Mar 11, 2019 in Coursework

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Budgeting has a considerable influence on individual behaviour and ambitions, either inspiring a person to improve an activity, or destroying a desire to act by deteriorating a psychological state of an individual. Nevertheless, it is a significant source for estimating the performance. Budgeting helps not only to plan in advance and determine objectives, but also motivates employees to achieve certain goals, and improve management’s awareness of the current business situation and possible anticipations. In the coursework, budgeted income statement and cash budget will be prepared in order to examine financial results of the first year of trading. Once the financial issues are determined, the analysis in terms of cost, volume and profit will be conducted, and recommendations on the given situation will be suggested.

Budgeted Profit and Loss Statement

Profit and loss account refers to the most important statements of business. A budget of the statement is prepared for 2016. The first step of budgeting involves the calculation of annual working hours per one taxi. Every driver will work five eight-hour shifts per week, which is equal to 40 hours over the same course of time. There are 52 weeks in the year, but because of holidays the drivers can work only 48 weeks. The total number of annual working hours per three taxis is calculated in the following way: 9?40?48 = 17,280 hours. However, an anticipated level of productive hours is 60%; that is, 10,368 hours per year, or 200 hours per week. Hence, cars will gain incomes only during 200 hours per week. The next step is to determine each group of business expenses. The financial results are presented in table 1.

Table 1: Budgeted profit and loss account
in the first three months (25 per hour) 60
in the next nine months (30 per hour) 216
Total income 276
Diesel costs 41,4
Maintenance costs 4,32
Road tax and licence fees 1,8
Depreciation 12
Salary expenses 280
Social security costs 28
Utilities 6
Rent and taxes 23
Advertisements 6
Total expenses 402,52
Total Loss 125,52

Cash Budget

Cash budget gives the necessary information for envisaging cash inflows, collecting receivables and organizing cash disbursements. The main aim of the budget is to provide an adequate supply of cash in order to meet all the obligations. On the basis of the calculations in Table 2 the following information can be received:

  • Cash inflows include accounts receivable that are equal to 50% of revenue gained in the previous month;
  • Diesel costs represent 15% of the revenue in the previous month. For example, total income in the first trading month is 20,000 (though, only 50% of the sum will be actual paid). Hence, diesel costs are 20,000=15% = 3,000;
  • Rent and local property tax charges amount to 23,000 per year. However, both are payable at the beginning of a quarter. Hence, a quarter payment is 23000 / 4 = 5,750;
  • Payroll account includes drivers and office workers salaries and social security costs.
Table 2: Trading cash budget
  01 02 03 04 05 06 3rd quarter 4th quarter
Cash in the bank 5,000 - - - - - - -
Cash inflows
Cash sales 10,000 10,000 10,000 12,000 12,000 12,000 36,000 36,000
Accounts receivable   10,000 10,000 10,000 12,000 12,000 36,000 36,000
Total cash collected 15,000 20,000 20,000 22,000 24,000 24,000 72,000 72,000
Cash outflows
Diesel costs - 3,000 3,000 3,000 3,600 3,600 10,800 10,800
Maintenance costs - 360 360 360 360 360 1,080 1,080
Road tax and licence fees 1,800 - - - - - - -
Payroll - 25,666 25,666 25,666 25,666 25,666 76,999 76,999
Utilities 1,500 - - 1,500 - - 1,500 1,500
Rent and local property tax 5,750 - - 5,750 - - 5,750 5,750
Drawings 2,500 2,500 2,500 2,500 2,500 2,500 7,500 7,500
Advertising 5,000 - - - - - 5,000 5,000
Total cash expenses 16,550 31,526 31,526 38,776 32,126 32,126 104,129 104,129
Cash surplus/ deficit (1,550) (11,526) (11,526) (16,776) (8,126) (8,126) (32,129) (32,129)

Calculation of Working Cash and Overdraft Limit

In order to estimate the amount of overdraft Ned Kelly will need during the first year of his business, it is better to prepare weekly cash budgets for the first two months. Expenses in the first month demonstrate how much Ned Kelly requires for launching the business. However, payroll account and diesel costs appear only in the following month. Hence, the table below represents weekly cash budget for both months.

