regulates matters such as the formation and operation of companies (in conjunction with a constitution that may be adopted by a company), duties of officers, takeovers, and fundraising. • Financial Management and Accountability Act: The main purpose of this Act is to provide a framework for the proper management of public money and public property. Broadly, those terms refer to money or property that is owned or held by the Commonwealth, including money or property held on trust. BSBFIM601 Manage Finance • Australian Securities and Investments Commission Act: The Australian Securities and Investments Commission Act 2001 (ASIC Act) requires ASIC to strive to: maintain, facilitate and improve the performance of the financial system and entities within it in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy. • Income Tax Assessment Act: It is an Act to provide for the imposition, calculation and collection of Commonwealth income taxes and for related purposes such as the administration of the Commonwealth Income Tax Regime by the Australian Taxation Office. • Australian Accounting Standards (AASB): General purpose financial statements that comply with accounting standards should present fairly the financial position, financial performance and cash flows of an organisation. This information will be useful to owners, investors, creditors, analysts, employees, regulators and others in making and evaluating decisions about the allocation of scarce economic resources. BSBFIM601 Manage Finance Review existing software and its sustainability for financial management At the point where the statutory requirements, compliance and liabilities are being reviewed it is probably a good idea to also review the technology that is being used for financial management. In the review process it might be necessary to consider: ➢ Programs that are being used – capacity and capability ➢ The skills of employees and managers who are using the software programs (whether more training is needed to increase efficiency and accuracy) ➢ Server capacity and capability ➢ Software capacity and capability There are many good accounting software programs that can be used for example Xero, MYOB, QuickBooks, Manager etc. BSBFIM601 Manage Finance Company Tax • Company tax is a tax charged on corporate income in Australia • The amount of company tax to be paid is determined by the type of company your workplace/organisation is. Full tax rates of 30% are applicable to all companies, corporate unit trusts and public trading trusts. If the company is eligible for the lower tax rate (i.e., the workplace/organisation is a base rate or small business entity within a given time), they must just pay 27.5%. BSBFIM601 Manage Finance • There are also numerous organizations that offer services with regard to management of financial information. These can be accessed via the Internet. • Some organization will build, or pay contractors to build, their own financial information management systems. • Regardless of the system used regular review should be conducted to determine whether the system is operating at maximum efficiency and whether there are new or improved systems or versions of the system that could serve the organization better. BSBFIM601 Manage Finance Use previous financial data to determine allocations for resources Budget provides for money and specify where it should be spent. They determine who should be accountable for what activity and are used to allocate human sources to processes, functions and projects. They are also used to match resources to results. The intention of budgets is to ensure: ❖ Maximum profitability ❖ Sufficient cash flow which will meet all financial obligations ❖ Cost effective resource management Data that contribute to the new budget must be current, reliable and valid. This means that accurate records of all of the organisations transactions must be kept. Transactions include purchases and sales, wages, plus other fixed and non- fixed costs and income. BSBFIM601 Manage Finance Make informed estimates of new items for inclusion in budget • Each organisation’s financial plan identifies it’s assets, liabilities, financial objectives and tolerance for risk. The financial plan will summarise the organisation goals, operational and financial objectives and make recommendation for strategies, activities or specific actions intended to achieve those goals and objectives.