Venture capital

Venture Capital is a form of "risk capital". In other words, capital that is invested in a project (in this case - a business) where there is a substantial element of risk relating to the future creation of profits and cash flows. Risk capital is invested as shares (equity) rather than as a loan and the investor requires a higher"rate of return" to compensate him for his risk. The main sources of venture capital in the UK are venture capital firms and "business angels" - private investors. Separate Tutor2u revision notes cover the operation of business angels. In these notes, we principally focus on venture capital firms. However, it should be pointed out the attributes that both venture capital firms and business angels look for in potential investments are often very similar. What is venture capital? Venture capital provides long-term, committed share capital, to help unquoted companies grow and succeed. If an entrepreneur is looking to start-up, expand, buy-into a business, buy-out a business in which he works, turnaround or revitalise a company, venture capital could help do this. Obtaining venture capital is substantially different from raising debt or a loan from a lender. Lenders have a legal right to interest on a loan and repayment of the capital, irrespective of the success or failure of a business . Venture capital is invested in exchange for an equity stake in the business. As a shareholder, the venture capitalist's return is dependent on the growth and profitability of the business. This return is generally earned when the venture capitalist "exits" by selling its shareholding when the business is sold to another owner. Venture capital in the UK originated in the late 18th century, when entrepreneurs found wealthy individuals to back their projects on an ad hoc basis. This informal method of financing became an industry in the late 1970s and early 1980s when a number of venture capital firms were founded. There are now over 100 active venture capital firms in the UK, which provide several billion pounds each year to unquoted companies mostly located in the UK. What kind of businesses are attractive to venture capitalists? Venture capitalist prefer to invest in "entrepreneurial businesses". This does not necessarily mean small or new businesses. Rather, it is more about the investment's aspirations and potential for growth, rather than by current size. Such businesses are aiming to grow rapidly to a significant size. As a rule of thumb, unless a business can offer the prospect of significant turnover growth within five years, it is unlikely to be of interest to a venture capital firm. Venture capital investors are only interested in companies with high growth prospects, which are managed by experienced and ambitious teams who are capable of turning their business plan into reality. For how long do venture capitalists invest in a business? Venture capital firms usually look to retain their investment for between three and seven years or more. The term of the investment is often linked to the growth profile of the business. Investments in more mature businesses, where the business performance can be improved quicker and easier, are often sold sooner than investments in early-stage or technology companies where it takes time to develop the business model. Where do venture capital firms obtain their money? Just as management teams compete for finance, so do venture capital firms. They raise their funds from several sources. To obtain their funds, venture capital firms have to demonstrate a good track record and the prospect of producing returns greater than can be achieved through fixed interest or quoted equity investments. Most UK venture capital firms raise their funds for investment from external sources, mainly institutional investors, such as pension funds and insurance companies. Venture capital firms' investment preferences may be affected by the source of their funds. Many funds raised from external sources are structured as Limited Partnerships and usually have a fixed life of 10 years. Within this period the funds invest the money committed to them and by the end of the 10 years they will have had to return the investors' original money, plus any additional returns made. This generally requires the investments to be sold, or to be in the form of quoted shares, before the end of the fund. Venture Capital Trusts (VCT's) are quoted vehicles that aim to encourage investment in smaller unlisted (unquoted and AIM quoted companies) UK companies by offering private investors tax incentives in return for a five-year investment commitment. The first were launched in Autumn 1995 and are mainly managed by UK venture capital firms. If funds are obtained from a VCT, there may be some restrictions regarding the company's future development within the first few years. What is involved in the investment process? The investment process, from reviewing the business plan to actually investing in a proposition, can take a venture capitalist anything from one month to one year but typically it takes between 3 and 6 months. There are always exceptions to the rule and deals can be done in extremely short time frames. Much depends on the quality of information provided and made available. The key stage of the investment process is the initial evaluation of a business plan. Most approaches to venture capitalists are rejected at this