Level of output where total revenue is equal to total costs - neither a profit or loss is made.
money spent by a business or organization fixed assets, such as land, buildings, and equipment.
cash flow in and out of the business over a period of time
Cash flow forecast
Estimate of future cash inflows and outflows usually calculated month by month to ensure there is enough cash to pay short term debts
Cash Flow Forecast
Estimate of future cash inflows and outflows
Cash going into a business
cash going out of the business
raising finance by raising small amounts of money from a large number of people, usually via the Internet.
With debt factoring, a business can raise cash by selling their outstanding sales invoices (receivables) to a third party (a factoring company) at a discount.
borrowing money from a bank which must be re paid with interest
a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest.
A cost that can be directly tied to the production of specific goods or services
selling shares in the business to raise finance rather than borrowing
Costs that don't change with output.
A cost that can't be directly tied to the production of specific goods or services
Internal Sources of Finance
Finance sourced from inside the business - for example owner's funds, sale of assets and retained profit all are
bank lends a fixed amount for an agreed time period, which must be repaid with interest
Long term finance
finance required for periods usually longer than one year
Margin of safety,
The amount sales can fall before the break-even. point is reached and the business makes no profit.
the cost added by producing one additional unit of a product or service
lending small amounts of finance small business people to those who can’t access finance from another source
Net cash flow
Cash inflows - cash outflows
Net Cash Flow
Cash inflows - cash outflows
banks allow businesses to take additional money out of their account up to a certain limit
– using owners own savings to finance the business
money spent by a business or organization on day to day operating costs such as rent, insurance, heating, maintenance etc
Sale and Leaseback
Selling an asset for a capital sum and then leasing at an agreed rate from the buyer.
Sale of assets
selling equipment /machinery/inventory to finance the business
Short Term Finance
finance required for short periods usually less than one year
Start Up Capital
money required to set up a business and keep the business operating until the business starts to break even
Costs that change with output.
cash used to pay short term debts (current assets - current liabilities)
- capital available to a business day to day to pay short term debts. Current Assets – current liabilities
Average cost (Unit Cost)
This is the average cost of producing each unit of output: unit cost = total cost of producing this product /Number of units produced
Total costs, = total fixed costs + total variable costs
the cost of producing one extra unit.
Special order decisions
Special-order decisions involve situations in which management must decide whether to accept unusual customer orders. These orders typically require special processing or involve a request for a low price.
"(Contribution looks at the profit made on individual products. It is used in calculating how many items need to be sold to cover all the business' costs (variable and fixed).
Contribution per unit
= selling price per unit less variable costs per unit
Bankruptcy is a legal process conducted when a business is unable to repay outstanding debts or obligations.
when a firm goes bankrupt, stops trading and its assets are sold for cash to pay suppliers and other creditors.
When a business goes bankrupt an administrator is called into oversee the liquidation of the business assets. This process is called “going into administration”
a detailed financial plan or revenue and expenditure over a specified time period.
uses last year’s budget as a basis and an adjustment is made for the coming year.
(Flexible budgeting) cost budgets for each expense are allowed to vary if sales or production vary from budgeted levels.
setting budgets to zero each year and budget holders have to justify why they should receive any finance.
Adverse variance: exists when the difference between the budgeted and actual figure leads to a lower-than-expected profit. Favourable variance: exists when the difference between the budgeted and actual figure leads to a higher-than-expected profit.