The Fleet Highlands Café

Executive Summary

The provided study is concerned with the budgeting process and management done by Fleet Highlands Café regarding its revenues and expenses for the month of March in 2019. Regarding this, the objectives for budgeting of this business have been highlighted in the study, which is effective in understanding its importance. A detailed revenue and spending variance of this business  been analyzed from the differences in its actual and budgeted operations so that its current business situations can be evaluated in terms of favourable or unfavourable circumstances. This is effective in identifying the variances that will be mostly required for its management to provide high concerns so that necessary changes can be made in its operations. Furthermore, recommendations have been submitted to the concerned cafe for increasing the profitability and sustainability of its operations in the future years of business.

Table of Contents

1. a) Objectives of Preparing Budget 4
2. b) Revenue and Spending Variance for March. 5
3. c) Concerning Variances for Management 7
4. d) Requirements for Maintaining Sustainability and Profitability. 8

Reference List 10

The Fleet Highlands Café

a) Objectives of Preparing Budget

The main aim of Fleet Highlands Café in preparing its business budget is to maintain stability in its revenue production and cash flows of its business operations. This makes the following objectives for this cafe for maintaining effective business process:

Providing financial structure: Budget is required for Fleet Highlands Café in preparing appropriate costs and revenue structure based on some planning and undertaken decisions. This is important in providing the cafe in the direction of the way it is supposed to flow (Zhu, Wei and Xu, 2019). Moreover, it also provides a structure for measuring the performance of various costs, which are then compared with the outlined expectations.

Allocating resources: Allocation of the resources that Fleet Highlands Café is having is a crucial task done by budgeting. It is required for allocating the funds and other resources in the required areas, such as the purchase of any machinery or equipment needed for the café (Yılmaz, 2018). Hence, the budget provides an overview if there are sufficient funds for any expenses and assets procurement.

Predicting cash flows: For Fleet Highlands Café, preparing a budget is highly useful for deducting the cash flows consisting of both inflows and outflows. It can estimate the possible amount of cash that will be generated as revenue and the cash requirements for incurring expenses (Talib and Ismail, 2017).

Measuring performances: It is a standard tool for Fleet Highlands Café in measuring the performance of costs, employees, and other requirements, which can be effectively done by using variances present in the budget.

Modelling probable scenarios: Budget is having the capability of predicting and creating different business scenarios so that business performances in the future can be measured accordingly. It is required for directing the financial results in each scenario based on some strategic direction.

b) Revenue and Spending Variance for March

Analysis of the differences for the revenues and costs of Fleet Highlands Café can be done through the variance analysis, which focuses on comparing the budgets with the actual operations of any business. The variances in the revenue arise due to the differences identified in the budgeted and actual revenues, and variance of spending are associated with the differences identified in the budgeted and actual costs incurred. The revenue and spending variance of Fleet Highlands Café can be evaluated with the help of the provided table.

The table provided above shows the variances with the differences in the revenues and costs incurred by Fleet Highlands Café during March 2019. According to the table, it can be seen that this cafe is mostly incurring unfavourable variances in terms of revenue. U denotes the unfavourable variances, and the favourable variances are denoted by F in this table. In normal terms, if the actual revenue and profit of any business are higher than the budgeted revenue and profit, it can be termed as a favourable variance. The unfavourable variance is the opposite of the fact. This is because higher actual revenue as compared to the budgeted revenue means that the business is successful in earning more revenues and profits from the actual operations than that it has predicted through its budget (Kendall and Nyblom, 2015). On the other side, if the actual expenses are less than the budgeted expenses, then the business is said to have favourable variance, the opposite being the unfavourable variance. This is because the lower actual expenses and spending will indicate that the company is successful in lowering costs in the actual operations than that it has predicted in its budget (Kendall and Nyblom, 2015).

From the case of Fleet Highlands Café, it is seen that this business is incurring unfavourable variances in most of the situations due to high costs and lower revenues in the actual operations. It is seen that the revenue has decreased due to the lower number of sales of meals as it has been budgeted. Moreover, most of the fixed costs, including insurance, fuel, and facility rent, are having higher expenses in the actual operations of Fleet Highlands Café than that they were budgeted. Hence, the outcome of the operations or net operating income of this cafe is having unfavourable variance as the actual income is lower than the budgeted income by £5600. This makes the variance analysis for Fleet Highlands Café to be considered as negative.

c) Concerning Variances for Management

The variances that should be of concern to the management of Fleet Highlands Café are both the spending and revenue variances, as both of them are forming unfavourable variances for the business. It can be seen from the analysis that the revenues are less for this cafe due to lower volume of sales. Hence, it is required for the management in undertaking steps that may be useful in increasing its number of sales. With this, the revenue will rise subsequently and will gradually become higher than the expected revenue in its budget. Moreover, the revenue variance of this cafe in terms of its net income will also rise to generate favourable variance if there is a rise in its revenue generation. Hence, the revenue variances of this cafe draw concerns about its management in applying necessary changes, as lower revenue variances are unfavourable for any business (Jordan, Yan and Hooshmand, 2017). However, for this, Fleet Highlands Café will have to consider its expenses and costs, which is related to the increase of its net income.

