Business & household finance

• Reasons for preparing cash flow forecasts

  Payments

  warning system

  financial control

  start up finance

  loans

  highlight cash deficits

  highlight cash surpluses
• Factors considered when interpreting a cash Flow forecast

  seasonal variation

  credit

  bad debt

  taxes

  purchased of fixed asset
• Reasons for cash shortfalls

  Poor stock control

  -solution: just in time stock policy

  poor credit control

  -solution: implement better credit policy, get references

  not enough cash

  -solution: offer discounts to increase cash sales

  seasonal products

  -solution: increase product range

  buying fixed assets

  -solution: alternative source of finance
• household overcoming cash shortfalls

  Reduce expenditure

  increase income

  arrange finance

  spread payment
• Benefits of current accounts

  withdraw money whenebe they want using atm machines

  overdrafts paypath

  standing orders

  direct debits

  debit cards

  bank statement

  cheque
• Credit purchase

  Cost- may lose out on discounts by paying early security - none required

  amount - will vary

  interest - none charged
• Accruals


  Unpaid expenses

  may be used to pay for utilities that are used during a month but don't have to be paid for u tip the end of the month.

  this money can be used to pay for other things throughout the month

  eg. Wages or rent
• hire purchase

  amount - expensive items such as machinery can be purchased

  cost - much higher than cash price because of interest charged

  control - no security as it owns the asset until fully repaid

  Cash flow - regular, fixed dates and high interest
• Leasing

  Amount - can be acquired quickly

  cost - can be more expensive in the long run rather than buying it

  control - no security as company maintains full ownership
• Teen loans

  Amount - large amounts of finance can be borrowed

  cost - interest charged varies

  control - banks may look for some asset as security

  ownership - owns the goods immediately and owed the bank
• Retained earnings

  Amounts - large amounts of finance may be retained

  cost - no interest repayments

  control - no loss of control
• share/ equity/ owners capital


  Amount - large amounts may be raised by issuing more shares

  cost - no profits are made no dividend needs to be repaid

  control - must be shared if new partners are brought in

  interest - no interest repayments
• Debentures/ long term loans 


  Amount - large amounts of finance are available

  cost - must repay the annual interest regardless of profit/loss

  control - security usually required
• Sale and leaseback 


  Amount - depending on the value of the asset large sums acan be raised

  cost - payment must be repaid annually to lease back thr asset

  control - business loses ownership. Cannot be used as secrity on other loans
• Factor to be considered when choosing a source of finance

  purpose

  amount

  cost

  control

  collateral/ security

  payments

  risk to the business
• Factories that may be considered when assessing a loan application

  Creditworthiness

  business plan

  amount required

  security
• effects a decrease in sales revenue has on a business

  Reduction in profits

  employee numbers may have to be reduced

  sales promotions may need to be increased

  indentifying alternative suppliers
• similarities between managing business and household finance

  Cash flow forecast

  finance

  forms

  extra finance
• Differences between managing business and household finance

  Motive

  scale of operation

  financial management

  expenditure
• Activities common to business and household

  Taxation

  insurance

  finance

  official forms

  decision making
• Differences between household and business activities

  Taxation

  insurance

  finance

  legislation

  scale of operation