Budgeting and Cash Flow

8/7/2019 Budgeting and Cash Flow

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Cash Flow and bud etin

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" # $ %& The budget of a company is compiled annually. A finished budget usually requires considerable effort andcan be seen as a financial plan for the new financial year. While traditionally the Finance departmentcompiles the company's budget, modern software allows hundreds or even thousands of people in thevarious departments (operations, human resources, IT etc) to contribute their expected revenues and

expenses to the final budget.If the actual numbers delivered through the financial year turn out to be close to the budget, this willdemonstrate that the company understands their business and has been successfully driving it in thedirection they had planned. On the other hand, if the actuals diverge wildly from the budget, this sendsout an 'out of control' signal and the share price could suffer as a result.A budget deficit occurs when anentity (often a government) spends more money than it takes in. The opposite is a budget surplus whichis the crucial goal of fiscal year.

AIESEC connectionA budget depicts what you expect to spend (expenses) and earn (revenue) over a period of time. Itsuseful for projecting how much money you'll need for a project or activity you or your LCs want to run.They also help track whether you're on plan or not. Its measure reflecting fiscal performance of year planand defines the contribution of Reserves creation.

Most of the issues in AIESEC are caused either by lack of knowledge or lack of systematic and strategicthinking of the leadership of the organisation. At the same time, just because the plans are not reflected100% to the budgets, a lot of Countries end up compromising their ambition and achievement becausethere is no budget. Nowadays app.95 % of AIESEC entities are manging budget what is quite satisfactorybut majority concentrates on quarterly upadate where we see space for improvemennt.

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Budget is a tool which shouldnt restrict the LC/MC plan but support it in a full way. It should reflectactions the entity wants to take to move forward in order to achieve the goals and also the respectiveCSFs of Balanced Scorecard.

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MASTER BUDGET, AIESEC in HONG KONG, 2006/2Version 3, Updated on 1st Aug, 2006

Foreign Exchange Rate1 Hong Kong Dollar = 1 (Currency)

Total

(Currency)

Revenues

Exchange Program4010 SN Revenue $24,250.00 4.0%4020 TN Revenue $188,125.00 31.4%

Fund Raising

678/ 9 $0.00 0.0%4130 ER Partnership $170,000.00 28.4%4140 External Funding $40,000.00 6.7%4160 National Sponsor Donations $30,000.00 5.0%

Administration4210 Advertising Revenue $10,000.00 1.7%

Other Income4410 Interest Income $100.00 0.0%4420 Investment $29,472.50 4.9%668/ :;!;39# $0.00 0.0%

National Fees4510 AI Fee $55,980.25 9.3%4520 Membership Fee $34,931.15 5.8%4530 Travel Cost Sharing Fee $5,865.96 1.0%4540 Strategic Meeting Travel Fund Contrib $780.54 0.1%4550 AP Fund $9,708.78 1.6%

Total Revenues $599,214.19 100.0%

Revenues of Master Budget, AIESEC in Hong Kong


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Cash Flow plan or budget determines the cash flows of the committee per specific period. If the CF planreveals the deficit, the committee must change the timings of its expenses and make sure incomes arereceived earlier to ensure that there is enough available cash to meet the financial obligations of theMC/LC. Preparing a cash budget is relatively simple and will prevent insolvency in the committee. The

smaller projected unit of time is the more precise CF is and offers higher relevance in financialmangement. Proper CF plan incorporates the reserve (mostly at level of 7% or 10% depending on riskpreference) to mirror inaccurate estimations or emergency situation.

According to Budget Survey 05, 40% of AIESEC entities dont have a Cash Flow/Liquidity plan what isquite alarming and may contribute (along with unsatisfied revenue generation porcesses) to financialinsolvency. Cash Flow plan implementation is more than recommended in next term.

Proposed timeplan:

Data input: All validated cash flows are transferred to new CF plan from previous periods All functional or project related cash flows are calculated acc. to current plans

Responsible persons interviewed and incorporated into process of creation Rate inflows by level of certainity- be sure Inflows are overreaching outflows at every level

of certaintyCash Flow forecasting and reserve incorporationCash flows adjustments based upon plan corrections or adjustmentsFinal CF projection and final approvalCF plan responsibility setRegular Update on monthly basis

Advanced CF models

In business conditions economists incorporated the aspect of time to project Cash flows properly andaccept the different value of money today and tomorrow. The idea behind is that one currency unit hasbigger value today than same absolute value in the future. To compare different values in a differentmoment at time we use Discounted models when discounting the future money values to present bycasual discount rate, i.e. common interest rate that may be adjusted by taxation or inflation impacts.

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Budgeting and Cash Flow