Applied Business Studies Unit 3

GCE AS Business Unit 3: Financial planning and monitoring

Key terms

Assets

Anything owned by the business. Fixed assets are expected to last for over a year.  Examples are land, buildings, cars and equipment.  Current assets are sold and turned into cash within a year.  Examples are stock and debtors

Break-even

This when the business generates the amount of revenue that pays for both its fixed and its variable costs.  Any extra revenue would make a profit for the business.

Budget

These are month forecasts of sales and costs into the future.  It is usually for 6 months or a year.  Master budgets are forecasted profit and loss accounts.  The business tries to predict these because it helps it to plan its resources, new purchases of assets, or when it needs to increase advertising to sell more products

Business objectives

These are the businesses’ targets.  Examples include survival, sales growth and increased profitability.   Targets should be SMART so managers know how to measure them, and when they have reached them.

Business plan

A detailed document which sets out the aims, marketing, production, financing and budgets for a proposed business.

Cash flow

Some revenue and some costs are paid up to a month late.  This means that the business needs to keep track of the timings of actual money going in and out.  The business needs to have enough cash to cover expenses that must be paid immediately.  A cash flow forecast helps make sure this is the case.

Cash flow

Some revenue and some costs are paid up to a month late.  This means that the business needs to keep track of the timings of actual money going in and out.  This is called the cash flow.  The business needs to have enough cash to cover expenses that must be paid immediately.  A cash flow forecast helps make sure this is the case.

Cash flow forecasts

Estimates usually drawn up per month, of when and how much cash will come in from customers paying invoices, and the out flow of cash to pay for expenses and new assets.

Cash inflows

Apart from sales, a business can raise cash by selling assets, taking out loans or selling new shares.

Cash outflows

Money paid to suppliers, employees, for paying expenses and purchasing assets.

Collateral

If taking out a loan, a bank will often ask for a security – collateral - in case the loan is not paid.  This is often a building or land.

Contribution

The amount each unit sold contributes to the fixed overheads of a business.  Once the fixed costs are covered, all contributions by further units sold becomes profit.

Costs

The expenses a business has to pay for.

Efficient allocation of resources

This is when the business has managed to generate the maximum amount of profit using its human, physical and financial resources.

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