ICT and Business Faculty/Curriculum Area: Business/BTEC First in Business/Unit 3 Financial Forecasting for Business/JT/September 2010

UNIT 3: Financial Forecasting for Business

Unit content
1 Know about costs, revenue and profit in a business organization Business costs: costs incurred at start up; operating costs (fixed, indirect, variable, direct costs, total costs) Revenue; sources of revenue eg sales, leasing, interest; calculating total revenue (unit sales price x number of units sold) Calculating gross and net profit; revenue (income) minus costs (expenditure), cost of sales, expenses (operating costs); maximizing profits (increasing revenue) 3 Be able to create a cash flow forecast Cash inflows: capital; sales; loans; regular and irregular inflows; timing of inflows Cash outflows: purchases; loan repayments; wages; regular and irregular outflows; timing of outflows Cash balances: opening balance; closing balance; income per period; expenditure per period 2 Be able to prepare a break even analysis Break even: balancing costs or expenditure with revenues or income; areas of profit and loss; margin of safety; methods of presenting graphically

PLTs (Personal, Learning and Thinking skills) applied to this unit: TW team workers IE independent enquirers CT creative thinkers

Unit introduction
Money is at the heart of business. It is likely to be the main reason why a business was created and for it continuing to trade. This unit looks at the financial aspects of running a business. You will be introduced to the types of costs that a business will incur. This is followed by exploring how the sale of products and services generate revenue and eventually how profit is made. You will learn to produce a break-even analysis which will determine the point at which sales equals costs. You will look at fixed and variable costs. You will understand that sales over the break even point produces profit; any drop in sales below the break even point will produce losses. Cash flow forecasting estimates the timing and amounts of cash inflows and outflows over a particular period of time such as one year. The cash flow forecast shows if a business needs to borrow, how and when a decision will be needed. You will explore how cash flows can be managed more effectively and will be given an insight into one of the primary causes of business failure the problem of payment timing rather than that of profitability alone.

Remember that anyone running a small business must be able to manage its finance successfully.

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ICT and Business Faculty/Curriculum Area: Business/BTEC First in Business/Unit 3 Financial Forecasting for Business/JT/September 2010

Centre Name: Centre Number: Assessment Sheets: Unit Title:

Waverley School 20281 Edexcel Level 2 BTEC First in Business Unit 3: Financial Forecasting for Business

Assessor: Date: Candidate Name: Candidate Number:

Ms J Taitt _____________________________

Agreed by Internal Verifier: Ms T Khanom

Learning Outcomes: Know about costs, revenue and profit in a business organisation Be able to prepare a break even analysis Be able to create a cash flow forecast

Scenario You work for an accounting company as a trainee accountant. You have been given a handful of new businesses to look after, help and advise. The businesses are as follows: Tony's Flower Shop EoT Discos

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ICT and Business Faculty/Curriculum Area: Business/BTEC First in Business/Unit 3 Financial Forecasting for Business/JT/September 2010

Layout of your assignment Assignment format 1. Front cover a. Name b. Edexcel BTEC First in Business c. Unit 3 Financial Forecasting for Business d. Waverley School e. Centre Number: 20281 f. Candidate Number: g. Relevant Picture 2. Contents page a. Number every page (use headers and footers) b. Start each section on a separate page c. Put titles for each section and use sub headings 3. Introduction a. Using page one of this document explain what you have been asked to do and how you are going to go about doing it. 4. Complete Assignment Tasks a. Now complete the tasks on the following grid to achieve the grading criteria for this unit. 5. Bibliography a. List all textbooks and authors, articles, reports, Internet sites, businesses, adult help used for putting together your assignment. 6. Appendices a. All information, research, documents that do not need to be in the main part of your portfolio need to be placed in the appendices. b. You need to label each appendix: appendix 1, appendix 2, appendix 3 ... and so on. In your main portfolio you need to refer to the appendix otherwise the teacher will not look at it and no marks will be given.
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Evidenc e

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ICT and Business Faculty/Curriculum Area: Business/BTEC First in Business/Unit 3 Financial Forecasting for Business/JT/September 2010

Criteria P1 identify the difference between start up and operating costs, variable and fixed costs (TW) P2 identify the different types of revenue (TW, CT) P3 outline the differences between gross and net profit M1 explain the importance of costs, revenue and profit for a business organisation

Task Task 1 (You will need to use the attached Task 1 sheets to complete this task) Produce a PowerPoint slideshow to present to Tony who needs to start looking into costs, revenues and profit for his new flower shop business idea. P1 identify the difference between the different types of costs P2 identify the different types of revenue (eg, sales, leasing, interest) P3 Your work must outline the differences between net and gross profit

Evidence

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M1 Your work describe using examples: a) the importance of costs (costs incurred at start up; operating costs - fixed, indirect, variable, direct costs and total costs). b) the importance of revenue (sources of revenue, e.g. sales, leasing, interest, calculating total revenue). c) the importance of profit (gross profit, net profit, revenue, expenditure, costs of sales, expenses, maximising profits). Review date 1:w/b 19 September 2011 Review date 2: w/b 3 October 2011 Deadline: w/b 12 December 2011

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ICT and Business Faculty/Curriculum Area: Business/BTEC First in Business/Unit 3 Financial Forecasting for Business/JT/September 2010

Criteria P4 calculate break even using given data to show the level at which income equals expenditure P5 present the break even as an annotated graph showing breakeven

Task Task 2 (You will need to use the attached Task 2 sheets to complete this task) Produce a report to present to EoT Discos who need to start calculating their break even for their business. P4 Your work must: a) calculate the break even using the given data (table using Excel) P5 show the level at which income equals expenditure (chart using Excel)

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M2 demonstrate the impact of changing cost and revenue data on the break even point of a selected business

M2 Your work must demonstrate: a) the impact of changing costs on the break even point (new table and chart using Excel) b) the impact of changing revenue on the break even point (new table and chart using Excel) Review date 1: w/b 17 October 2011 Review date 2: w/b 31 October 2011 Deadline: w/b 12 December 2011

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ICT and Business Faculty/Curriculum Area: Business/BTEC First in Business/Unit 3 Financial Forecasting for Business/JT/September 2010

Criteria P6 prepare an annual cash flow forecast using monthly data M3 analyse the implications of regular and irregular cash inflows and outflows for a business organisation

Task Task 3 (You will need to use the attached Task 3 sheets to complete this task) You are to hold a meeting with Tony, who wants to start up a new flower shop business to discuss and explain his cash flow. You need to get materials ready to run through with him during the meeting. P6 The materials must: a) prepare an annual cash flow using the monthly data provided (using Excel) M3 The materials must: a) analyse the implications of regular cash inflows for the business b) analyse the implications of irregular cash inflows for the business c) analyse the implications of regular cash outflows for the business d) analyse the implications of irregular cash outflows for the business

Evidence

Comments/feedback

Date Achieved

Review date 1: w/b 7 November 2011 Review date 2: w/b 21 November 2011 Deadline: w/b 12 December 2011

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ICT and Business Faculty/Curriculum Area: Business/BTEC First in Business/Unit 3 Financial Forecasting for Business/JT/September 2010

Criteria D1 evaluate the importance of cash flow and break even for the effective management of business finance

Task Task 4 Produce a leaflet to businesses. D1 It must evaluate: a) how cash flows can contribute to managing business finances. (Planning for inflows; planning for outflows; making arrangements for negative balances). b) how break even can contribute to managing business finances.

Evidence

Comments/feedback

Date Achieved

Review date 1: w/b 28 November 2011 Review date 2: w/b 5 December 2011 Deadline: w/b 12 December 2011

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