tutor2u ™ GCSE Business Studies Revision Presentations 2004 Budgets & Business Planning

tutor2u ™ GCSE Business Studies What is a Budget? A vital part of the way a business is managed An agreed plan for future expenditure and income from sales Allocates resources for spending and investment based on expected business activities in the coming year Based on objectives of business

tutor2u ™ GCSE Business Studies Using Budgeting to Control a Business Budget helps managers to measure whether they are achieving what they set out to achieve If they are under or over budget they can take steps to correct position Budget also helps managers allocate resources at start of a period, e.g.  In which areas is business going to invest  How much will be spent on marketing & promotional activities this year  How many employees does the business need – what will they be paid? Provide a way of allocating responsibility among employees  E.g. managers are given their own budgets and are responsible for controlling how the budget is spent / achieved

tutor2u ™ GCSE Business Studies Main Business Budgets Sales budget  Breakdown of how many products business aims to sell & how much revenue it will get from those sales Marketing budget  Describes how business intends to achieve budgeted sales (e.g. how much advertising, sales promotion) Production budget  Volume of production (units) and production costs to achieve it  Used to help schedule work, order raw materials and manage capacity Departmental cost budgets Cash flow budget  Ties all other budgets together  Helps understand what money is coming in (sales) and what money is going out (production and departmental)

tutor2u ™ GCSE Business Studies Budgets and Motivation Budget - a non-money motivator Provides a focus and a sense of achievement when it is reached Rewards in form of bonuses can be linked to achievement of budgets Encourages employees to contribute more towards overall profitability of business

tutor2u ™ GCSE Business Studies Preparing a Cash Flow Budget Opening balance -How much cash business has at start of time period Cash inflows - How much cash is coming into business from product sales, sales of assets, loans from bank, grants from government, and other sources of finance Cash outflows - How much cash is going out of business, such as expenses, wages, raw materials, buying new machinery, tax payments and dividends Closing balance - How much money is left at end of month

tutor2u ™ GCSE Business Studies Example of a Cash Flow Budget

tutor2u ™ GCSE Business Studies What is a Business Plan? A business plan sets out how a business is going to achieve its aims and objectives It is extremely useful a new business to use a plan because it can be used to show potential investors how their money is going to be spent

tutor2u ™ GCSE Business Studies Contents of a Business Plan Statement of aims and objectives Analysis of the market  Size, growth and segmentation  Competitors – activities, strengths, weaknesses Marketing strategy  Products  Pricing strategy  Promotional mix  Distribution plan Operational strategy  Production / capacity  Costs Finance  How the business plan will be financed  Risks and opportunities – and how they are reflected (if at all) in the plan

tutor2u ™ GCSE Business Studies Business Plan and Banks Before a bank will lend money to a business it will want to know if it will get money back A business plan serves several purposes in this case:  Fleshes out business idea so bank can see whether it is likely to work financially  Shows bank whether future profits will cover interest on loan  Shows bank when it can expect to be repaid  Shows where information comes from and whether it is reliable Business plan must be presented in such a way as to convince bank that intentions of business are serious and achievable

tutor2u ™ GCSE Business Studies Improving Cash Flow Agree an overdraft or increase an existing overdraft from bank Extend length of time taken to pay suppliers Reduce price of some products to get quick sales Sell to customers for cash rather than offer trade credit Sell some equipment Reduce stock levels Buy cheaper raw materials Allow debtors discounts for early payment Operate tighter customer credit controls Use debt factoring