Managing a Business ( finance)

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  • Created by: jenni
  • Created on: 20-03-13 10:34
Budget
A financial plan that sets targets based on projected costs and revenues that the business will face.
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Income Budget
Shows the agreed, planned-for income or sales revenue of the business over a period of time.
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Expenditure Budget
this shows the agree, planned-for costs or expenditure of the business over a set period of time.
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Profit Budget
This combines with both income and expendature budgets for the business and forcasts how much profit the business will make over a set period of time.
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Benefits of Using budgets (4)
1) can measure performance. 2) can prove motivational. 3) make departments accountable. 4) Give the business greater control and can be used to monitor progress.
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Drawbacks of using budgets (4)
1) New business start-ups lack experience in setting realistic budgets. 2) costs are volatile and can change quickly. 3) Opportunities might be missed if budgets are applied too stricktly. 4) if a budget is inaccurate, it can prove demotivating.
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how to get favourable variance (2)
1) Actual revenues are greater than the budgeted figures. 2) Actual costs are lower than the budgeted figures.
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how you get adverse varience (2)
1) actual revenus are lower than the budgeted figures. 2) Actual costs are greater than the budgeted figures.
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Cash flow
money coming into and out of the business.
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causes of cash flow problems (6)
1) seasonal demand 2) Over-estimation of sales/underestimation of costs.3) over-investment in fixed assets (not enough money for day-to-day payments) 4) credit sales. 5) poor stock management. 6) unforseen change.
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solutions to cashflow problems (4)
1) bank overdraft. 2) sale of assets. 3) sale and leaseback. 4) managing debtors by using factoring.
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+'ves and -'ves of Bank overdraft. (3 each)
+'ves- easy to organise, only pay interest when overdraft is being used, flexible. -'ves - Interest rates are flexible, maiking it hard to budget accurately. Interest rates will be higher than on a bank loan. Will be more expensive in the long run
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+'ves and -'ves of Sale of assets (2 each)
+'ves- can raise large sums (e.g. sell a building). might not need the asset. -'ves- Hard to sell quickly, reduces capacity.
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+'ves and -'ves of Sale and leaseback (2 each)
+'ves- may bring an immediate amount of cash, Reduces the need for maintenance costs. -'ves - Will be more expencive in the long run, Harder to secure more finance as fewer assets are left to use as security.
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+'ves and -'ves of managing debtors by using factoring (2 each)
+'ves - immediate boost of cash, saves time in chasing up money owed. -'ves- A firm wil typically recieve only 90% of the debtors recovered. Customers may resent being chased by the factors company.
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Alternative solutions to cash flow problems (5)
1) change or review suppliers. 2) Take out less cash from the business ( pay lower wages). 3) control stock more carefully. 4) Diversify the range of products in order to reduce seasonality factors.5) set aside a contingency fund.
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calculation for profit
Profit= Total revenue- Total costs
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calculation for total revenue
Total Revenue = Price X Quantity of units sold
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Calculation for Gross profit margin (%)
Gross profit margin (%) = (gross profit/revenue) x100
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Calculation for Net profit margin (%)
Net profit margin (%) = (net profit/revenue) x100
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Calculation for ROCE (%) (return on capital employed)
ROCE (%) = (net profit/capital employed) x100
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Methods to increase profitability (3)
1) reduce fixed costd by reducing expences. 2) reduce variable costs by switching suppliers. 3) Alter price, depending on the price elasticity of demand, while costs remain constant.
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Other cards in this set

Card 2

Front

Shows the agreed, planned-for income or sales revenue of the business over a period of time.

Back

Income Budget

Card 3

Front

this shows the agree, planned-for costs or expenditure of the business over a set period of time.

Back

Preview of the back of card 3

Card 4

Front

This combines with both income and expendature budgets for the business and forcasts how much profit the business will make over a set period of time.

Back

Preview of the back of card 4

Card 5

Front

1) can measure performance. 2) can prove motivational. 3) make departments accountable. 4) Give the business greater control and can be used to monitor progress.

Back

Preview of the back of card 5
View more cards

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