1. National 4/5 Business Management
Finance
National 4/5 Business Management

2. Learning Outcomes 2.1 – Sources of Finance (costs & benefits)
2.2 – Breakeven Charts
2.3 – Cash Budgets (cash flow issues and solutions)
2.4 – Profit & Loss statement

3. Contents Role of Finance Department Sources of Finance
Break-even Charts
Break-even definitions
Cash Budgets
Cash Budget –problems and solutions
Profit Statement
Profit Statement – problems and solutions
Role of Technology

4. Role of Finance Department
The Finance Department are responsible for the following roles:
Payment of Invoices and Wages
Preparing Financial Accounts
Interpreting Financial Accounts

5. Learning Outcome 2.1
Sources of Finance

6. Sources of Finance Source of Finance Description Advantage Who
Bank Loan
Money borrowed and paid back in set instalments
Does not have to be paid back all at once
All Private Sector
Bank Overdraft
Arrangement to go below your bank balance
Good when in need of quick finance
Grant
Given for new business or a needed business
Does not need to be repaid
Hire Purchase
Used for buying capital goods e.g. Vehicles. Paid in instalments
Does not need repaid all at once
Shares
People give money to own a percentage of the business
Large amounts of finance raised without repaying all at once
PLC and LTD

7. Sources of Finance Source of Finance Description Advantage Who
Trade Credit
Credit offered by suppliers giving you more time to pay for goods
Can improve cash flow, if you can sell goods before paying for them
All Companies
Debenture
A loan that is secured on the business assets
Can be paid back over a very long period of time – low interest rates
PLC
Owners Money (capital)
Money invested by the owner
Does not need to be paid back
All Private Sector
Reinvest Profits
Money paid back into business from previous profits
Taxes
Money collected from taxpayer e.g. Council Tax
Large sums of money can be collected
Public Sector

8. Learning Outcome 2.2
Break-even Charts

9. Break-even Charts
A 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 POINT
Variable Costs
LOSS
Fixed Costs

11. Break-even - Definitions
Fixed Costs
costs which remain constant even when the volume of production changes. These must be paid even if no sales are made e.g. rent, insurance
Variable Costs
costs which vary directly with the volume of production e.g. raw materials, wages.
TOTAL COSTS = FIXED COSTS + VARIABLE COSTS

12. Break-even - Definitions
Sales Revenue
The total money as business has made from its sales, this will increase as more products are produced
Break-even Point
This is reached when total costs = sales revenue. At this point neither a loss nor a profit is being made.

13. Learning Outcome 2.3
Cash Budgets

14. Cash Budget
A 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)
Wages
Rent
Utilities
Purchases (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 business
Less uncertainty and fear about the future
Provides targets for staff to work towards

17. Cash Budget - example

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 sales
decrease in debtor receipts
increase in raw material costs
Increase 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 expenses
purchase of fixed asset
Increased loan repayments
decrease 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.

21. Learning Outcome 2.4
Profit Statement

22. Profit Statement
This is the account that is used to calculate the profit made by a business over a period of time, usually a year.

23. Profit Statement - example

24. Profit Statement - definitions
Sales/Turnover
Income received from the customers from sales of products
Less Cost of Sales
The cost of buying in the stock sold during the year.
Opening Stock – Stock in the business at the start of the year
Purchases – Stock that is bought in during the year
Closing Stock – Stock left over at the end of the year
Gross Profit = Sales – Less Cost of Goods Sold
This is known as the Trading Profit, the money made solely from trading activities.

25. Profit Statement - definitions
Gross Profit
Less Expenses
Other expenses that have to be paid for other than stock. This might include Wages, Rent, and Electricity etc.
Net Profit = Gross Profit – Expenses
Final profit left after taking all expenses from Gross Profit

26. Profit Statement – problems and solutions
Decrease in Sales
Increase in Cost of Goods Sold
Increase in Expenses
Increase selling price
find new supplier; negotiate a better deal with the supplier
reduce 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 levels
NATIONAL 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.

29. Job Costing Example

30. Role of Technology

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.