UNIT 2 P4
Dear P4INTBUSINESS,
Internal sources of finance are sources of finance within the business which means that inside P4INTBUSINESS there is a lot of financial information to deal with which needs to be organised and dealt with properly and securely. Examples of internal sources are owner’s savings and capital from profits.
Owners savings- if your business, P4INTBUSINESS, used this type of finance then you would have total control over the businesses finance which is good for your business as you have all control of it yet you need help in the financial side of the business which may make this source of finance not the most ideal option for your business, however it is still an option. Start-up businesses use this type of finance more than normal businesses because they are a sole trader. However, some banks are not willing to lend money to start-up businesses because it is a huge risk for the bank because they don’t know if the business will be able to pay the money back or if the business is reliable which is something the bank considers before they agree to lend money to start-up businesses. An advantage to this type of finance is that interest doesn’t need to be paid back on personal savings.
Capital from profits- if you choose this type of finance you would be getting money back from profits your business, P4INTBUSINESS, have made. Invest profits are made back into the business however it depends on how much they want to put back and how much your business would want to keep itself. Greater profit may be made in the long run which will help P4INTBUSINESS expand which is something that you feared wouldn't happen to your business. This is a more suitable option to use for your business rather than owners saving however, do not rule owners savings out.
Owners savings- if your business, P4INTBUSINESS, used this type of finance then you would have total control over the businesses finance which is good for your business as you have all control of it yet you need help in the financial side of the business which may make this source of finance not the most ideal option for your business, however it is still an option. Start-up businesses use this type of finance more than normal businesses because they are a sole trader. However, some banks are not willing to lend money to start-up businesses because it is a huge risk for the bank because they don’t know if the business will be able to pay the money back or if the business is reliable which is something the bank considers before they agree to lend money to start-up businesses. An advantage to this type of finance is that interest doesn’t need to be paid back on personal savings.
Capital from profits- if you choose this type of finance you would be getting money back from profits your business, P4INTBUSINESS, have made. Invest profits are made back into the business however it depends on how much they want to put back and how much your business would want to keep itself. Greater profit may be made in the long run which will help P4INTBUSINESS expand which is something that you feared wouldn't happen to your business. This is a more suitable option to use for your business rather than owners saving however, do not rule owners savings out.
External sources of finance are sources that are outside of the business. Examples of these external sources are as follows;
Higher purchases- these would be resources that are used by P4INTBUSINESS while they still would be paid for to a finance business. The goods will only belong to P4INTBUSINESS once the last full payment on the agreement is paid off. However; if the finances aren’t paid off then the finance company can take the goods back.
Banks- they offer loans, business accounts, commercial mortgages and overdraft facilities based on the business plan. This would be a good one to use as this would help P4INTBUSINESS as you could get a loan to prevent your concern for running out of money to expand the business or to buy stock and equipment. Interest is payable based on the predicted risk as some security is needed e.g. assets.
Leasing- this is the making use of the resources within P4INTBUSINESS and to pay to use them monthly however P4INTBUSINESS will not own these resources at the end of the agreed time because they do not own the resources yet. These resources are things such as vehicles that businesses use to travel. P4INTBUSINESS would lease equipment such as printers and computers as these are essential to the business.
Debt factoring- this is when you, P4INTBUSINESS, would sell its debts to other businesses and receive some of the money immediately. This is good because it allows P4INTBUSINESS to receive money instantly and not have to worry about not having money to expand etc yet this won't last long term. There are debt-factoring businesses that collect the debt and take a cut of the money because this is how they make their money and profit which isn't why this source is a good idea for your business to use because you would lose out on some money eventually and not be able to make it back if you are having financial difficulties.
Share issues- this is a good way to raise finance-selling shares to friends and family, which are private limited business, which is what your business, P4INTBUSINESS is. Yet, public limited businesses such as bigger well know business, can sell their shares on the stock exchange to the public. If you went with share issues, family and friends could invest in your business, P4INTBUSINESS, in exchange for shares or paid back as a loan and you would usually lower the rate of interest because they are friends and family compared to a bank and how much interest a bank would charge.