The concerned cafe is mostly incurring high expenses in terms of its fixed costs, which are the costs of insurance and facility rent. Moreover, the fuel charges have also been high for its actual operations. Though it has incurred fewer expenses for the salaries and wages along with the utility expenses, the difference in costs seen in this is much lower as compared to the cost differences for the other three expenses mentioned before. On one side, the expenses for salaries and utilities have been less by £600 in the actual operations of the said cafe. On the other side, the expense of rent, fuel, and insurance has been high by £1200. Hence, the spending variance is an important factor for Fleet Highlands Café in determining the profitability of its operations at the end of each month. Moreover, as high spending variances are unfavourable, this will be one of the crucial concerns for its management so that necessary changes can be made.

The cost for the raw materials of Fleet Highlands Café is having favourable variance as less cost was incurred in this in the actual operations. However, this is connected with the number of sales, as the cost of this will increase with the increase in the number of sales and vice versa. The changes in the costs along with the amount of revenue will then impact its operating net income, thus creating overall favourable variances for the business over time. Hence, the management of Fleet Highlands Café will have to look over the situations of both the variances that can be extracted from its budget so that necessary changes can be made in both of them for creating favourable variances in the upcoming months (Kendall and Nyblom, 2015). Such a target can only be achieved by reducing the spending famous for its operations and increasing the revenue amounts by increasing the number of sales each month.

d) Requirements for Maintaining Sustainability and Profitability

It is required for Fleet Highlands Café in maintaining profitability along with sustainability in its business through the application of necessary strategies and aspects in its operations. For this, some key steps can be concerned by its management that can help in its further growth while maintaining profits and sustainable situations in its business.

• Profits can be effectively maintained by lowering the costs of preparing meals. For this, it will be required by the management in changing its supply chain by procuring materials through effective bargaining.
• Operational costs can be controlled for increasing the profit margins as fewer amounts of expenses can be incurred from the revenue procurements (Harvey, 2018).
• Focus can be provided on the sales effort of the business through promotions and marketing that can increase the number of sales. This can be effectively done by providing discounts and offers on meals, which can attract more customers (bgateway.com, 2018).
• Suitability can be maintained in its operations by embracing the changes that may fall upon its operations. This may be changed in the customers’ preferences or changes in the business processes (Pagell and Wu, 2017).
• The services provided by this cafe to its customers can be reinvented constantly, which can be done by providing any new meals for the customers. It will be more effective as a sustainable practice as some new menus can be prepared with the existing raw material if some of them are not available from the suppliers. Moreover, it can also increase the customer number who would be eager to try some new food items.
• Recycling programs can be arranged for the unused raw materials or food items so that they can be effectively used in other ways rather than wasting them, which can increase the business sustainability of the said café (Joo, Eom and Shin, 2016).
• Partnering with employees is an important way of sustainability. For this, employees of the cafe can be trained and educated for using materials effectively for resources conservation through minimal wastage of resources (Lotich, 2019).

Reference List

bgateway.com, (2018) Increase your profitability Available at https://www.bgateway.com/resources/increase-your-profitability [Accessed on April 23 2020]

Harvey, K., 2018. Sustainable Leadership and the Relationship to Profitability in US Banking Institutions.

Joo, J., Eom, M. and Shin, M., 2016. Executive practices for corporate sustainability: A business ecosystems perspective. Int. J. Bus. Res.

Jordan, M.M., Yan, W. and Hooshmand, S., 2017. The role of state revenue structure in the occurrence and magnitude of negative revenue variance. The American Review of Public Administration, 47(4), pp.469-478.

Kendall, H., and Nyblom, S. (2015) Revenue and Spending Variances Available at: https://prezi.com/jlzaj4ubtnnb/revenue-and-spending-variances/ [Accessed on April 23 2020]

Lotich, P., (2019) 8 Sustainable Business Practices – Are You Doing Your Part? Available at: https://thethrivingsmallbusiness.com/sustainable-business-practices/ [Accessed on April 23 2020]

Pagell, M. and Wu, Z., 2017. Business implications of sustainability practices in supply chains. In Sustainable supply chains (pp. 339-353). Springer, Cham.

Talib, N.F.M. and Ismail, R.A.M., 2017. Effect of Financial Management on Budget and Budgeting Process. International Journal of Business and Management, 1(1), pp.18-21.

Yılmaz, F., 2018. Budgeting as a Tool for Sustainable Development. In Handbook of Research on Supply Chain Management for Sustainable Development (pp. 42-60). IGI Global.

Zhu, H., Wei, C. and Xu, G., 2019. Research on Implementing the System of Budget Performance Management.