raising finance 2.2

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  • financial planing 2.2
    • sales forecasting
      • purpose
        • increase promotional activity if sales are forecasted to drop
        • see if they need to increase productive capacity
      • factors affecting sales forecasts
      • difficulties of sales forecasting
        • historical data may not represent future data
        • seasonality may affect sales
        • fluctuation in demand due to consumer trends, sales positions, political events
    • sales, revenue and costs
      • sales volume= sales revenue /price
      • sales revenue= price X quantity sold
    • break-even
      • contribution= selling price-variable costs per uit
      • total fixed costs+total variable costs=total revenue
      • limitations; assumes every product is sold, costs may increase, fixed costs spread out across product portfolio
      • margin of safety- the difference between break-even point and current level of output
    • budgets
      • purpose
        • communication- based on business objectives and reflects on how to achieve that
        • forecasting- set against objectives
        • motivational- managers to be in control of their own budgets
        • planning-financial plan with agreed spending limits to anticipate issues
      • variance analysis; analyses budgeted figures against actual
  • consumer trends
    • fashion shows or trade fairs help
    • helps a business identify upcoming trends
    • factors affecting sales forecasts
  • economic variables
    • interest rates, inflation, unemployment rate, GDP
    • sale contracts not renewed due to inflation, so prices may need to lower to keep sales
    • if economy slumps then customers may buy inferior goods
  • fixed costs; costs that do not vary with the level of output of sales
    • e.g rent, rates, interests, insurance, salaries
    • sales, revenue and costs
      • sales volume= sales revenue /price
      • sales revenue= price X quantity sold
  • variable costs; costs that vary with the output of sales
    • e.g raw materials, fuel, packaging, staff wages
  • uses current financial figures, realistic because based off previous data,dynamic market could be wrong
    • historical figures budgets
      • variance analysis; analyses budgeted figures against actual
  • zero based budget
    • uses potential data rather than historic, good for start-ups, unreliable as could use bias, useful for dynamic markets
  • difficulties of budgeting
    • fixed for a year so unflexible
    • managers spend up to the limit
    • unrealistic budgets are demotivating
    • budget driven rather than customer driven
    • budgets
      • purpose
        • communication- based on business objectives and reflects on how to achieve that
        • forecasting- set against objectives
        • motivational- managers to be in control of their own budgets
        • planning-financial plan with agreed spending limits to anticipate issues

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