The building society- they also offers loans, business accounts, commercial mortgages and overdraft facilities based on the business plan of PR4NTBUSINESS. Interest is payable based on the predicted risk but with banks security is needed to secure the bank.
Ventor capitalists- these are people who would invest in a new risky business in return for a share of the ownership. This seems like a high option for PR4NTBUSINESS as you are a small local business who is risking financial problems which is where they would help. Although this may not be the best option as they require a share of the ownership which would mean the business wouldn't be your full control. This is something you need to decide whether or not your total control over the business is more important than getting help with potential financial difficulties.
Government grants and the Princes’ Trust- these are foundations which give money to people who are applicable for loans. You would have to look into whether you are applicable or not because this is a good idea to get leant money because grants do not need to be paid back. They are available from the EU, national or local government and the price is negotiated depending where it comes from. People from the age of 18-30 can apply for low interest loans from the Princes’ Trust.
Higher purchases- these would be resources that are used by P4INTBUSINESS while they still would be paid for to a finance business. The goods will only belong to P4INTBUSINESS once the last full payment on the agreement is paid off. However; if the finances aren’t paid off then the finance company can take the goods back.
Banks- they offer loans, business accounts, commercial mortgages and overdraft facilities based on the business plan. This would be a good one to use as this would help P4INTBUSINESS as you could get a loan to prevent your concern for running out of money to expand the business or to buy stock and equipment. Interest is payable based on the predicted risk as some security is needed e.g. assets.
Leasing- this is the making use of the resources within P4INTBUSINESS and to pay to use them monthly however P4INTBUSINESS will not own these resources at the end of the agreed time because they do not own the resources yet. These resources are things such as vehicles that businesses use to travel. P4INTBUSINESS would lease equipment such as printers and computers as these are essential to the business.
Debt factoring- this is when you, P4INTBUSINESS, would sell its debts to other businesses and receive some of the money immediately. This is good because it allows P4INTBUSINESS to receive money instantly and not have to worry about not having money to expand etc yet this won't last long term. There are debt-factoring businesses that collect the debt and take a cut of the money because this is how they make their money and profit which isn't why this source is a good idea for your business to use because you would lose out on some money eventually and not be able to make it back if you are having financial difficulties.
Share issues- this is a good way to raise finance-selling shares to friends and family, which are private limited business, which is what your business, P4INTBUSINESS is. Yet, public limited businesses such as bigger well know business, can sell their shares on the stock exchange to the public. If you went with share issues, family and friends could invest in your business, P4INTBUSINESS, in exchange for shares or paid back as a loan and you would usually lower the rate of interest because they are friends and family compared to a bank and how much interest a bank would charge.
The building society- they also offers loans, business accounts, commercial mortgages and overdraft facilities based on the business plan of PR4NTBUSINESS. Interest is payable based on the predicted risk but with banks security is needed to secure the bank.
Ventor capitalists- these are people who would invest in a new risky business in return for a share of the ownership. This seems like a high option for PR4NTBUSINESS as you are a small local business who is risking financial problems which is where they would help. Although this may not be the best option as they require a share of the ownership which would mean the business wouldn't be your full control. This is something you need to decide whether or not your total control over the business is more important than getting help with potential financial difficulties.
Government grants and the Princes’ Trust- these are foundations which give money to people who are applicable for loans. You would have to look into whether you are applicable or not because this is a good idea to get leant money because grants do not need to be paid back. They are available from the EU, national or local government and the price is negotiated depending where it comes from. People from the age of 18-30 can apply for low interest loans from the Princes’ Trust.
This is a break-even chart I have produced for PR4NTBUSINESS. I will be explaining the break-even chart, especially talking about the budget, the problems PR4NTBUSINESS have faced and remedies I am going to suggest to overcome these problems.
