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is where firms sell their invoices to a factor such as right away, rather than waiting 28 days to be paid the full amount. Advantages Can be arranged quickly Loan can be repaid over a long period of time Fast way to raise finance Disadvantages Shareholders need to be paid a dividend each year Shareholders become part owners of the business given to a business by the bank that has to be repaid over time the bank that is Large amounts of finance can be raised quickly Access to large amount of investors Disadvantages Advantages Mortgage is given for a long period Interest is charged on the loan of time each Disadvantages Interest has to be paid in addition to the loan amount Advantages Time and effort is saved as the company is not longer required to recover unpaid debts. secured against organisations. Advantages Does not need to be paid back Grants are given Venture Capital - Money that investors provide to a company that is starting up or expanding. Venture capital is usualy used Advantages Available for more risky investment shares Property can be lost to the mortgage lender if repayments are missed agreed date in the future. to the business by individuals. Intrest is paid annually and the loan is paid back in full at on but do not hold a shore of Disadvantages the year company. the a guaranteed their interest payment Advantages Control of the business is not lost Interest must be paid even if the company makes a loss getting small amounts of finance from a large amount of people. This is usually done through social media or тому і Company a Business needs to meet certain criteria rewards for their investments, recieve a share of the profits. Advantages business property bank. They do this for Disadvantages Money is lost from the business as unpaid debts are sold at a reduced value and obtain to a business on the condition that they meet certain criteria Disadvantages It is time-consuming to apply for grants and to complete the paperwork when there is an element Some Cash Disadvantages Venture capitalists may want a share of the business, meaning some control may be lost A larger return may be required due to the high risk nature of the investment or risk with the business crowdfunding websites. Disadvantages A public request for investment risks your project being copied by competitors and If the targeted amount isn't reached the money returned to investors and the business gets nothing To help manage cash and ensure control (receipts) and the Plans Organises Commands Co-ordinates Controls Purpose of budgeting (decision making) Delegates Motivates Planning Organisation Command Co-ordinate Control Delegation Motivation money expected to be paid flow, over future cash out (payments) over a cash budget period of time. Looks ahead and sets aims and strategies. By identifying where cash is being spent and where it is being earned, management can plan to borrow, either to finance short-term cash flow problems or to finance long-term expansion. Make arrangements for all the resources of the organisation to be in the right place at the right time and in the right quantities. Quite obviously such resources have to be financed, and management must be able to ensure that it can afford the resources it requires and takes full advantage of bulk purchase discounts, trade credit and other financial incentives. can be prepared. This is a Tells subordinates what their duties are. It is essential for the efficient running of the organisation that each department is given a budget for expenditure on routine requirements. Each department must also know its limits when making one-off requests for additional finance for specific jobs, projects or capital expenditure. Make sure everyone is working towards the same aims and that the activities of individual workers fit in with the work of other parts of the organisation. Financial reports and summaries from each department will allow management to keep a clear overview of the operation as a whole. It may be that surpluses in one department can be used to offset short-falls in another. Measures, evaluates and compares results with plans, and supervises and checks work done. Using Cash Budgets as a measure of performances or progress gives management a tool that records quantifiable data that is the same for each department. Makes subordinates responsible for tasks and gives them the authority to carry them out. This can involve delegating responsibility for holding, recording and spending departmental budgets or project budgets to the departmental manager or project leader. It can even be done simply by giving a cashier full control of, and responsibility for, her/his own cash point or till. Encourages others to carry out their tasks effectively, often by introducing team-work, empowerment, worker participation in decision-making and other non-financial methods. This can come from appropriate delegation where the individual(s) feel(s) trusted and empowered because of being responsible for finance within their area of control. Look ahead to set aims and strategies. • Allows problem solving to be planned rather than having to react to situations. Allows the right resources to be in the right place and at the right time. When management are able to make informed decisions, this enables them to instruct their subordinates. • Management will have access to all the budgets for each department which will be fed into the master budget. • Management can give instructions to those in charge of departmental budgets and keep a clear overview of the business as a whole. The evaluation and review of budgets allows management to exert control over the budgets and keep a clear overview of the business as a whole. • Management should make subordinates responsible for a suitable range of tasks and give them the authority to carry them out. •forecast of • Management have a responsibility to motivate their staff. This can be done through setting realistic targets in the budgets and