1. LEARNING AIM B: Understand how businesses plan for success

2. Topic B.2: Understand the tools businesses use to plan for success

3. What is Budgeting? A method of planning the use of resources and money. Forecasts where the business will be in the future. A means of motivating individuals to achieve performance levels agreed and set. A means of communicating the wishes and aspirations of senior management

4. Advantages of Budgeting? Forces managers to do planning Able to control what happens within the business Helps coordinate the different departments of the business Improves Communication and ideas with managers Motivates staff.

5. Disadvantages of Budgeting? Only estimates, not statements of facts. Need to be amended if circumstances change Preparation does not guarantee success People’s behaviour may undermine its value

6. Now try the Budgeting Exercise in Moodle

7. CASH FLOW

8. What is cash flow? CASH FLOW – the movement of money into and out of a business bank account INFLOWS refers to money received by the business EXAMPLES: Sales revenue Capital Loans Grants OUTFLOWS refers to money paid out by the business EXAMPLES: Purchases Rent & Rates Wages & Salaries BUSINESS

9. Continued… The difference between the inflows and the outflows is called the net cash flow. Positive net cash flow – Inflows are greater than out flows. Negative net cash flow – Inflows are not enough to cover out flows Cash Balance – the amount of money in a business’ account at any particular time

10. Continued… What will happen if a business’ net cash flow remains negative for some time? For this reason, businesses must use cash-flow forecasting to predict the cash balance at regular intervals so that action can be taken if a problem is foreseen.

11. Building a cash-flow forecast To build a cash-flow forecast you need to have the following information: Opening Balance - the amount of money in the business’ bank account at the start of the period Income per Period – the amount of money expected to go into the bank account in that month Expenditure per Period – the amount of money expected to leave the bank account in that month Closing Balance – the amount expected to be in the bank account at the end of the period

12. What are Cash Inflows? Sales Revenue Loans from banks Grants from the government

13. Cash Outflows Buying raw materials Paying wages Rent Interest on loans Telephone New machinery Taxes

14. JanuaryFebruaryMarchApril Opening Balance:0590725875 Income: Sale of Burgers500550600650 Enterprise grant1000000 Total income:1500550600650 Expenditure: Cooker500 Burgers250 270300 Rolls100 110120 Onions60657075 Total expenditure:910415450495 Closing balance:5907258751030

15. Now try the ‘E-Bay Designer’ Exercise then the ‘Bob the farmer’ exercise in Moodle