Business Finance Flashcards
what is the role of the finance department
keep track of how much money comes in and out of the business. in charge of all the financial aspects of the business, including paying suppliers, paying salaries, and accepting payments from customer
what are the main functional activities carried out by the finance department
Preparing budgets, raising finance, preparing final accounts, business performance
preparing budgets explanation
the finance department can also use past records from various departments to make budgets and forecast future revenue, expenditure and profits.
raising finance explanation
the finance department must ensure a business has enough money to pay bills. may be required to raise extra finance through internal or external sources of finance
Preparing final accounts analysis
cash flow - keep track of the amount of cash in the business, predict how much cash will be available in the future, to ensure it doesn’t run out
Profit and loss – making business decisions, it’s important to know if the business is profitable or not
business performance analysis
assessing a business’ performance will help guide potential decisions on what needs to be improved
what is a budget
a financial plan of action that usually covers a certain period of time, such as six months or a year. outline a business’s planned revenues (income), expenditures (costs) and profits
what are budgets based on
business objectives to ensure that each department’s projected revenues and expenditures would eventually be dictated by the business’ priorities and aims.
who are budgets aimed for
prepared for internal stakeholders and are mainly aimed at managers as a control mechanism
budgetary control meanjng
budgets for revenue and expenditure are planned ahead of time and compared to actual results to identify variances
budgets can be used to do what
- control revenues/expenditures to help a business make a profit
- direct and coordinate business aims and objectives so that they can be achieved
- assign responsibilities to budget holders (managers) and allocate resources
- list objectives and numerical goals for the business, helps to motivate workers and managers
- communicate targets from management to subordinates, helps to motivate workers
- improve efficiency (management try control costs but maintain standards of work
drawbacks of budgets
- demotivate workers, those who are not involved may not be committed and become demotivated. results in lower performance levels and budgets not being achieved. leads to unfavourable variances.
- Unrealistic budgets set for sales team, unachievable.
- rigid (inflexible), changes in the economy or other market conditions cannot
- A successful budget can only built on foundation of high-quality data. exaggerate budgetary requirements. leads to lack of control and inefficient resource allocation.
- time-consuming process, time could be better spent on other business activities
- managers making rash short-term decisions in order to stay within the budget rather than making effective long-term decisions that go beyond the budget
budgets impacts on managers (+,-)
+) helps to improve efficiency, minimise costs and allocate resources more efficiently. leading to favourable variances and improved profits for a business. managers then may be rewarded financially for exceeding the targets set.
the resources allocated may not be not sufficient enough to run the business/department efficiently. could be is inflexible and as a result the management may not be able to meet certain objectives, such as sales targets. For instance, the current budget may restrict the ability of the business to respond to increased competitor actions. Therefore, the managers may fail to achieve the targets set.
