Finance illustration Finance theory

Cash Flow management

Budgets are statements setting out the planned performance of a business typically in a table made up of numbers. Usually these plans deal with money units (£'s/pence) but they can also consist of other measurable units e.g. units of output. Creating a budget enables an and actual figures is termed a variance.

Variance is an important management tool because it enables businesses to manage their business - i.e. to take informed decisions based on management information (i.e. how actual performance compares with budgeted performance).eg; either favourable or unfavourable. A favourable variance is one where actual business performance proves to be better than what was budgeted for.

A variance is a difference between what actually happens and what is budgeted to happen.

Arsenal Football Club has budgeted for the following gate receipts from it's next three matches:

You can see that there were positive variances for the match against Wolverhampton (£100,000). There was a disappointing negative variance for the cup match against Hull (-200,000), but the Manchester United game yielded the expected revenue.

As you can see in the table below, the variance may be favourable or adverse.

Budgeting is an important management tool because it enables businesses to manage their business - i.e. to take informed decisions based on management information (i.e. how actual performance compares with budgeted performance).

The advantages of budgeting are:

1. It gives


Supporting Documents

These downloads will help to put finance theory into context using real world examples from real businesses.

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Discover how NIVEA applied finance theory to succeed in the manufacturing industry by downloading our premium case study.