stage. In considering the business plan, the venture capitalist will consider several principal aspects: - Is the product or service commercially viable? - Does the company have potential for sustained growth? - Does management have the ability to exploit this potential and control the company through the growth phases? - Does the possible reward justify the risk? - Does the potential financial return on the investment meet their investment criteria? In structuring its investment, the venture capitalist may use one or more of the following types of share capital: Ordinary sharesThese are equity shares that are entitled to all income and capital after the rights of all other classes of capital and creditors have been satisfied. Ordinary shares have votes. In a venture capital deal these are the shares typically held by the management and family shareholders rather than the venture capital firm. Preferred ordinary sharesThese are equity shares with special rights.For example, they may be entitled to a fixed dividend or share of the profits. Preferred ordinary shares have votes. Preference sharesThese are non-equity shares. They rank ahead of all classes of ordinary shares for both income and capital. Their income rights are defined and they are usually entitled to a fixed dividend (eg. 10% fixed). The shares may be redeemable on fixed dates or they may be irredeemable. Sometimes they may be redeemable at a fixed premium (eg. at 120% of cost). They may be convertible into a class of ordinary shares. Loan capitalVenture capital loans typically are entitled to interest and are usually, though not necessarily repayable. Loans may be secured on the company's assets or may be unsecured. A secured loan will rank ahead of unsecured loans and certain other creditors of the company. A loan may be convertible into equity shares. Alternatively, it may have a warrant attached which gives the loan holder the option to subscribe for new equity shares on terms fixed in the warrant. They typically carry a higher rate of interest than bank term loans and rank behind the bank for payment of interest and repayment of capital. Venture capital investments are often accompanied by additional financing at the point of investment. This is nearly always the case where the business in which the investment is being made is relatively mature or well-established. In this case, it is appropriate for a business to have a financing structure that includes both equity and debt. Other forms of finance provided in addition to venture capitalist equity include: - Clearing banks - principally provide overdrafts and short to medium-term loans at fixed or, more usually, variable rates of interest. - Merchant banks - organise the provision of medium to longer-term loans, usually for larger amounts than clearing banks. Later they can play an important role in the process of "going public" by advising on the terms and price of public issues and by arranging underwriting when necessary. - Finance houses - provide various forms of installment credit, ranging from hire purchase to leasing, often asset based and usually for a fixed term and at fixed interest rates. Factoring companies - provide finance by buying trade debts at a discount, either on a recourse basis (you retain the credit risk on the debts) or on a non-recourse basis (the factoring company takes over the credit risk). Government and European Commission sources - provide financial aid to UK companies, ranging from project grants (related to jobs created and safeguarded) to enterprise loans in selective areas. Mezzanine firms - provide loan finance that is halfway between equity and secured debt. These facilities require either a second charge on the company's assets or are unsecured. Because the risk is consequently higher than senior debt, the interest charged by the mezzanine debt provider will be higher than that from the principal lenders and sometimes a modest equity "up-side" will be required through options or warrants. It is generally most appropriate for larger transactions. Making the Investment - Due Diligence To support an initial positive assessment of your business proposition, the venture capitalist will want to assess the technical and financial feasibility in detail. External consultants are often used to assess market prospects and the technical feasibility of the proposition, unless the venture capital firm has the appropriately qualified people in-house. Chartered accountants are often called on to do much of the due diligence, such as to report on the financial projections and other financial aspects of the plan. These reports often follow a detailed study, or a one or two day overview may be all that is required by the venture capital firm. They will assess and review the following points concerning the company and its management: - Management information systems - Forecasting techniques and accuracy of past forecasting - Assumptions on which financial assumptions are based - The latest available management accounts, including the company's cash/debtor positions - Bank facilities and leasing agreements - Pensions funding - Employee contracts, etc. The due diligence review aims to support or contradict the venture capital firm's own initial impressions of the business plan formed during the initial stage. References may also be taken up on the company (eg. with suppliers, customers, and bankers). 0 nhận xét