introducing concepts and practices such as teamwork, empowerment and incentives for meeting targets or operating within budget. the money expected to be recieved Problem Sales are falling while purchases are constant Deficit cash balance in month 2 Rising wage bill at the time of falling sales Month 2- purchase of new machinery at a cost of £5,000 • Purchases are increasing ● Wages are increasing • Total payments are increasing • The closing balance each month is decreasing . . • Encourage sales by advertising. Arrange the loan a month earlier. Rent or lease new machinery rather than buy it. . . Cash budgets . Possible solutions Reduce purchases (raw materials) to reflect falling sales. Find a cheaper supplier of raw materials. Encourage debtors, those who have bought sales on credit, to pay quicker by offering cash discounts. Take advantage of the full credit period to delay paying for purchases. Reduce working hours. Ban overtime payments. Change payment system to be based sales. Terminate employment contracts, e.g. temporary staff. Move production to another country with cheaper costs. The new machinery could be purchased over a period of time, therefore spreading the cost, or the business could think about leasing the machinery instead to spread the cost. Solution Find a cheaper supplier Cash-flow problems Too much money tied up in inventory rs too much credit Allowing custome money at a high Borrowing to interest rate. Owners taking too much in drawings . Low sales Lease machinery or equipment Sell any assets that are not being used effectively Apply for a loan or overdraft from the bank Offer discounts to customers for paying up front or paying for goods quickly Arrange extra time to pay bills from supplier (increase credit terms) Increase advertising or sales Justification This will reduce the cost of purchases meaning more cash available from each sale We can tell a lot from this cash budget: Interpretation Analysis • Sales are decreasing This is of concern. The company should find out why sales are expected to decrease (eg why is demand going down, is a competitor cheaper or are customers unhappy with the quality of the product?). Market research could find this out. The company might want to increase advertising and promotion to raise awareness of the company and its product. This allows a business to spread the cost of the purchase over many months This will release cash that can be used elsewhere in the business Potential solutions • Sell unnecessary fixed assets • Arrange a bank overdraft • Improve credit control by chasing trade receivables Offer promotions to encourage sales and shift inventory • Arrange credit with suppliers •Reduce owners' drawings • Find a cheaper supplier Buy assets on hire purchase This will help to cover immediate cash flow problems but will need to be paid back over time with interest This will encourage customers to pay quickly and reduce the number of people who owe the business money This will give the business time to raise the cash needed to pay bills This will increase sales meaning more cash coming This is of concern, especially since sales are forecasted to go down. Perhaps suppliers are intending on increasing their prices, in which case, a cheaper supplier should be found or a discount negotiated. Perhaps too much stock is being purchased. A JIT approach to stock management might be a possible solution depending on the product or service being offered. This is a concern, especially since sales are forecasted to go down. The company should find out why the wages bill is expected to increase. Perhaps overtime has been offered and this could be reduced. Payment methods could be considered. This is because of the reasons above. This is because receipts are decreasing and payments are increasing. A short- term source of finance might be required if this trend continues, to ensure the business can meet its financial obligations. Net Sales Cost of Sales Gross Margin (or loss) for the year calculate the business's trading activities is shown. Income statement terminology Trading account Sales Revenue Cost of sales Purchases Opening inventory administrative Total Operating Expenses Carriage inwards Purchase returns Closing inventory Gross profit/loss Expenses Profit for the year/Loss for the year Corporation tax Dividend Unappropriated profit Operating Expenses Research and Development Selling, general and Income statement Operating Income Other income/expenses Income before provision for income taxes Provision for income taxes Net income 2018 100.00% 61.66% 38.34% 5.36% 6.29% 11.65% 26.69% 0.75% 27.45% Provides a summary of the business's trading activity during the financial year. 5.03% 22.41% Monies that the business has received from selling goods and/or services. The value of the business's sales less the value of any returns. The cost of the sales to the business, i.e. before a sales or profit margin is added. The value of the stock of goods at the start of the financial period. Vertical Analysis of Income Statement The cost of goods that the business has bought for resale to its customers. The cost of transporting or delivering goods purchased by the business for resale. The value of goods purchased but returned to the supplier, e.g. wrong colour, faulty. The value of unsold stock at the end of the financial period. The profit (or loss) recorded as the difference between the business's sales and purchases. September 29, September 29, September 29, 2017 2016 100.00% 100.00% 61.53% 60.92% 38.47% 39.08% Any expenses incurred by the business in the course of its normal operation. The profit (or loss) recorded after all business expenses have been deducted. A tax on business profits payable to the government. Proportion of the business profit paid to shareholders and dependent on the number of shares that they own. Profit retained in the business, i.e. not distributed to either owners or shareholders. 5.05% 6.66% 11.71% 26.76% 1.20% 27.96% 6.87% 21.09% 4.66% 6.58% 11.24% 27.84% 0.63% 28.46% 7.27% 21.19%