MOS X UNIT CONTRIBUTION
FIXED COSTS
UNIT CONTRIBUTION (which is the selling price misused by the variable cost per unit)
ACTUAL SALES IN UNITS
BEP IN UNITS
- A budget is a financial plan for the future of a business. PR4NTBUSINESS have a budget, like most businesses because it is an estimate of revenue and costs over a specific period of time which reflects their future financial situations and goals. PR4NTBUSINESS have many reasons for using a budget and one of them is that PR4NTBUSINESS can forecast their income. Another purpose is that PR4NTBUSINESS can use it as a monitor to control their business performance. Lastly, the budget can act as a tool or guide for decision making within the business as it is accurate statistic based data.
- A break-even chart is something that shows how many products/services need to be sold to neither make a loss or a profit. It is extremely useful in businesses, especially small ones who are suffering financial difficulties. Break-even charts are used to work out: MOS, BEP in sales units and sales revenue, future information PR4NTBUSINESS, the amount of profit or loss made at different levels of sales and the effect of change in fixed costs, variable costs and selling prices. It is also useful because it shows how much each individual product or service contribute towards the overall costs to PR4NTBUSINESS so that it helps them to understand which products/services are doing better than others and which aren't making them any sales. From a break-even chart, it also shows the break-even profit which is helpful when comparing products or services within the business and can be worked out by using:
MOS X UNIT CONTRIBUTION
- The formula used to work out the break-even of a business is:
FIXED COSTS
UNIT CONTRIBUTION (which is the selling price misused by the variable cost per unit)
- MOS, which stands for margin of safety is calculated to allow PR4NTBUSINESS to understand the number of units by which sales can fall before PR4NTBUSINESS make a loss. You can calculate it using this formulae:
ACTUAL SALES IN UNITS
BEP IN UNITS
- From the BEP PR4NTBUSINESS can work out which levels it needs to reach in order to become profitable. This is really helpful for PR4NTBUSINESS because it will help them get on track to produce profit and see how far they have to go until they reach a profit rather than make a loss and have no idea how to change that.
- From PR4NTBUSINESS's break-even chart, we can tell that the break-even point is when it has produced 17500 units leaflets, their is 1400 fixed costs, 1225 variable costs, 2625 total costs, 2625 revenue and 0 profit. For example this means that when PR4NTBUSINESS make 27500 leaflets they will have a higher budget than when they produce 500 leaflets because they will be making more profit. Their budget is £4,000.
- Also, from the break-even chart we know that producing one leaflet costs PR4NTBUSINESS 7 pence however, the leaflets are sold at 15 pence which means PR4NTBUSINESS are making 9 pence profit for every leaflets produced. From the break-even chart we know that PR4NTBUSINESS have not exceeded their budget of £4,000 however it may face a loss of money if they do not keep a better check on their financial status.
- Remedies that could be used to help keep PR4NTBUSINESS financial balance on track are;
- The benefits of break-even is that you get quick results from it by using hander the computer. It is used to help investors decide whether they should invest in the business which is important. It also helps a business forecast or predict what may happen to their sales if their costs go up or down. Another benefit is that they are easy to produce with only a minimum amount of training and they are easy and easy to understand.
- However, they do have drawbacks as sometimes they can oversimplify situations in terms of pricing as sometimes businesses offer different prices to different customers. Break-even charts are only useful in the short term for a business as the costs and prices change often and quickly which means they have to get updated frequently. If the information is put in wrong then they aren't useful to anyone as they will be wrong and inaccurate data. It doesn't take into account the economics of scale which means the cost per unit decreases when more products are produced. If the business have several products that cover the fixed cost in differing amounts then it can be difficult to use or read. Also, a break-even chart needs to be supported by relevant market research to back up the data and information provided for the break-even chart and to make it more reliable and accurate.
UNIT 2 M4
In this report I will be analysing and explaining the implications of PR4NTBUSINESS if they do not control their costs and stick to a budget as this is an important thing to know when running a business and the financial side of it. A load of different things could occur if PR4NTBUSINESS don't control their costs which I will be explaining.