Người đăng: Sophie vào lúc 13:54

Leasing

asset finance - introduction to hire purchase and leasing
Introduction
The acquisition of assets - particularly expensive capital equipment - is a major commitment for many businesses. How that acquisition is funded requires careful planning.
Rather than pay for the asset outright using cash, it can often make sense for businesses to look for ways of spreading the cost of acquiring an asset, to coincide with the timing of the revenue generated by the business.The most common sources of medium term finance for investment in capital assets are Hire Purchase and Leasing.
Leasing and hire purchase are financial facilities which allow a business to use an asset over a fixed period, in return for regular payments. The business customer chooses the equipment it requires and the finance company buys it on behalf of the business.
Many kinds of business asset are suitable for financing using hire purchase or leasing, including:- Plant and machinery- Business cars- Commercial vehicles- Agricultural equipment- Hotel equipment- Medical and dental equipment- Computers, including software packages -Office equipment
Hire purchase
With a hire purchase agreement, after all the payments have been made, the business customer becomes the owner of the equipment. This ownership transfer either automatically or on payment of an option to purchase fee.
For tax purposes, from the beginning of the agreement the business customer is treated as the owner of the equipment and so can claim capital allowances. Capital allowances can be a significant tax incentive for businesses to invest in new plant and machinery or to upgrade information systems.
Under a hire purchase agreement, the business customer is normally responsible for maintenance of the equipment.
Leasing
The fundamental characteristic of a lease is that ownership never passes to the business customer.
Instead, the leasing company claims the capital allowances and passes some of the benefit on to the business customer, by way of reduced rental charges.
The business customer can generally deduct the full cost of lease rentals from taxable income, as a trading expense.
As with hire purchase, the business customer will normally be responsible for maintenance of the equipment.
There are a variety of types of leasing arrangement:
Finance Leasing
The finance lease or 'full payout lease' is closest to the hire purchase alternative. The leasing company recovers the full cost of the equipment, plus charges, over the period of the lease.
Although the business customer does not own the equipment, they have most of the 'risks and rewards' associated with ownership. They are responsible for maintaining and insuring the asset and must show the leased asset on their balance sheet as a capital item.
When the lease period ends, the leasing company will usually agree to a secondary lease period at significantly reduced payments. Alternatively, if the business wishes to stop using the equipment, it may be sold second-hand to an unrelated third party. The business arranges the sale on behalf of the leasing company and obtains the bulk of the sale proceeds.
Operating Leasing
If a business needs a piece of equipment for a shorter time, then operating leasing may be the answer. The leasing company will lease the equipment, expecting to sell it secondhand at the end of the lease, or to lease it again to someone else. It will, therefore, not need to recover the full cost of the equipment through the lease rentals.
This type of leasing is common for equipment where there is a well-established secondhand market (e.g. cars and construction equipment). The lease period will usually be for two to three years, although it may be much longer, but is always less than the working life of the machine.
Assets financed under operating leases are not shown as assets on the balance sheet. Instead, the entire operating lease cost is treated as a cost in the profit and loss account.
Contract Hire
Contract hire is a form of operating lease and it is often used for vehicles.
The leasing company undertakes some responsibility for the management and maintenance of the vehicles. Services can include regular maintenance and repair costs, replacement of tyres and batteries, providing replacement vehicles, roadside assistance and recovery services and payment of the vehicle licences. 0 nhận xét

