Financial planning and monitoring

Key terms 

Finacial management- is the prices of producing and interpreting accounts that record a business expected or actual costs reveneues andf profits this helps managers to take good decisions.

Costs- are the expenses paid by a business such as its employees wages.

Revenue- is the income received by a buinsess from selling goods and services 

A budget- is a finaical plan for the future operations of the business. budget are used to set tafrrs to monitors performace and control operations 

A business plan- is a detailed statement setting out the propals for a new business or decriving the wasy in which an exisitng business will be developed 

Cash flow- is a measure of the amount of money moving into and out of a business over some time period 

A sole trader- is a business owned and operated by a single person.

A partnership- is a group between 2 to 20 people who contribute captial and expertise to an enterprise.

A company- is any incoporated business.

Shareholders- are the owners of a company

Limitied liability- provides protections for the owners of a company (normal the shareholders) they only risk the amount they have invested in the business in the event of its failure.

Key terms

An internal source of finance- is one that exists within the business 

An external source of finance-is an injections of captial into a business from individuals, other business or financial instituations 

A share- is a documenty representing part ownership of a comapny 

Assets- are anything owned by a business from which it can benefit. Assests include land,vehicles stock and brand names 

Trade credit- is a period of grace offered by suppliers before payment for goods and services is due

Collateral- is the secruity offered to back up a request for a loan. usually this is the form of property as this is a unlikely to lose value 

Key terms

A business plan- is a detailed statement setting out the proposals for a new business or describinng the ways in which an exisitng business will be developed

Marketing- is the management process that identifies, anticiapates and suppliers customers requirements effieciently and profitably

Business objectives- are the targets or goals of the entire organisation

Profit- measures the amount by which revenue recieved from selling a product exceed the total costs involved in supplying it over some time period 

Cash flow- is a measure of the amount of money moving into and out of a business over some time period

Key terms

Human resources- are the people who work within an organisation including office staff, operational and shop floor employees and managers.

Physical resources- are an organisations fixed assests such as premises are vehicles as well as tangiable items such as stocks of raw materials, components and finished goods 

Finacial resources- are a business cas and captial resources an assessent of a business fincial resources involves examining profits and profitability as well as cash flows and working capaital requirements and company financing that is loans, share captial and reserves 

Allocative efficiency- is the process of distributing resources effectively so that the minimum number of resources are in the right place at the right time. 

Key terms

Fixed costs- are costs that do not vary with the level of output. fixed costs exist even if a business is not producing any goods or service.

Variable costs- vary directly with output. they include labour fuel and raw materials 

Total costs- is the sum of fixed and variable costs 

Semi- variable costs- are expenses incurred by a business that have fixed and variable elements 

Revenue- is the income a business earns from selling its goods and services 

Key terms

Profit- arises when a firms revenue is greater than its total costs. a low occurs when the revenue is less than a firms total costs

Revenue- is the income a business earns from selling its goods and services 

Fixed costs- are costs thta do not vary with the level of output. fixed costs exist even if a business is not producing any goods of services 

Variable costs- vary directly with output. they include labour feul and raw materials 

Breakeven- is the point at which a business sells exactly the right number of products so that its revenue equals its cosrs in other works at breakeven the buiness makes no profit but also incurs no loss.

Margin of safety- is the amount of current output exceeds the amount necessary to break even

Key terms

Cash flow- is the money that enters and keaves a business as it makes and receives payments

Cash flow forecast- are detailed estimates of when and how cash is expected to flow into and out of a business

Cash inflows- are money recieved by a business from sales investments or loans

Cash out flows- are money that leaves a business through paying for wages, materials, marketing, fixed assets etc

Key terms

Trade credit- is an arrangment in which suppliers allow customer a period of time (usually one or two months) to pay their bills

Overtrading- occurs when a firm expands too rapdily without having the cash resources in place to adequately finance the expansion and meet its day to day commitments as well

Working captial- is the excess of current assests over current liabilities 

Key terms

A budget- is a finanical plan for the future operations of the business. budgets are used to set targets to monitor performace and control operations 

Variance analysis- is one of the methods used to monitor company perforamce. it is the comparison of what actually happened with what the business budgeted (actually planned)

An adverse variance- occurs when the busuiness actual results are worse than those anticpated and planned for the budget 

A favourable variance- occurs when the actual results are better than thoise anticpated and planned for in the budget 

Business costs

Profit= revenue - total costs 

Total costs 

Total costs= Fixed costs + Variable costs 

Revenue = Quanity sold x average selling price 

Calculating breakeven 

Breakeven point= total fixed costs divided by selling price - variable costs per unit 

(1) total cash inflow 

(2) total cash outflow 

(3) opening bank balance 

(4) net cash flow (1-2)

(5) closing bank balance (3+4)