Edexcel Business A Level Revision

Just-in time  management of stock - a technique used to minimize stock holdings at each stage of the production process, helping to minimise costs - minimal to no buffer stock JIT is a ‘pull’ system of production, so actual orders provide a signal for when a product should be manufactured. Demand-pull enables a firm to produce only what is required, in the correct quantity and at the correct time. This means that stock levels of raw materials, components, work in progress and finished goods can be kept to a minimum. This requires a carefully planned scheduling and flow of resources through the production process. Modern manufacturing firms use sophisticated production scheduling software to plan production for each period of time, which includes ordering the correct stock. Supplies are delivered right to the production line only when they are needed. For example, a car manufacturing plant might receive exactly the right number and type of tyres for one day’s production, and t...

Sales forecast - is an estimation of future sales that may be based on previous sales figures, sales volumes, trends, market surveys and trends or managerial estimates. The purpose of this for the following categories are: Finance Inform cash-flow forecasts i.e. how much money can the business expect to flow in from sales.(sales will directly affect cash inflow and so any change in future sales will alter the cash flow and so any change in future sales will alter the cash flow forecast and the level and availability of working capital) Predict sales volume and sales revenue Assess ability to break-even Help set budgets (if sales are forecasted to increase, the business will need to increase departmental budgets for production and distribution) Profit and Loss forecast (future sales will have a direct bearing on this) People Plan workforce needs for: Sales team Seasonal staff in stores or distribution Peak times Operatives to ensure supply meets demand (the...

Main causes of cash flow problems are... Low profits or losses Over-investment in capacity Too much stock Allowing customers too much credit Over-trading Unexpected changes Seasonality 1) PROFITS The profit a business makes from trading is the most important source of cash. There is a direct link between low profits or losses and cash flow problems. Most loss-making businesses eventually run out of cash, this is due to the closing balance on the cash forecast continually decreasing over the months due to an imbalance is cash flow. 2) OVER-INVESTMENT IN CAPACITY For example, spending too much on fixed assets. This is made worse if short-term finance is used (e.g. bank overdraft). Fixed assets are hard to turn back into cash. 3) TOO MUCH STOCK Excess stock ties up cash that the business could be using to pay off debts or use as working capital. This increases the risk of stock becoming obsolete and therefore the money too. If the stock becomes obsolete then there...

Cash flow forecast - is a statement of the expected cash inflow coming from the sales revenue and expected cash outflow needed to cover production costs. The difference between the inflow and the outflow is the net cash flow , a crucial indicator of the ability of a business to cover its day-to-day running costs. Cash flow is important to a business as it needs it to ensure a positive cash balance in order to meet day to day expenses. It roughly estimates cash flow for up to about two years into the future. The forecast will help potential lenders (including banks) to see what the likely financial needs of the business will amount to.  CALCULATING CASH FLOW Opening Balance = what is in the bank on the first day of the month Total cash inflow = all cash entering the business in that month Total cash outflow = all cash leaving the business in that month Net cash flow = Total cash inflow - Total cash outflow Closing balance = Opening balance + Net cash flow FIGUR...

Business plan - is a document that sets out what the business is, what it does, what it wants to achieve and how it is going to do it. It is normally used as part of an attempt to gain financial backing for the business. All businesses should have a business plan; it is both essential in helping to raise finance and an effective way for a manger to think about the business and how best to move it forward. A business plan informs potential investors or lenders about the business. It is used both internally by the entrepreneur and externally by banks, external investors or those willing to provide grants. It contains useful evidence of the viability of the business and how it will use any finance available. In particular it will show how the business plans to achieve a competitive advantage. An investor will want to know that the business is on a sound financial foundation and that future plans are likely to generate sufficient cash flows to meet debt obligations. The purpose o...

Trade credit - This means paying suppliers a period of time after the goods or services have been received. Type of supplies bought on trade credit is normally things such as stock and raw materials. It gives the business time to use the supplies to produce and sell the output before paying the invoices.   IT HELPS WITH CASH FLOW PROBLEMS   In effect the supplier is providing the business with finance for the period of the trade credit e.g. 30 days.   The business may lose out on discounts offered for the immediate or quick payment increasing costs.     BUT.......     In the long term this method of finance is not suitable for long term or large purchases.   New businesses may be required to pay in advance until credit terms are agreed.      

Leasing -  Allows a business to benefit from the use of an asset without owning it or buying it outright. This is a flexible form of finance, a regular monthly payment secures the use of an asset. The business pays a set amount in installments to lease the asset without owning it or buying it outright. The asset remains the property of the leasing company and at the end of the time period the asset is returned to the lease company and the business stops making payments. Avoids the need to finance the asset but may be more costly in the long run. However, the lease company is responsible for any repairs and maintenance. At the end of the lease period the business may start a new lease agreement for the latest model. Leasing reduces the need for finance at the outset but if the cash flow is unreliable the regular payments can be a problem.