Budgets are extremely important as they allow PR4NTBUSINESS to set a target and then build and grow the business around that budget knowing how much they can spend in order for the business to not fail. By having a budget it will help PR4NTBUSINESS to see a clear picture of where all their money is going. It allows PR4NTBUSINESS to control their costs by seeing if their costs for anything is over their budget or exceeding what they can spend for that specific product/service.
Zero budgeting is when there are no budgets given in a specific department within a business so they have to ask their managers for money based on what they think, within their department they need to spend money on for that year. The opposite to this is allocated budgeting, which is when a business is given an amount of money for the first year based on the number of people who work in the business. A budget is set-aside at the beginning of the financial year and then they must make sure they do not go over this budget which is why budgeting is a great idea for PR4NTBUSINESS as it will make the business have a structure and set themselves an aim of not exceeding their set budget of £4,000. Measuring the difference between what is budgeted and the actual costs is known as variance analysis. Favourable is when the sales are higher than the costs, this is called a variable analysis. On the other hand, adverse is when the costs are higher than the sales revenue. This is opposite to favourable. Monitoring variances is important as if it is noticed early then businesses can make changes to get back the business back on track. PR4NTBUSINESS don't want this to happen, they risk this may happen to their business which isn't good.
In this report I will be analysing and explaining the implications of PR4NTBUSINESS if they do not control their costs and stick to a budget as this is an important thing to know when running a business and the financial side of it. A load of different things could occur if PR4NTBUSINESS don't control their costs which I will be explaining.
Budgets are extremely important as they allow PR4NTBUSINESS to set a target and then build and grow the business around that budget knowing how much they can spend in order for the business to not fail. By having a budget it will help PR4NTBUSINESS to see a clear picture of where all their money is going. It allows PR4NTBUSINESS to control their costs by seeing if their costs for anything is over their budget or exceeding what they can spend for that specific product/service.
Zero budgeting is when there are no budgets given in a specific department within a business so they have to ask their managers for money based on what they think, within their department they need to spend money on for that year. The opposite to this is allocated budgeting, which is when a business is given an amount of money for the first year based on the number of people who work in the business. A budget is set-aside at the beginning of the financial year and then they must make sure they do not go over this budget which is why budgeting is a great idea for PR4NTBUSINESS as it will make the business have a structure and set themselves an aim of not exceeding their set budget of £4,000. Measuring the difference between what is budgeted and the actual costs is known as variance analysis. Favourable is when the sales are higher than the costs, this is called a variable analysis. On the other hand, adverse is when the costs are higher than the sales revenue. This is opposite to favourable. Monitoring variances is important as if it is noticed early then businesses can make changes to get back the business back on track. PR4NTBUSINESS don't want this to happen, they risk this may happen to their business which isn't good.
Costs are an important aspect of finance and if the costs are not managed with resources will damage the profit in the business. Businesses may not be able to pay expenses. Businesses try to keep within a budget as this helps to increase the income and cope with change. Budgets make sure working capital is available and they make sure money is available in case of emergency.
There are two types of costs and the two main costs that must be managed are; fixed costs and variable costs. Fixed costs are costs that do not change regardless for the number of goods sold of services offered. Some examples of these are things like insurance, salaries, rent. Variable costs are costs that change with output and costs that are associated with how many products are made. An example of this is producing printed t-shirts.
If the costs are not controlled within PR4NTBUSINESS, then this will be a big problem therefore budgeting will help to control the costs and ensure the business doesn’t exceed its budget limit. If the business doesn’t control their budgets then this could result in uncontrolled spending. Also, another issue that could occur if costs aren’t controlled would be that the business could have a high fixed cost per unit, which can reduce the profit in PR4NTBUSINESS and the ability to compete with their competitors. If a budget is not controlled properly then this will affect PR4NTBUSINESS's staff because they may leave or move to one of their competitor businesses, which would affect the production of goods, as there will not be enough people to produce the products.
