Planning a budget
A Davis Service Group case study

Page 1: Introduction

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Davis Service Group is a large public limited company employing around 17,000 people. Its shares are quoted on the London Stock Exchange. The business is based on service contracts to source, clean and maintain industrial textiles, such as protective clothing and linens. This is across four key sectors: workwear, healthcare, hotels and restaurants, and general facilities, such as washroom...
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Page 2: Building a budget

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A company's objectives budget is the overall financial plan showing expenditure of the available funds. It is driven by the aims and objectives of the organisation as well as what the organisation can actually accomplish. Many variables in a business can be budgeted. These include: sales output costs operating and fixed profits cash flow capital investment. The budget will be based...
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Page 3: Making assumptions

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A budget needs to make assumptions about how internal and external business conditions will develop and change. Once the effects of these assumptions have been evaluated, managers can set forecasts for sales turnover and costs to meet profit targets. Detailed planning can then follow to estimate the plant capacity, staffing, materials and marketing needed. Managers use sensitivity analysis to...
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Page 4: Using budgets

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Typical budget statements are given for the Textiles budget/UK Midland region of Davis Service Group. The budget for the year (£81m) is based on the historic year data and the assumptions for the year. The two forecast outcomes use two different sets of assumptions resulting in lower or higher levels of sales. In the example, sales for the first three months of the year were budgeted at...
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Page 5: The benefits and drawbacks of budgeting

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There are many advantages to using budgets. They: provide a method of allocating and using resources within the organisation help to monitor and control operations promote forward thinking show employees an overall picture of the direction of the organisation which can motivate staff help to co-ordinate different departments and align them towards shared objectives provide a framework...
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Page 6: Conclusion

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Davis operates across 15 countries and has sales turnover of over £1 billion. To meet its needs, the company has developed a robust and detailed budgeting and planning process involving its managers. Budgeting provides an essential forecasting, control and feedback system on which effective management depends. This process translates competitive strategy into reality. Evidence of the...
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