Page 4: Financial planning
Everyone budgets to a greater or lesser extent. A budget is a financial plan developed for the future. Budgeting is an important control mechanism for every organisation and helps to predict what the organisation thinks will happen over the next accounting period. Studying budgeting results is a way of monitoring and controlling performance. Comparing expected results to actual results and then finding out why differences have taken place is called variance analysis.
The forecast financial plan or budget for each store is known as the forecast profit and loss account. At the beginning of each year, the Management Team for each store will look back at the previous year’s sales and the targets/objectives for the whole organisation to predict their sales for the store for the following year. Anticipating what each store expects to achieve is particularly important as it takes account of local circumstances, such as the activities of competitors in the local shopping environment. For example, the opening of a large new shopping mall will influence the performance of other stores in the region.
The profit and loss account will also take into account controllable costs. These are locally-based costs on which the Management Team of each store can have an impact. They include staffing costs (number of staff to achieve sales targets), costs of refunds, lighting and gas costs, stationery costs, staff uniforms, as well as any other costs related to each store.
Producing a forecast profit and loss account enables each store to make comparisons with the activities of others. This is called benchmarking. It enables each store to assess its performance against the activities of ‘best-in-class’ similar stores. Making comparisons through the investigation of good practice and store performance is common practice at Marks & Spencer, enabling each store to learn and benefit from the good practice of others.
Marks & Spencer profit and loss template
The forecast profit and loss account is the key element in the business plan for each store. Having established the objectives, it helps each store to know where it is going, how it will get there and the resources it requires. The Financial Manager is responsible for discussing various aspects of the plan and its implementation with other members of the Management Team.
The plan will also be reviewed by Financial Management at Head Office. For example, they might question certain figures or identify areas which might not have been considered by the Store Management Team, e.g. knowledge of a new system roll-out. Once the plan has been agreed, the Financial Manager’s role is to ensure that the store performs to the targets identified by the plan.