"It is hard to fail,
but it is worse never to have
tried to succeed."

- Theodore Roosevelt

What is a Budget?
Minimise Risk
Types of Budget
Performance Analysis
Segment Reporting
Brief Analysis
Internal Controls
Bank reconciliation
Access rights
Segregation of duties
Cheque controls
Other types of controls
Nature of internal controls
Our Rates


What is a budget?

A budget is a detailed financial plan that quantifies future expectations and actions relative to acquiring and using resources. The budgeting process typically kicks off before the start of the next Financial Year - forecast of financial information (such as revenue, expenses and capital expenditures) in the upcoming Financial Year are collated and transformed into a set of pro forma financial statements.

The pro forma financial statements show what your financial position at the end of the year would look like if your business is going in accordance to the forecast.

Minimise business risk

From this explanation above, one can immediately see how useful budgeting is in helping to minimise the risk of business failure. Imagine the scenario where the pro forma financial statements show a lesser than ideal profit/loss position, this allows the business management to go back immediately to the drawing board and revisit its business plans - should the product pricing be altered? should we outsource instead of hiring full-time staff? should we lease instead of purchasing the equipment?.

Throughout the year (on a monthly or quarterly basis), the actual operational results are compared against the budget. In this way, the business management knows how well its business is on track to achieve its operational targets, and take corrective measures (if needed). The pro forma financial statements would also be updated with actual figures and revised forecasts along the way.

Types of budget

Sales Budget The budgeting process usually begins with a sales budget, because sales is the driving force of all activities. The sales budget reflects forecasted sales volume and is influenced by factors such as seasonal patterns, current and expected economic conditions, activities of competitors, etc. The sales budget is often complemented by an analysis of the expected cash collections as there can be a delay between the time of sale and actual cash collection.
Production Budget In this budget, the level of the business' production is tracked. For simple cases, the budgeted units of production can be calculated as the number of units sold, plus the desired ending finished goods inventory, minus the beginning finished goods inventory. When planning production, the business must give adequate consideration to areas such as the productive capacity and availability of raw materials.
Direct Material Purchases Budget The direct material purchases budget is closely linked to the production budget as this is where you plan cash payments for your productions.
Overheads Budget Overheads refer to items which do not have a direct relation to the business' products/services e.g. rental of premises, utilities, employees and management fees.
Cash Budget Cash is an essential resource. Without an adequate supply of cash to meet obligations as they come due, a business will quickly crash. Even the most successful businesses can get caught by cash crunches attributable to delays in collecting receivables, capital expenditures, and so on. The cash budget gives an overview of the planned cash receipts and disbursements, along with planned borrowings and repayments, so the business can take pre-emptive actions to prevent cash flow crunch.
Master Budget The master budget consolidates all of the individual budgets. This allows the pro forma financial statements to be prepared.

Performance Analysis

A business can be thought of as a portfolio of products/services, each contributing towards the business' bottom-line. It's unlikely that every product/service perform equally.

If the business Management is frequently in-tune with the operations, they would have a hunch regarding the performance of their different products/services, but the back of their mind begs the question "How well exactly did my products/services perform?"

Performance Dimensions

There are several dimensions to view this question:

Products/Services What are the products/services which you want to develop a better understanding?
Period What is the period which you intend to assess the products' and services' performance? e.g. Over the period from 1 January 2013 to 31 December 2013.
Performance Metric What areas of performance are you looking at? e.g. contribution to the profits.

Segment Reporting

A segment is a part or activity of a business which the management would like cost, revenue or profit data. Take for example a company "ABC Printing Services" whose main services are printing. The segments of this print business are:

Print Business
Name Card Printing Wedding Invitation Cards Printing T-Shirt Printing Poster Printing Letterhead Printing

The typical Profit & Loss Statements for compliance purposes lumped all the revenue and costs attributable to each of the product segments together. However for business purposes, the management is keen to evaluate the performance of each of the product segments. See the illustrations below to understand better what it means.