Table 3: Weekly cash budget for the first two months
  1st month 2nd month
  I week II week III week IV week I week II week III week IV week
Beginning cash balance 5,000 800 6,550 4,050 1,550 22,216 20,076 18,076
Cash inflow 2,500 2,500 2,500 2,500 5,000 5,000 5,000 5,000
Cash outflow 1,800 + 1,500 + 5,000 = 8,300 5,750 + 2,500 = 8,250 - - 23,333 + 2,333 = 25,666 360 + 2,500 = 2,860 3,000 -
Total cash in (out) 800 6,550 4,050 1,550 22,216 20,076 18,076 13,076

This data signifies that even in the 1st month Ned Kelly needs additional source of financing in the form of overdraft. The required working cash is ?16,550 in the first month and ?31,526 in the following. By taking a credit Ned Kelly will be able to manage a company and meet all the obligations as they come due. Without a doubt, the credit requires an additional payment in the form of interests. Assuming that Ned Kelly will get overdraft, weekly cash budget will be the following:

Table 4: Weekly cash budget with additional financing resource for the first two months
  1st month 2nd month
  I week II week III week IV week I week II week III week IV week
Beginning cash balance 5,000 0 0 0 1,550 22,216 0 0
Cash inflow 2,500 2,500 2,500 2,500 5,000 5,000 5,000 5,000
Cash outflow 1,800 + 1,500 + 5,000 = 8,300 5,750 + 2,500 = 8,250 - - 23,333 + 2,333 = 25,666 360 + 2,500 = 2,860 3,000 -
Overdraft 800 6,550 - - 16,350 3,726 - -
Repayments     2,500 2,500 - - 2,000 5,000
Total cash in (out) 0 0 0 1,550 0 0 0 13,076

The calculation shows that the business will require ?7,350 overdraft in the 1st month and ?20,076 in the next one. Hence, the best option for the firm is ?25,000 overdraft limit.

Business Plan Analysis

Business plan analysis should include both the internal characteristic of the business and the external factors. Generally, taxis are a popular type of transport in the UK and usually are well-known for their reliability, safety, quickness, and iconic status. Definitely, Broadstairs town with a population of approximately 25,000 people (Kent County Council 2013) does not require a lot of taxis. However, its position of a seaside resort gives an additional opportunity for taxi drivers because of flows of tourists, especially in the summertime.

According to the Department for Transport statistics (2015), there are 11 taxi providers in the town. Hence, a coefficient of licensed taxis per 1000 people is 0.9. If to compare the number with other cities, it is easy to conclude that taxi business in Broadstairs has possibilities for development. For example, in West Devon the coefficient is 2.0 and 2.5 in Christchurch. Moreover, there is a considerable target audience in the town. Census data by (2013) demonstrates that Broadstairs has a high percentage level of older people, with the median age of its residents being 43 years old. Hence, there is a good potential for the client base, assuming that there are many employed adults with a sufficient income and a desire of comfort. In addition, it is vital to analyze customer’s demands and preferences. On average, almost 70% of passengers in England are satisfied with the services (Department for Transport 2015). However, there are still some barriers to using taxis, the most common among which are price issues, staff’s attitude, health conditions, illnesses and anxiety (Office of National Statistics 2014). Therefore, the external conditions of the market support opening a new business in the transport industry.

CVP analysis represents the picture of profit at different capacity, and the level of incomes and expenses. It also shows a relationship between costs and revenues. In order to conduct the analysis, one should determine variable and fixed costs, as well as price.

VC (diesel costs) = 15% of revenue

VCq = 4.5

FC = 361,120

Break even volume = 361,120 / (30-4.5) = 14,162 (productive hours)

Break even revenue = 14,162 ? 30 = ?424,860

Hence, Ned should increase his revenue on ?148,860.

Business Report

To: Ned Kelly


There is a general opinion that the ability of a business to successfully compete against rivals, to obtain target market niche, and to offer compatible products are the parts of planning process. Once adopted, budgets refer to a significant tool employed for evaluating business operations.

Aim of the Report

The report is aimed to reveal the importance of budgeting in the business process indicating the main advantages of having a plan. Besides, the recommendations for Ned Kelly regarding the improvement of business operations are included.

