Presentation on theme: "National 4/5 Business Management"— Presentation transcript:
1 National 4/5 Business Management FinanceNational 4/5 Business Management
2 Learning Outcomes 2.1 – Sources of Finance (costs & benefits) 2.2 – Breakeven Charts2.3 – Cash Budgets (cash flow issues and solutions)2.4 – Profit & Loss statement
3 Contents Role of Finance Department Sources of Finance Break-even ChartsBreak-even definitionsCash BudgetsCash Budget –problems and solutionsProfit StatementProfit Statement – problems and solutionsRole of Technology
4 Role of Finance Department The Finance Department are responsible for the following roles:Payment of Invoices and WagesPreparing Financial AccountsInterpreting Financial Accounts
6 Sources of Finance Source of Finance Description Advantage Who Bank LoanMoney borrowed and paid back in set instalmentsDoes not have to be paid back all at onceAll Private SectorBank OverdraftArrangement to go below your bank balanceGood when in need of quick financeGrantGiven for new business or a needed businessDoes not need to be repaidHire PurchaseUsed for buying capital goods e.g. Vehicles. Paid in instalmentsDoes not need repaid all at onceSharesPeople give money to own a percentage of the businessLarge amounts of finance raised without repaying all at oncePLC and LTD
7 Sources of Finance Source of Finance Description Advantage Who Trade CreditCredit offered by suppliers giving you more time to pay for goodsCan improve cash flow, if you can sell goods before paying for themAll CompaniesDebentureA loan that is secured on the business assetsCan be paid back over a very long period of time – low interest ratesPLCOwners Money (capital)Money invested by the ownerDoes not need to be paid backAll Private SectorReinvest ProfitsMoney paid back into business from previous profitsTaxesMoney collected from taxpayer e.g. Council TaxLarge sums of money can be collectedPublic Sector
9 Break-even ChartsA break-even chart is crucial to an organisation as it shows how many units must be sold before the company stops making a loss and begins to make a profit.The point on the chart where the company does not make a loss or a profit is known as the break-even point.
10 Break-even Chart PROFIT LOSS Sales Revenue Total Costs BREAK EVEN POINTVariable CostsLOSSFixed Costs
11 Break-even - Definitions Fixed Costscosts which remain constant even when the volume of production changes. These must be paid even if no sales are made e.g. rent, insuranceVariable Costscosts which vary directly with the volume of production e.g. raw materials, wages.TOTAL COSTS = FIXED COSTS + VARIABLE COSTS
12 Break-even - Definitions Sales RevenueThe total money as business has made from its sales, this will increase as more products are producedBreak-even PointThis is reached when total costs = sales revenue. At this point neither a loss nor a profit is being made.
14 Cash BudgetA financial statement which shows the amount of cash flowing in and out of a business over the course of a set time period.
15 Cash Budgets Cash Inflows Cash Outflows Cash Sales Credit Sales Other income (rent etc)WagesRentUtilitiesPurchases (raw materials)
16 Cash Budgets - Importance New businesses aim to simply cover costs in the initial period of their business.They need to forecast their costs and income in advance.They need to be able to calculate if they can cover their costs and if not, what to do about it.It allows for greater control of the businessLess uncertainty and fear about the futureProvides targets for staff to work towards
18 Cash Budget - example What does this show? Brian’s Cash Budget has highlighted that he will be short of money in October and December (both figures have negative balances).Brian and any other business owners with such shortages should take immediate action to avoid running out of cash.
19 Cash Budgets – problems and solutions decreased cash salesdecrease in debtor receiptsincrease in raw material costsIncrease sales (promotions, price)decrease time for debtor repayment (credit terms, offers)decrease raw materials (negotiate with supplier, find new supplier)
20 Cash Budgets – problems and solutions increase in utility costs or increase in other expensespurchase of fixed assetIncreased loan repaymentsdecrease other expenses (new utility provider, become more economical)decrease purchase of fixed assets (hire purchase)decrease loan repayments (negotiate terms, find new provider), sell fixed assets.
24 Profit Statement - definitions Sales/TurnoverIncome received from the customers from sales of productsLess Cost of SalesThe cost of buying in the stock sold during the year.Opening Stock – Stock in the business at the start of the yearPurchases – Stock that is bought in during the yearClosing Stock – Stock left over at the end of the yearGross Profit = Sales – Less Cost of Goods SoldThis is known as the Trading Profit, the money made solely from trading activities.
25 Profit Statement - definitions Gross ProfitLess ExpensesOther expenses that have to be paid for other than stock. This might include Wages, Rent, and Electricity etc.Net Profit = Gross Profit – ExpensesFinal profit left after taking all expenses from Gross Profit
26 Profit Statement – problems and solutions Decrease in SalesIncrease in Cost of Goods SoldIncrease in ExpensesIncrease selling pricefind new supplier; negotiate a better deal with the supplierreduce expenses through better deals or becoming more economical.
27 NATIONAL 4 FINANCE MATERIAL – JOB COST STATEMENTS To be used in Nat 5 if teaching to both levelsNATIONAL 4 FINANCE MATERIAL – JOB COST STATEMENTS
28 Job Cost Statements Job costing is a method used to add up costs. Work consists of a number of separate jobs, each of which is completed to a customer’s specific requirement.The idea of job costing is simple, direct costs are collected and charged to each job.This is then charged to the customer plus a percentage for profit.Main items in a job costing statement are: Materials, Labour, Factory overheads, and selling/admin costs.
31 Role of Technology in Finance - Spreadsheets The most common software to use in the Finance Department is Microsoft Excel.This software allows the Department to complete their accounts using Spreadsheets.
32 Role of Technology in Finance - Spreadsheets Why use a Spreadsheet to create accounts?Once a formula is entered, calculations are done automatically.A Spreadsheet can be easily edited.When figures are altered, totals will be updated automatically.Can use ‘What if?’ scenarios.Many copies can be printed out easily.