Finance Flashcards
Why create a budget?
Easy to control organisation- overspending is less likely
Planning is easier-if problems are foreseen they can be solved in advance
Decision making is easier if cash situation is known
What is a liquidity problem?
This means you do not have enough cash flowing
How to solve liquidity problems?
Increase cash coming in, decrease cans going out
Cause of liquidity problems?
Sales reducing
Not enough capital invested
Expenses rising
Owner is making too many drawings
How to solve cause of liquidity problems?
Sales reducing- increase advertisement, reduce price of product, use sales promotions
Not enough capital- bring in a partner, sell an asset
Expenses rising- let go of staff, find cheaper premises
Reduce drawings
Problems to solutions for cause of liquidity?
reducing price and usin sales promotions- receiving less for each sale
Bringing in a partner- profit is shared, more chance of arguments
Asset sold- less assets to use in the business
Moving location- unpopular area
Less staff- less products produced
Reduce drawings- owner may not be able to survive on new drawings total
What is a fixed cost
Cost that doesn’t depend on output or sales
What is a variable cost
Cost that depends on output or sale
Examples of fixed costs
Rent
Rates
Insurance
Wages
Variable costs
Raw materials
Sales
Products produced
How to improve gross profit
Having special offers
Reducing price to sell higher volume
Improving quality of product
New advertising
Find a cheaper supplier
Negotiate bigger discount with supplier
Reduce wastage
How to improve profit of the year
Make staff redundant
Find a cheaper electricity supplier
Find cheaper premises
Reduce advertising
Technology in finance
Spreadsheet- calculate break even point
Prepare budgets
Calculate profits
Create graphs
Word- create finance reports for owners
PowerPoint- present budget details for departments
