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Managing a
By Lubna Sana Amir


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1) Using budgets
Budget ­ a detailed plan of income and expenses expected
over a period of time.
A good budget has the following features:

Consistent with the aims of the business
Sets challenging but realistic targets
Is flexible to any changes

Advantages Disadvantages
Provides direction and Allocations may be…

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Variances ­ difference between planned and actual figure
achieved/ (budget figure ­ actual figure)

Favourable variances: Profit is higher than expected
Sales is higher than expected
Expenditure is lower than expected

Adverse variances: Profit is lower than expected
Sales is lower than expected
Expenditure is higher than expected

Why businesses…

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What causes cash flow problems?

Seasonal demand: the demand for some products/service
is seasonal, but companies typically increase their costs by
producing in advance
Overtrading: firms can become too confident and start to
expand quickly without organising sufficient longterm funds
Credit sales: by giving credit to customers allowing them a…

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Bank overdraft: this is easy to arrange and flexible, however
interest payments tend to vary making it harder to budget.
Shortterm loan: this is at a lower interest rate than
overdrafts and the repayments are also fixed, however
collateral security is needed which can be seen as a risk.

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Net Profit Margin ­ this measures net profit as a percentage of

Net profit
Revenue x 100

Return on capital employed ­ this measures profit as a
percentage of capital invested

Net profit before tax
Capital invested x 100

Methods of improving profits:

1) Increase selling price

Adv: higher…

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2) Reduce costs

Adv: leads to a higher profit margin on each item sold Dis:
decrease in quality can lead to a fall in demand

3) Increase quantity

Adv: this attracts sales and makes better use of capacity Dis:
can cause fixed costs to rise e.g. marketing

Other ways to…

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Less: Variable costs

Less: Cash outflows

Less: fixed costs

= Net cash flow

= Net profit

4) Distinction between cash and profit

Cash is the physical existence of money within the
business, which can be generated by selling items of stock.
However, not all of the cash is converted into…

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1) Key elements of organisational structure
Organisational structure ­ the way a business carries out its

Levels of hierarchy ­ the number of different supervisory and
management levels between the shop floor and chief executive
in an organisation

An organisation's structure is usually shown in an…

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This is the number of subordinates a manager is responsible for.

Wide span of control


Assist 6

Assist 5

Assist 4

Assist 3

Assist 2

Assist 1

Narrow span of control


Manager 1

Manager 3

Manager 2


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