Sometimes businesses realise that they do not have enough money in their budgets to expand or buy new equipment, resources etc. Yet, a way they can get around this is by bidding for more budget money through grants or others investing in the business. Bidding by grants is common in the public sector businesses which are funded on a short term basis and certain amounts of money are put in to pay for different types of resources e.g. wages, salaries. Some businesses get money from other people who in return will get given a stake in the business and this applies to both private and public limited businesses. There are other ways of raising finance such as getting a bank loan or by getting government grants based on different things such as; location of a business, size of the business, if the industry the business is in has any problems. The businesses that are the more common businesses to receive grants are, tourism, manufacturing and farming.
Above is a break-even chart for PR4NTBUSINESS and they are used to work out the contribution a product makes to fixed costs. This is worked out by minusing the variable costs by the selling price. This chart is useful because it shows how much individual products or services contribute to the overall costs to the business, it would show losses as well. The break-even profit is useful when you are comparing products or services within the business. It is worked out by timesing the MOS by the unit contribution. There are loads of advantages and disadvantages to break-even. The benefits are that you get quick results by hand and also computer. It is also used to help investors decide if they should invest in the business. Break-even helps businesses to forecast or predict what may happen to their sales if the costs go up or down. Lastly, it is easy to use with a maximum amount of training. The drawbacks of break-even are that you can oversimplify situations in terms of pricing as sometimes businesses can offer different prices to different customers; an example of this is trade prices. It is only useful in the short term as costs and prices change really quickly and often. The information within the chart is only useful if you put the data in correctly, if you put it in incorrectly then the data is not going to be useful or successful. The chart doesn’t take into account economics of scale, which decreases when more products are produced. It can sometimes be difficult to use if the business has several products, which cover the fixed costs in differing amounts. Lastly, it needs to be supported by the relevant market research, focus groups etc.
One short term problem that could occur if the costs are not controlled is lack of growth in the business. This means the business will lose profit and will cause rivalaries with their competitors as they won't be able to compete with them. Also, they will need to replace their staff as they may not be able to retain the amount of staff they have if they are losing money and may make people redundant. However, if they start getting money then they will need to employ new staff which means they have a disadvantage because they will need to retrain these staff and they will have a lack of expertise.
A long term problem that could occur is that sustained loses may lead the business to bankrupcy
UNIT 2 D3
In this report I will be evaluating te problems that have been identified from unmonitored costs and budgets within PR4NTBUSINESS. I will state the most worrying problems and the least worrying as well as the likeliness of each. Furthermore, i'll be explaining what may happen in the UK's economic future that may make these problems more of a concern.
Introduce the report- what am i talking about
Explain managing resources (technological resources, human and physical)
Explain costs and benefits of each for a business
Explain why budget costs are good for a business
Explain why budget costs are bad for a business
Explain why u agree or disagree
LINK TO PR4NTBUSINESS
One short term problem that could occur if the costs are not controlled is lack of growth in the business. This means the business will lose profit and will cause rivalaries with their competitors as they won't be able to compete with them. Also, they will need to replace their staff as they may not be able to retain the amount of staff they have if they are losing money and may make people redundant. However, if they start getting money then they will need to employ new staff which means they have a disadvantage because they will need to retrain these staff and they will have a lack of expertise.
A long term problem that could occur is that sustained loses may lead the business to bankrupcy
UNIT 2 D3
In this report I will be evaluating te problems that have been identified from unmonitored costs and budgets within PR4NTBUSINESS. I will state the most worrying problems and the least worrying as well as the likeliness of each. Furthermore, i'll be explaining what may happen in the UK's economic future that may make these problems more of a concern.
Introduce the report- what am i talking about
Explain managing resources (technological resources, human and physical)
Explain costs and benefits of each for a business
Explain why budget costs are good for a business
Explain why budget costs are bad for a business
Explain why u agree or disagree
LINK TO PR4NTBUSINESS
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