Marketing Management 3.04

1. Marketing Management 3.04 Manage financial resources to ensure solvency

2. Essential Question • What are budgets in business and how are they used? • Vocabulary: • Budgets

3. Warm-up • What is a financially based long term goal you would like to reach?

4. Objective: Explain why budgets are about money • Three M’s: • Money • Maps • Management • Money: • Budgets use $ to define a company’s goals. • Looks at the past to determine how money was spent and earned. • Looks into the future in planning for goals that are specific and measurable. • Two Categories: • Income – money earned by selling goods/services, investments such as stocks/bonds. • Expense – money spent by a business such as utilities, payroll, advertising, equipment, taxes, and loans.

5. Think - Share • Why is it important to review how money was spent in the past? • Is there a time when you saved up for a large purchase? Did you write up a plan? Why or Why not? • Why would a business want to follow a budget? • How is a budget useful to a business manager?

6. Objective: Describe how budgets are financial maps • Company’s goal = Destination • Company’s strategies = Directions • Budget = Map • The map or budget shows where the company is now and where it is headed. • Provides a visual of the route to achieving the goal. • Businesses are able to see where things are off course and then adjust to get back on track.

7. Objective:Identify reasons that budgets are management tools • Managers make informed decisions about the company’s strategies for reaching the goals. • Managers communication with employees more precise.. • Managers make better day to day decisions. • Managers make plans for using the profit. • Managers can make realistic, accurate and useful decisions with the information in an up to date budget.

8. Objective:Explain the importance of budgets to business success • To create physical records. • A business is able to keep records that are accurate, accessible and meaningful. • Serve as the framework for a company’s annual financial reports. • To organize business activities. • A good business plan includes a detailed budget to account for all financial activities. • This decreases the potential for problems later. • To guide operational decisions • When to buy, what to buy, how much to pay, how much inventory, and how many employees • These decisions impact the success or failure of a business.

9. Objective:Explain the importance of budgets to business success • To evaluate a business’ long and short term performance. • Managers look at previous budgets to determine growth and/or performance. • Provides benchmarks to measure changes. • Variances are the difference between a budgeted amount and an actual amount. • Show where they are on target and where they are not. • To protect against financial crisis. • Includes a plan for savings • Just in case plan for paying for expenses due to unforeseen problems

10. Think-Share • What might happen to a business that does not keep a physical record of money coming in and money spent? • What would a business manager benefit from comparing budgeted and actual dollar amounts?

11. Objective: Identify ways that businesses can create budgets • Categories • Income • Sales • Cash • Credit • Income from Investments • Expenses • Rent • Insurance • Utilities • Supplies Wages Once the categories are decided, management allocates dollar amounts to each one.

12. Objective: Identify ways that businesses can create budgets • Allocation of Dollar Amounts • Previous year’s budget • make adjustments as needed due to changes • Previous year’s budget with an across the board percentage increase • Based on inflation or on projected growth • Zero Based budgeting • Each category begins with zero and is determined by need rather than previous figures.

13. Objective: Identify ways that businesses can create budgets • Time Period • Fiscal year • Quarters • Months • Rolling or continuous budgets – beginning with a 12 month budget, a new month is added as each month goes by. • Advantages: • Year long plan in place • Major annual budgeting efforts are avoided • More flexible • Encourages managers to assess activities and adjust figures more frequently.

14. Objective: Distinguish between general and specialized budgets • Master budget – specialized budgets generated by individual departments comprising one large budget. • Businesses that use this are retailers and manufacturers. • Retailer – sales, purchases selling expense, general and administrative expense, and cash • Manufacturer – raw materials, plant/equipment, transportation • Specialized budgets are interrelated in that they depend on one another for estimates of future activity. • The budgeting process begins with sales forecasts. Departments can estimate how much they have to spend to support the forecast.

15. Think-Share • Why would it be helpful to compare current month figures with the same month’s figures of a previous year?

16. Objective:Describe characteristics of a successful budget • Well planned • Integrate all the specialized budgets, so that they work together and are in agreement. • Realistic • Avoid making guesses if at all possible. • Use past records if available. • Get information from trade associations, the local Chamber of Commerce, and the SBA. • Flexible • Budget figures may have to be adjusted due to economic trends, changes in competition, population shifts, and weather conditions. • Clearly Communicated • All employees need to see the budget to know his/her effect on company profits. • Employees may become more cost-conscious. • Evaluated • Assess the company’s progress in achieving its goals.

17. Think-Share • Why should budgets be flexible? • What would happen in a business if employees were not aware of how they affect the budget?

18. Activities • Complete: • Individual • What Does Your Budget Do? LAP Handout • More Music. . . More Money LAP Handout • Groups • In groups of 4, research the following websites reviewing the goods/service that each company provides. Select one business and develop 10 hypothetical expense categories, including ones that are unique to that particular kind of business. • www.citibank.com • www.ford.com • www.nationalzoo.si.edu • Believe Your Budget Simulation

19. Resource • Money Tracks Financial Analysis LAP 3 MBA Research 2006