financial planning Flashcards
(21 cards)
sales forecast is
prediction of sales revenue from historical numbers of sales and current market research
budget is
an estimate of income and expenditure for a business covering a set period of time
sales forecast Is good for 3 things
allows to plan how many staff are needed
create a budget
allows to create a cash flow and profit forecast
3 factors affecting sales forecast
consumer trends
economic variables
actions of competitors
sales revenue formula
selling price x sakes volume
sales volume formula
sales revenue / selling price
variable costs are
those that change in proportion to the amount of output e.g. raw materials
breakeven is
the point at which a business does not make a profit or loss
breakeven analysis is
the study of revenues and costs of a business to see how long it will take to get to the desired level of output
contribution is
looking at the amount left over on each product sold
shows how many products need to be sold to cover fixed operating costs
contribution formula is
selling price - variable costs per unit
break even is
fixed costs / selling price - variable costs
margin of safety is
the difference between actual level of output and the break even output
Margin of safety formula is
current output(sales) - breakeven point
3 limitations of break even
based on realistic assumptions
selling price vary
fixed and variable costs will change
3 purposes of budgets
helps establish priorities
helps motivate and delegate staff
help meet financial objectives
2 types of budget
historical budget
zero based budget
historical budget is
using previous budget
zero based budget is
base budget on new proposals for sales and costs
no account of previous sales
variance analysis is
difference between budget figures and actual figures
favourable - above expected profits
adverse - lower than expected profits
4 difficulties of budgeting
time consuming
circumstances change
can be easy to make an unrealistic budget
smaller budget = demotivated staff