(Simplified Profit & Loss Statement)
ABC Printing Services
Profit & Loss for Year Ended 31 December 2013
Revenue: 200,000
     Advertising 40,000
     Manpower 20,000
     Color Cartridges 50,000
     Materials 30,000
     Rental 20,000
     Utilities 5,000
Total Expenses: 165,000
Net Profit: 35,000

(Segment Reporting)
ABC Printing Services
Segment Profit & Loss Statement for Year Ended 31 December 2013
Name Card Printing
Wedding Invitation Cards Printing
T-Shirt Printing
Poster Printing
Letterhead Printing
Revenue: 200,000 40,000 80,000 10,000 30,000 40,000
     Advertising 40,000 5,000 20,000 5,000 5,000 5,000
     Manpower 20,000 4,000 4,000 4,000 4,000 4,000
     Color Cartridges 50,000 3,000 10,000 2,000 30,000 5,000
     Materials 30,000 3,000 10,000 10,000 3,000 4,000
     Rental 20,000 2,000 2,000 6,000 6,000 4,000
     Utilities 5,000 1,000 1,000 1,000 1,000 1,000
Total Expenses: 165,000 18,000 47,000 28,000 49,000 23,000
Net Profit: 35,000 22,000 33,000 (18,000) (19,000) 17,000

(In this example, we made the assumption that everything else (except for revenues and expenses incurred) about the 5 services are the same. In particular, (1) the cost of investment in machines and (2) the productivity of every services' machines are equal in all 5 services. This allows us to keep our analysis simple, and focus on the comparison of revenue vs expenses incurred for each service.

In practice, different services of a business are likely to incur different investment cost, and any performance analysis has to take into account these factors too.)

Now that the business' Profit & Loss Statement has been broken down into different segments, the management of ABC printing services has a granular view of its services' performance.

Brief Analysis

1. Loss making services The first thing which readers of this segment report would immediately realise is that the T-Shirt Printing & Poster Printing services are actually making losses. Their poor performance is more than offset by good performance on the other services, allowing the business to generate a decent profit on an overall basis.
2. Major contributors to revenue The Wedding Invitation Card Printing Services contribute S$80,000 (40%) to the business' revenue, Name Card Printing & Letterhead Printing each contributed S$40,000 (20%), while T-Shirt Printing & Poster Printing contributed to the remaining 20% revenue.
3. Efficiency While the Wedding Invitation Cards Printing services contributed to a substantial chunk of ABC's revenue, it's not managed the most efficiently. Name Card Printing services there seems to be still a lot of scope for ABC to improve this service's efficiency.
4. Move away from T-Shirt & Poster Printing Services? T-Shirt Printing Services incurred S$28,000 in expenses and generated only S$10,000 in revenue, while Poster Printing incurred S$49,000 expenses and generated only S$30,000 revenue.

It is tempting for one to jump to the conclusion that walking away from T-Shirt & Poster Printing Services would improve the profits, but it's actually not so straightforward.

We still have to look into whether there are complementary benefits to retain this service e.g. Does providing this 2 services bring about customers to other services?

Another thing to note is that the combined revenue (S$40,000) from T-Shirt & Poster Printing services make up 20% of ABC's total revenue (S$200,000). This is a substantial amount of revenue, and it might be a better option to instead look into how to control the expenses to operate these 2 services.

The segment information provide some insights into it:
Color cartridge expenses: The color cartridges expense of Poster Printing (S$30,000) make up 61% of the total expenses (S$49,000), and it's significantly higher than the color cartridges expenses of other services - Are there better printer out in the market which deliver lower poster printing expenses at similar/better quality?

Material expenses: The revenue from the T-Shirt Printing Services is only sufficient to cover the material expenses. Is this a case where non value-for-money materials were sourced, or could it be that the prices charged for T-Shirt Printing is too low?

Internal Controls

What are internal controls?

In accounting terms, internal controls are accounting processes and procedures which are designed to promote efficiency and assure the implementation of a policy, or to protect against fraud and error. No doubt, internal controls play a key role within the governance structure of a company.Small businesses operate in a different environment from their big corporate counterparts, and there are some differences in the design of internal controls for these small businesses.

Take for example the procurement process. In large companies, it is possible to establish a procurement department by itself to handle the purchases of the organisation. However given the limited resources of smaller companies, it is usually neither effective nor efficient for them to adopt the exact same governance structure of larger companies.

