In this task I have been asked to illustrate the use of budgets controlled my chosen organisation which is Tesco.
Tesco is one of the biggest retailers which are internally budgeting for sales growth by 2% in the UK, compared to its usual guidance of 3-4%. This is due to recession. The decision was made after the meeting between Tesco’s senior management and city analysis’s, shore capitals Clive Black said “such budgeting is a significant change and indicates the seriousness of the economic slowdown and its likely duration”. The financial downside over the past month has seen various retailers cut back on expectations as consumer confidence takes a fresh drive. “It would be no surprise to us if the recent financial turmoil has materially impacted consumer sentiment and sales for a short period at least, “explained Mr Black. Recently towards the end of September, Tesco chief executive Sir Terry Leahy was saying it was “perfectly possible” to deliver UK sales growth in its 3-4% range.
Tesco is comfortable with city earnings for the current year but is “cutting its cloth” to adapt to tougher trading conditions, which Mr Black added. The supermarket, which was unavailable for comment, is reportedly driving harder bargains with the supply chain and is looking to cut wages and distribution costs. The inflation pressures of previous months are cooling down, prompting the company to re-address terms with suppliers. “Market conditions are toughening, we sense, for the supply chain,” Mr Black states. Tesco dominates the UK’s landscape with businesses all over but is under pressure from cheaper rivals which include Aldi and Lidl. In the previous month Tesco began to campaign to establish themselves as “Britain biggest discounter,” reducing product prices to compete with other competitors. Despite “Powerful economic headwinds” Tesco made a 10% increase in the first half of sales which made Tesco’s £1.45billion this year, also with UK like-for-like sales increasing by 4% which was excluding fuel during the second quarter. Tesco has 440,000 staff worldwide, with 280,000 in the UK; also more than 2,100 stores in the UK and over 3,700 in totals worldwide.
M4: Analyse the reasons why costs need to be controlled to budget.
All businesses need to know their budget available to run the business and the costs they have to run that business. The costs in a business cannot exceed the budget otherwise the business will have a negative balance, and the business won’t be making no money at all.
The costs need to be controlled to budget because if they are not controlled to the budget the banks will not lend any sort of loan to the business. The businesses would think that this business is not making any progress. It is going down day by day. The banks would think before giving loan to the business whether or not the business will be able to return the loan within certain time period, the time which is given to them.
The shareholders would not want to hold shares in the business as they would know that the business is not making any sort of profit so they would want to give their shares away. The value of the shares would drop down and the business would be having negative trade balance. No one would want to buy the shares as they would know that this can only leave them in loss.
New customers will not make plenty of orders as they will know that the business has negative trade so they might not be able to produce the sort of products they require or they want. They might not even be able to produce the products on time. This would risk the money of the customers and along with that it will take a lot of time so they would not want to waste their time.
The business might not have checked the deadlines for the things as this can lead to more problems in the business. The business should see if the employees have made the sales figures before the deadline and if they have assumed the costs before deadline. If all these things are done after the deadline, they can lead problems and the trade balance can go down.
The business never knows about the unforeseen circumstances. The business needs to have some money in the business in case if the business needs it in the form of emergency. For example if the delivery van breaks down in a business the business would need money to repair as this would not be planned and it is an unforeseen circumstance.
The business should invest the money they have instead of keeping it as you never know when an incident takes place for example an incident like bank robbery. This can make the owner all the money he or she had saved up so far and the owner won’t be left with nothing. Another such hazard can take place like flooding which would eventually take away all the money of the owner.
The business will end up spending more than the budget which would lead the business in complete loss and will end up the business owner borrowing a lot of money and then not being able to return that money one day which would put down the business.