2.2 Financial planning Flashcards
(28 cards)
Define sales forecasting
When a business uses a range of techniques to predict the future sales volumes
What techniques may a business use to predict future sales
Market research (market reports, customer surveys)
Back data economic forecasts (based on past sale figures)
What are economic variables that may affect a change in sales
Economic growth (high=more sales)
Interest rates
Inflation
Unemployment
Exchange rates
What are the variables that may affect a change in sales
Economic variables
Consumer trends
Actions of competitors
What are consumer trends that may affect a change in sales
Seasonal variations- sales can fluctuate
Fashions- constantly change and make it difficult to carry out accurate sales forecasts
Long-term trends- consumer behaviours may change over a longer time
What actions of competitors may affect a change in sales
Could expect sales to fall:
- If competitors were launching sales promotions
-Introduce new products - Open a new branch
Could expect sales to rise:
- closure of a large competitor due to switching customers
What are the ads and dis of sales forecasting
Ads:
- Can set realistic targets by estimating sales
- Better customer relations, as more likely to meet demand
Dis:
- volatile customer tastes and preferences
- fluctuations in economic variables
- volatile markets
Define revenue
The income earned by a business from selling their goods and services
How to calculate sales revenue
Price x quantity sold
What are 2 types of business costs and define them
Fixed costs- Do not change with the level of output or sales, e.g. rent
Variable costs- Change directly with the level of output or sales, e.g. materials
How to calculate profit
total revenue- total costs
How to calculate average cost per unit
Total cost/output
Define break-even
The point at which a business’s revenue generated will cover its total costs
What are the advantages of break even analysis
Can decide whether a business is profitable
Can identify the level of output and sales needed to generate a profit
Assess changes in the level of production
How to calculate break even point
Fixed costs/ contribution per unit
How to calculate contribution
Selling price- variable costs per unit
How to calculate total contribution
Total output x contribution per unit
Define contribution
The difference between the variable costs of one unit and its selling price
How to calculate margin of safety
Current level of output - break-even point
What is the margin of safety
The difference between the break-even point and the current level of output
What are the ads of dis of using break-even analysis
Ads:
- Simple and easy to use
- The break-even point is a useful guideline to help businesses make decisions
Dis:
- Costs are rarely consistent- break-even analysis presumes that costs stay the same
- Focuses on output- presumes that output is all sold at the same price
Define a budget
A financial plan outlining projected income and expenses for a specific period of time
What is the purpose of budgets
To ensure efficiency in spending, setting budgets allow large businesses to be coordinated and can be a way of motivating employees who may be allocated a budget, this can be used as a target and may be rewarded
