Unit 5 Management of Finance 1 N5 BUSINESS MANAGEMENT
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- Slide 1
- Unit 5 Management of Finance 1 N5 BUSINESS MANAGEMENT
- Slide 2
- List of Topics 2 Break-even different types of fixed and
variable costs understanding profit and how to calculate it
producing and interpreting break-even charts Profit statement
producing a profit statement interpreting a profit statement to
identify loss, profit, identifying reasons for loss Technology in
Finance (see Operations) Use of EPOS (electronic point of sale)
Benefits of Spreadsheets Sources of finance sources of finance
suitability of different types of finance Cash budgeting how
businesses generate cash what businesses spend cash on why
businesses must have enough cash why cash flow problems may occur
how cash flow problems can be resolved producing a cash budget
interpreting a cash budget and identifying any cash flow problems
justifying suitable solutions to cash flow problems
- Slide 3
- To open the business To expand To buy supplies To buy stock To
manage cash flow To pay debts Business need to have finance
sources
- Slide 4
- Private Sector Finance 4 Sole Traders are usually financed by
the owners savings Partnerships are financed by partners
contributing their savings to the business (between 2 and 20
partners) Private Limited Companies are financed bu selling shares
to family and friends
- Slide 5
- Sources of Finance for the Private Sector 5
SourceDescriptionAdvantagesDisadvantages Loan from family/friends
Often this doesnt need to paid back or perhaps at a low interest
rate over a long period of time May be interest freeMay cause
arguments about repayment Bank LoanA loan of money repaid over time
with interest Quick to organise Can be repaid over a long period
Interest may have to be paid Bank overdraft Taking more money out
of a bank account than is available Easy to arrange with the bank
for a short period of time Usually only a small amount of money is
available Daily interest charge so quite expensive MortgageLoan
from a bank/building society to buy property over a long period of
time Can be repaid over many years (25) Interest rates can rise
over time
- Slide 6
- Sources of Finance for the Private Sector (cont) 6
SourceDescriptionAdvantagesDisadvantages Government grantsMoney
from the government that does not have to be paid back Does not
need to be repaid Usually has conditions attached Can take time to
set up Princes TrustThe Princes Trust will provide start-up capital
for young entrepreneurs Does not have to be repaid Usually has
conditions attached Age conditions Issue SharesPrivate Ltd
companies can sell more shares Can raise large amounts Dividends
must be paid to shareholders Hire PurchaseBuying an item now and
paying for it at a later date Can receive the item immediately
Interest rates can be really high Item does not belong until last
payment has been made
- Slide 7
- Public Sector Finance 7 Public sector organisations obtain
their finance in different ways. The government raises money
through different types of taxes eg income tax, corporation tax,
VAT. Local government raises money through council tax. This
finance is then allocated to the public sector according to planned
budget spending eg to NHS, armed forces. The Scottish government
funds education in Scotland.
- Slide 8
- Third/Voluntary Sector Finance 8 Third sector organisations get
funding in different ways Sponsorship by businesses and individuals
eg Oban Saints sponsored by ? Fundraising activities eg coffee
morning to raise money for Cancer Research Trading activities eg
Atlantis and Phoenix cinema sell products/services
- Slide 9
- CASH FLOW 9 Cash flow is the movement of money into or out of a
business How do businesses generate cash? They do this by selling
products or services to customers. What do they spend cash on? All
business must pay for raw materials and staff wages. They will have
many other expenses like lighting and heating, insurance, petrol,
rates
- Slide 10
- Credit 10 However, many businesses offer CREDIT to their
customers this means they are allowed to buy now and pay later.
Many businesses fail because they run short of cash. They may have
allowed too many customers a long credit period but in the meantime
have to pay bills of their own. Planning and anticipating can help
businesses take action and deal with such problems.
- Slide 11
- CASH BUDGET 11 A Cash Budget can help a business anticipate
when cash flow problems may occur. It identifies expected income
from sales and also bills which must be paid in the near
future
- Slide 12
- 12 What does a Cash Budget look like? Can you see any possible
problems? 700-19005500Closing Balance 12600214008900 10000Van 300
Wages 1100 Heat and Light 2000 Rent 920080005500Purchases Payments
133001950014400 152001400012500Sales Receipts -190055001900Opening
Bal MarchFebruaryJanuary CASH BUDGET FOR FIONAS FLOWER SHOP
- Slide 13
- 13 What could Fiona do about the February cash flow problem?
Arrange a bank loan Arrange an overdraft - when there is a negative
balance in the bank account. Buy the van on Hire Purchase Try to
increase sales Find a cheaper supplier or ask suppliers for credit
Raise more capital eg take on a partner Encourage customers to pay
on time, eg by offering discounts
- Slide 14
- 14 Using a Spreadsheet for Budgets Can perform calculations
(formula) Can run scenarios (what ifs?) Can display results on
charts
- Slide 15
- BREAK EVEN 15 COSTS are the bills that businesses need to pay
on a regular basis. Some bills will change while others stay the
same. The Break even point is the point where sales and costs are
the same the business is not making a profit
- Slide 16
- 16 Importance of Planning and Control Businesses must cover
costs or they will make a loss Some new businesses will aim to only
cover costs or break- even (ie not make a loss) in the first few
years - to get established Profit is the amount made after costs
are paid. Forecasting income and costs allows businesses to make
decisions and plans eg get a loan or overdraft in a month where
income is low.
- Slide 17
- 17 Types of Costs Fixed Costs are those costs which stay the
same irrespective of how much you sell or produce (eg rent for
premises, insurance premiums) Variable Costs are those costs which
increase directly as sales or production increases (eg power to
machines, some wages [where workers are paid according to how much
they produce])
- Slide 18
- 18 Costs & Revenues () Quantity Sales Revenue Fixed Costs
Total Costs Break-even point Value of Sales and Costs No of Items
Sold
- Slide 19
- 19 Costs & Revenues () Quantity Break-even point For an
explanation of the shaded areas see next slide Area of loss Area of
Profit BREAK-EVEN CHART
- Slide 20
- 20 The green shaded area (to the left of BEP) shows the losses
made at the appropriate levels of sales since Total Cost is greater
the Sales Revenue. The blue shaded area (to the right of BEP) shows
the profits made at the appropriate levels of sales since Sales
Revenue is greater the Total Cost. Therefore the BE chart allows
you to calculate whether a profit or loss will be made at any level
of sales.
- Slide 21
- 21 Fixed or Variable? Rent Chocolate Staff wages Packaging
Icing sugar Coffee Electricity Ribbons Flour Advertising material
Insurance Lolly sticks Ice cream Tea Milk Website designer
- Slide 22
- PROFIT STATEMENTS 22
- Slide 23
- TECHNOLOGY 23 See Operations powerpoint