Management of Finance

-It allowed business to anticipate period of cash surplus. Which allows business to spend money on:
investing in new machinery, equipment
nee staff training programme to improve quality
enable employer to offer staff bonuses
could invest in facilities
could invest in advertising to promote brand
-Allows business to predict periods of cash deficit, which would allow company to:
take corrective or evasive measures
take out short term overdraft
take out a bank loan
seek out cheaper supplier to help cut costs
cut back on staffing expenses eg reducing overtime

-the use of formulas for calculations
-formulas can be replicated
-use if statements for scenarios
-quickly create charts/graphs
-had password protections available
-can be emailed as an attachment

bank loan
mortgage
overdraft
share issue
gov grant/lotto grant
personal wealth/savings
business angel/
venture capitalist

bank loan (from bank) A sum of money borrowed and then repaid over a number of years

-allows business Owners to plan ahead and budget for repayments

-interest charges are applied to repayment is always more than the loan amount borrowed

Mortgage: (from bank) A type of loan use for the purchase of premises, long term

-long term repayments can be budgeted
-useful for new firms to access office or factory space
-lower rate of interest on a loan

-If repayments are not paid then valuable assets may be repossessed as alternative payment

overdraft (from bank) a facility which allows account holders to withdraw cash even with a £0.00 balance

-allows firms to manage during periods of cash flow problems
-can be accessed reasonably quickly so is useful in emergency situations

-interest charges may be applied on the money borrowed

A legal document which all businesses must complete on an annual basis which shows the level of profit or loss made by the business in the year.

this is sent to the government who will determine how much business tax is to be paid

Sales revenue: Income generated from selling goods/services
Cost of sales: money spent on raw materials/ingredients used to create products for sale
Opening inventory: amount of stock held at the start of the year
Closing inventory: The amount of stock held at the end of the year
The gross profit: The level of profit or loss made before expenses have been deducted
Expenses: money spent in running costs for example rent, staff wages
profit for the year: The level of profit or loss after expenses are deducted x

items that are owned by the business eg property, machinery, vehicles

debts that are owed by the business eg suppliers bills, tax bills, electricity bills, loan repayments

shows overall value or net worth of the business by measuring its assets versus its liabilities

assets
liabilities

-to calculate total costs of expenses
-the calculate the profit/loss made for the year
-legal reasons (all limited companies are required to produce and income statement
-tax reasons (profit needs to be calculated so businesses can accurately calculate their tax payments
-to calculate cost of sales
-to compare with previous years or other companies

sales: the total value of goods sold to customers.
cost of sales: the direct cost of the goods that have been sold eg raw materials. it is calculated by adding the opening stock to the purchases and then subtracting the closing stock.
gross profit: the different between the sales and the cost of sales.
expenses: all the indirect costs incurred by the business such as rent, wages and electricity
profit for the year: the actual profile made by the business after all expenses have been deducted.

Presentation software: can be used to present financial images in a more attractive way using design, images and animations
Email: can be used to attach and send financial information between colleagues
Online banking: can be used to pay bills and receive payments from customers
Word processing: software may be used to prepare bills or invoice to send to customers

Spreadsheets are very commonly used in finance as they are designed to work with numbers
Spreadsheets can use formulas for calculations which eliminates human error
Formulas can also be replicated which makes calculations very fast
Spreadsheets are easy to edit and update which ensures minimal risk of error
spreadsheets can be secured by password protection
numbers on spreadsheets are easily converted into graphs/charts which makes it easier for reader to understand visually
’What if’ scenarios can be run using IF statements which is will help forecast different outcomes eg which sales staff are entitled to bonus.