I find this very interesting, and I hear it often- mid level management is left out of the budget process.
I find this very interesting, and I hear it often- mid level management is left out of the budget process. Often I hear that a budget is simply handed down to them, and they are expected to meet it- realistic or not. As you’ve read, this has an impact on moral.
This happened to me, too. One of the restaurants I managed had this process- we were told by the corporate office what our cost percentages should be, and our bonuses were tied to meeting them.Under this process, we rarely received bonuses because the food and bar goals were impossible to meet (perhaps that was actually the goal so they didn’t have to pay bonuses). It was discouraging, and we were all disgruntled about it.
The restaurants were sold to another company, and the new owners came around and talked to all of the managers. This was something we brought up. Under the new company, not only were we able to participate, we went to the corporate office and went through the budgeting process with the team there. We did not do this every month, but it gave us a connection to the numbers and the people there, and it gave them our perspective. We suddenly began receiving bonuses 😉
All, have you been in this position, too? What did you do? How did it make you feel?
Melissa, have you ever had a performance review that contained budgetary elements?
Just as creating and sticking to a budget is beneficial for individuals, there are many benefits for a company. The budget is a control device. It requires all levels of management to plan ahead and formalize goals on a recurring basis. A budget provides definite objectives for evaluating performance at each level of responsibility, and it creates an early warning system for potential problems .
Let’s look at how budgets affect performance reviews. When I worked in management at a large restaurant, we performed annual performance reviews for employees. There, it was difficult to come with an objective set of criteria to evaluate because the employees were not directly involved with the accounting process. By contrast, in a manufacturing setting, managers and line workers would be heavily involved, and they would know on a daily, weekly and or monthly basis if they were meeting goals.
All, how does involvement, or lack thereof, affect moral and motivation?
Melissa, aside from the cash budget, what are some of the multitude of different budgets that comprise the Master Budget?
The cash budget is similar to the statement of cash flows. It shows the beginning and ending cash balances. There are 3 sections- cash receipts , cash disbursements, and financing. Sound familiar? it is a breakdown of where cash came in and where cash went out. The difference here is that a budget is expected cash inflows, expected cash outflows and expected borrowing and repayments. Preparing and following a cash budget contributes to more effective cash management. It shows managers the need for additional financing before actual need arises and it indicates when excess cash will be available.
All, please show a sample cash budget. Use a business that is familiar to you!
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