Chapter 16 – Developing and Analyzing the Budget
Chapter Outline
- Introduction to budgeting for business
- Operating, cash, and capital budgets
- Budgeting process
- Articulate assumptions
- Quantify assumptions
- Budget versus actual – monitor the variances
Learning Objectives
- define budgeting and financial management terminology
- recognize the importance of planning, including accurate budgeting, in the operational and financial success of a food & beverage operation
- analyze the economic and competitive environment confronting a business (when involved in the budgeting process)
- identify the specific characteristics that provide a competitive advantage (or disadvantage) to a particular operation
- explain how budget figures are developed based on previous years data and projected increases or decreases in activity
- recognize restaurant revenue and cost drivers
- Number of covers
- Average Check
- Contribution Margin
- Prime Cost
- Variable and fixed costs
- explain how revenues and expenses flow through the financial statements analyze budget figures to compare projections to actuals
- describe the difference between
- net income and operating cash flow
- cash versus operating budget
- recognize restaurant revenue and cost drivers
Key Terms and Concepts
- operating budget
- cash budget
- capital budget
- restaurant revenue and cost drivers
- Number of covers
- Average Check
- Contribution Margin
- Prime Cost
- Variable and fixed costs
- net income
- operating cash flow
Introduction to budgeting for business
Budgeting and Cost-Volume-Profit (Breakeven) analysis are two main tools available to food service managers when planning for profit. This chapter will explore developing and analyzing the budget.
In its simplest form, a budget is a projection of anticipated revenues and expenses over a specific period of time. In the case of businesses, this is typically on a monthly, yearly and multi-year basis. The budget functions as a plan materializing what a business expects to achieve during the stated period.
A budget details the operational direction and the anticipated financial results of an operation. It provides a basis for continuously monitoring the operational and financial conditions and trends of an entity. The budget also defines the operational and financial limits of the operation.
The budget serves as a benchmark against which actual results are measured. As such, the budget is a tool supporting managerial decisions regarding resource allocation in order to achieve the goals of the organization.
A budget allows the operator to:
- conduct a critical review and learn from past performance
- involve those responsible for future performance in the forecasting process.
- be aware of how revenues, expenses, and cash flow interact in a restaurant
- plan for future cash events to avoid shortfalls
- evaluate different scenarios and courses of action to achieve desired profit levels
- monitor actual performances and compare them with the