Break even
Level of output where total revenue is equal to total costs - neither a profit or loss is made.
Capital Expenditure
money spent by a business or organization fixed assets, such as land, buildings, and equipment.
Cash flow
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 inflow
Cash going into a business
Cash outflow
cash going out of the business
Crowd Funding
raising finance by raising small amounts of money from a large number of people, usually via the Internet.
Debt Factoring
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.
Debt Finance
borrowing money from a bank which must be re paid with interest
Debentures
a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest.
Direct costs
A cost that can be directly tied to the production of specific goods or services
Equity Finance
selling shares in the business to raise finance rather than borrowing
Fixed Cost
Costs that don't change with output.
Indirect costs
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
Loan
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.
Marginal Costs
the cost added by producing one additional unit of a product or service
Micro Finance
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
Overdraft
banks allow businesses to take additional money out of their account up to a certain limit
Owners savings
– using owners own savings to finance the business
Revenue Expenditure
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
Variable Costs
Costs that change with output.
Working Capital
- 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 Cost
Total costs, = total fixed costs + total variable costs
Marginal Cost
the cost of producing one extra unit.
Special order decisions
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
"(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
Bankruptcy is a legal process conducted when a business is unable to repay outstanding debts or obligations.
Liquidation
when a firm goes bankrupt, stops trading and its assets are sold for cash to pay suppliers and other creditors.
Administration
When a business goes bankrupt an administrator is called into oversee the liquidation of the business assets. This process is called “going into administration”
Budgets
a detailed financial plan or revenue and expenditure over a specified time period.
Flexible budgets
cost budgets for each expense are allowed to vary if sales or production vary from budgeted levels.
Zero budgeting
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.
Incremental budgeting
uses last year’s budget as a basis and an adjustment is made for the coming year.