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level 2 btec business unit 3 d1
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Eric Asare unit 3 d1To achieve D1, learners should evaluate the importance of cash flow and break
even for the effective, Management of a business, showing that they understand
fully the uses and limitations of these techniques.
Define Cash flow
Estimate of the temporal arrangement and amounts of money inflows and
outflows over a selected amount (usually one year). An income forecast shows if
a firm has to borrow, how much, when, and the way it'll repay the loan.
Conjointly is known as income budget or income projection. Estimate of the
temporal arrangement and amounts of money inflows and outflows over a
selected amount (usually one year). A income forecast shows if a firm has to
borrow, how much, when, and the way it'll repay the loan. Conjointly is known as
income budget or income projection.
Advantages for a business using cash flow. Relate it back to your business.
Detecting possible shortfalls in cash balances in advance – think of the
cash flow forecast as an “early warning system”. This is, by far, the most
important reason for a cash flow forecast.
Making sure the business is able to afford to pay suppliers and employees.
If the suppliers don’t get paid then they will just stop supplying to
business; it is even worse if employees are not paid on time.
Detecting problems with customer payments – getting the forecast ready
will encourages the business to access how fast customers are paying
their debts. Note – this is actually a problem for businesses such as
retailers because they take most of their sales in cash/credit cards at the
point of sale.
It helped me make better decision because cash flow forecasting, on a
regular basis, gives you the information for you to make better-informed
decisions.
Drawbacks of using cash flow planning for your business.
A negative cash flow means that my business will receive less than what I
spend. It may cause my business struggle to pay instant bills which will
lead my business to borrow money to cover up the loss.
Lack of Perspective-It very easy for a business owner to lose perspective
once making ready a income forecast. If my business has been sensible,
it's possibly to assume that it'll continually be sensible and to base income
designing on this assumption. The business owner call having shut
association to a business can even create it troublesome to anticipate
problematic changes like shifts in market setting or client demand.
Unpredictability-it doesn't however fastidiously you analysis the
knowledge that goes into your income statement, there'll forever be
unpredictable events and circumstances that influence the mechanical
phenomenon of your business in ways in which you cannot probably
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, Eric Asare unit 3 d1
anticipate. Competitors enter the market, costs of materials rise and
essential instrumentality breaks. An income statement will produce the
illusion that you simply shrewdness events can unfold once, in fact, it's
quite probably that things won't end up as you planned.
False Security-Compiling an income statement will produce the illusion
that your money future is obvious associate degree secure just because
you've got mapped an encouraging situation on paper. however associate
degree optimistic income statement ought to ne'er be associate degree
excuse to prevent operating exhausting or fastidiously observance your
company's money activity. To pre-empt this kind of false security, compare
your income statement over time with actual money statements for the
amount in question, and alter your projections to a lot of closely replicate
in progress endeavour.
Define Break even
Breaking even point is when the business reaches a point where the profits are
equal to the costs.
Advantages for a business using Break even. Relate it back to your business.
The first Advantage of a breakeven point was being able to measure the
amount of profit and loss at different levels of production, manufacture
and sales.
The second Advantage of a breakeven point was being able to predict how
it effect the changes would in the price of sales.
The third Advantage of a breakeven point was being able to investigate
the relationship between fixed cost and variable cost.
The forth Advantage of a breakeven point was being able to predict how it
will affect the impact on success if changes in cost and efficiency.
Drawbacks of using break even planning for your business.
The first Drawbacks of a breakeven point is that my business will not have
enough time as the breakeven point chart tends to take long to time to
prepare.
The second Drawbacks e of a break-even point is that my business is that
it could only apple to a single or single mix of products.
The third Drawbacks e of a break-even point is that my business break-
even charts focuses on the break-even level of production, but there are
many other aspects of the processes a business which need to be
investigated by managers.
The forth Drawbacks of a break-even point is that the break-even charts
are built, image that all goods produced by the companies are actually
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