To ensure oversight of the purchases in small businesses, it might be more cost-effective to instead appoint a person (or even the owner himself if he resides in Singapore) to oversee the transactions. Regardless, there are several primary areas (highlighted below) which every small business would have to look into.


In recent years, procurement have become a hotbed for numerous "jaw-dropping" procurement lapses and fraud. It is therefore essential that businesses maintain oversight over procurement regardless of the size of the business size.

As mentioned in the introduction to this Internal Control Environment Section, one of the cost effective approach (and easy to implement) which small business can adopt is to appoint someone senior in the business to oversee the purchases. That person could even be the business owner himself.

Bank Reconciliation

For any business, the reconciliation of the bank statements is the key control against theft of cash. The bank reconciliation compares the cash transactions indicated in the accounting records against the transactions in bank statements. The cash transactions in the accounting records should tally to the bank statements but some differences may occur - for example, a cheque issued by the company has not been presented to the bank or either the bank or the organisation has made an error.

However the cash discrepancy may be due to more sinister reasons such as theft of cash by the employees. The performance of the bank reconciliation allows a business to identify discrepancies for investigation.

Access Rights to Accounting System

The access rights (username and password) to your accounting system should be kept safe, and only given to personnel who needs to use the system. The accounting system holds the records of all your business transactions, and should be kept accurate at all times.

In the worst scenario, an unauthorised person who obtained access to the accounting system may change your records and allow a fraud to occur. A simple example to highlight how fraud might occur if access rights are not kept safe would be: The accounting system indicates that a payment of only S$1,000 is supposed to be paid to a supplier. However, the unauthorised personnel (say an employee) accessed the system and change the payment amount to $2,000. Thereafter when actual payment is made, S$1,000 is paid to the supplier while the remaining S$1,000 is pocketed by the employee.

Segregation of Duties

Different personnel should be involved in the receipt and payments process. The personnel who record transactions into the accounting system and perform bank reconciliations should not be given the responsibility to handle physical cash.

A personnel who has both the right to record transactions and handle physical cash is in a very strong position to perpetuate a cash fraud.

Signing and Custody of Cheques

Whenever possible (i.e. if your travel schedule and work processes permit), signing your own checks is the best option. Some other best practices to adopt are:

- Keep check stock under lock and key.
- Maintain a cheque register: a listing which indicates what are the transactions that has been paid using cheques.
- Making sure that the personnel performing bank reconciliation reviews the cheque book and cheque butt.
- If possible, have the cancelled checks mailed to another address instead of the office (such as the business owner's home), and verify whether the details on these cancelled cheques (vendors, signatures, etc.) to determine whether they are authorised transactions.

Other Types of Controls

The controls highlighted above mainly serves to ensure that the business' most liquid asset i.e. cash. is safeguarded. However, internal controls are not restricted to just cash. For instance:

Sales Commission Process: Internal controls could be designed to apply to sales commission, to ensure that salespersons do not engage in inflationary practices to artificially boost their sales acheivement.
E-Commerce: For businesses which have strong online commerce activities, internal controls could be designed to ensure that the correct product details and pricing are uploaded onto the business website.
Project Delivery: For businesses involved in project delivery, internal controls could be designed to ensure that projects are delivered within the stipulated timeline, and to reduce occurences of errors and inaccuracies in the content.
For businesses whose main activity is to manufacture products for sale, internals controls could help to reduce the manufacturing failure rate, and ensure that critical manufacturing processes are adhered to.

In fact, internal controls can be designed for almost any kind of business processes.

The Nature of Internal Controls

When implementing internal controls, there are usually cost (typically cost and/or time to design and implement) involved in it. Weighing of the benefits versus costs is an important decision which the business has to deliberate when considering whether to implement internal controls for a particular process.

If you are involved in a business where the tolerance for error in delivery/execution of your product/service is very low, we could assist in reviewing your processes and internal controls, as well as provide recommendations on areas where improvements could be made.

We aim to be as in-depth as possible so as to identify the key factors which affects the achievement of your business objective. During the process we may have to speak with both the ground and management level staff and review your documentations. This allow us to grasp the subject matter better. We would appreciate that you factor in some time for us to interact with your staff.

Our Rates

Feel free to contact us and let us know your requirements, and we would work out a solution as well as provide you with the quotation.

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