Budget as an Aid in Achievement of Business Success

While budgeting is determined as a successful practice among researchers, it is still rather rare trend among small businesses. However, there are several major reasons for implementing budgeting in real life. First of all, it is vital for Ned to prepare budget for the evaluation of business idea. When a person starts a business, a simple draft of budgeted income statement demonstrates the viability of the idea (Klein 2006). If budgets show negative results, a person should either disclaim the plan or make the necessary changes.

Budgeting allows managing business activities in the areas of marketing, personnel, financial, and inventory planning (Weygandt 2015). Hence, the next reason to form budgets is a creation of the business that will entirely meet the market’s demands. Within the market planning functions, Ned will receive the necessary information regarding target audience, customers’ desires, a level of competition, optimal ways of distribution channels etc. Moreover, budgets outline potential changes within the market conditions.

Business financial position frequently changes because of the permanent inflow and outflow of finance. In order to provide the business with the information about financial resources, cash sales, profitability and expenses, it is necessary to form financial budget. The third reason for budgeting is the awareness of management of the entity’s activities. With the cash budgets, Ned Kelly is informed about what amount of he can spend on a new car, when it is necessary to return debts, and how to manage resources in an adequate way. The abovementioned calculation of the budget cash provide an opportunity to establish the required level of working cash and the level of necessary overdraft.

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The next advantage of the budgeting tool is personnel planning function. Undoubtedly, small enterprises do not employ a large number of workers. At the same time, productivity rates in small businesses are lower than those in big companies. The issue is a poor level of operational personnel planning. Implementing a planning function, a manager can get more information about the staff, including the key performance indicators. For Ned Kelly, personnel plans depict not only the level of payroll in the comparison with other expenses, but also the level of estimated working hours and future incomes. Additionally, managers are able to analyse the current state of inventory policy. With budgets, the business will be able to have the necessary amount of products that will respond to the demand without any delay or inventory excess.

Finally, a key benefit of budgeting for Ned is that it establishes a definite direction for the business with determined targets and final goal. Planning function helps to estimate or anticipate future operations, and to review the performance in order to determine what whether the actions were right or wrong. The analysis of the negative and positive factors that influence the business gives an opportunity to determine potential problems of the business and distinguish the necessary changes.


A budgeted income statement implies that Ned Kelly will not receive any profit in the first year of trading, which may be one of the possible indications that with such level of expenses the business will not operate for a long time. Consequently, there will be negative cash balances during the whole year, signifying the need for additional financing sources. With the increase of credits, the business has to pay more interests. Hence, there is a reason to overlook the estimated expenses.

The biggest share in the total amount is payroll account. There is no need to reduce the number of taxi drivers; however, Ned should consider that 5 office workers (four employees and Ned Kelly) is too much for the taxi provider. If Ned Kelly reduces the amount of the office stuff, at least to 3 employees instead of 4, he will save 4,400.

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In addition, Ned should try to diminish other fixed costs, which may be achieved by setting the cheaper office (even if it will be smaller or in a distant district). Moreover, it will allow to reduce utility costs and local property charges. Besides, Ned Kelly can vary his marketing costs by finding a new and non-traditional way of promoting. For example, apart from standard advertising, there is a wide range of marketing possibilities on the Internet.

Finally, an estimated capacity of the cars used in the plan was only 60% that also lead to insufficient revenues. Certainly, it is better to be prepared to the worst scenario, but a successful marketing campaign may noticeably increase the rate of passengers. The growth of the capacity rate and the reduction of costs will bring a desired profit at the end.


Budgeting is critical for financial prosperity of the business. Budgeted statements prepare Ned Kelly for different difficulties that may occur and suggest the ways of dealing with them. A negative financial result should not discourage Ned from the idea. Business plan analysis in terms of market conditions shows that Ned Kelly can find a suitable niche for his business. On the contrary, it indicates the needed changes and the potential problems. With the cash budgets, Ned Kelly will be aware of how much money he needs to meet all the obligations, how to maintain enough cash to pay creditors, and what overdraft limit should be established. Further, budgets will support him in planning and controlling the operations.

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