Người đăng: Sophie vào lúc 13:53

accounting concept

In drawing up accounting statements, whether they are external "financial accounts" or internally-focused "management accounts", a clear objective has to be that the accounts fairly reflect the true "substance" of the business and the results of its operation.
The theory of accounting has, therefore, developed the concept of a "true and fair view". The true and fair view is applied in ensuring and assessing whether accounts do indeed portray accurately the business' activities.
To support the application of the "true and fair view", accounting has adopted certain concepts and conventions which help to ensure that accounting information is presented accurately and consistently.
Accounting Conventions
The most commonly encountered convention is the "historical cost convention". This requires transactions to be recorded at the price ruling at the time, and for assets to be valued at their original cost.
Under the "historical cost convention", therefore, no account is taken of changing prices in the economy.
The other conventions you will encounter in a set of accounts can be summarised as follows:
Monetary measurement
Accountants do not account for items unless they can be quantified in monetary terms. Items that are not accounted for (unless someone is prepared to pay something for them) include things like workforce skill, morale, market leadership, brand recognition, quality of management etc.
Separate Entity
This convention seeks to ensure that private transactions and matters relating to the owners of a business are segregated from transactions that relate to the business.
Realisation
With this convention, accounts recognise transactions (and any profits arising from them) at the point of sale or transfer of legal ownership - rather than just when cash actually changes hands. For example, a company that makes a sale to a customer can recognise that sale when the transaction is legal - at the point of contract. The actual payment due from the customer may not arise until several weeks (or months) later - if the customer has been granted some credit terms.
Materiality
An important convention. As we can see from the application of accounting standards and accounting policies, the preparation of accounts involves a high degree of judgement. Where decisions are required about the appropriateness of a particular accounting judgement, the "materiality" convention suggests that this should only be an issue if the judgement is "significant" or "material" to a user of the accounts. The concept of "materiality" is an important issue for auditors of financial accounts.
Accounting Concepts
Four important accounting concepts underpin the preparation of any set of accounts:
Going Concern
Accountants assume, unless there is evidence to the contrary, that a company is not going broke. This has important implications for the valuation of assets and liabilities.
Consistency
Transactions and valuation methods are treated the same way from year to year, or period to period. Users of accounts can, therefore, make more meaningful comparisons of financial performance from year to year. Where accounting policies are changed, companies are required to disclose this fact and explain the impact of any change.
Prudence
Profits are not recognised until a sale has been completed. In addition, a cautious view is taken for future problems and costs of the business (the are "provided for" in the accounts" as soon as their is a reasonable chance that such costs will be incurred in the future.
Matching (or "Accruals")
Income should be properly "matched" with the expenses of a given accounting period.
Key Characteristics of Accounting Information
There is general agreement that, before it can be regarded as useful in satisfying the needs of various user groups, accounting information should satisfy the following criteria:
Criteria
What it means for the preparation of accounting information
Understandability
This implies the expression, with clarity, of accounting information in such a way that it will be understandable to users - who are generally assumed to have a reasonable knowledge of business and economic activities
Relevance
This implies that, to be useful, accounting information must assist a user to form, confirm or maybe revise a view - usually in the context of making a decision (e.g. should I invest, should I lend money to this business? Should I work for this business?)
Consistency
This implies consistent treatment of similar items and application of accounting policies
Comparability
This implies the ability for users to be able to compare similar companies in the same industry group and to make comparisons of performance over time. Much of the work that goes into setting accounting standards is based around the need for comparability.
Reliability
This implies that the accounting information that is presented is truthful, accurate, complete (nothing significant missed out) and capable of being verified (e.g. by a potential investor).
Objectivity
This implies that accounting information is prepared and reported in a "neutral" way. In other words, it is not biased towards a particular user group or vested interest 0 nhận xét

Người đăng: Sophie vào lúc 13:53

Profit and loss

Richard Bowett introduces the important concept of the profit and loss account:
Introduction - the Meaning of Profit
The starting point in understanding the profit and loss account is to be clear about the meaning of "profit".
Profit is the incentive for business; without profit people wouldn't’t bother. Profit is the reward for taking risk; generally speaking high risk = high reward (or loss if it goes wrong) and low risk = low reward. People won’t take risks without reward. All business is risky (some more than others) so no reward means no business. No business means no jobs, no salaries and no goods and services.
This is an important but simple point. It is often forgotten when people complain about excessive profits and rewards, or when there are appeals for more taxes to pay for eg more policemen on the streets.
Profit also has an important role in allocating resources (land, labour, capital and enterprise). Put simply, falling profits (as in a business coming to an end eg black-and-white TVs) signal that resources should be taken out of that business and put into another one; rising profits signal that resources should be moved into this business. Without these signals we are left to guess as to what is the best use of society’s scarce resources.
People sometimes say that government should decide (or at least decide more often) how much of this or that to make, but the evidence is that governments usually do a bad job of this e.g. the Dome.
The Task of Accounting - Measuring Profit
The main task of accounts, therefore, is to monitor and measure profits.
Profit = Revenue less Costs
So monitoring profit also means monitoring and measuring revenue and costs. There are two parts to this:-
1) Recording financial data. This is the ‘book-keeping’ part of accounting.
2) Measuring the result. This is the ‘financial’ part of accounting. If we say ‘profits are high’ this begs the question ‘high compared to what?’ (You can look at this idea in more detail when covering Ratio Analysis)
Profits are ‘spent’ in three ways.
1) Retained for future investment and growth.2) Returned to owners eg a ‘dividend’.3) Paid as tax.
Parts of the Profit and Loss Account
The Profit & Loss Account aims to monitor profit. It has three parts.
1) The Trading Account.
This records the money in (revenue) and out (costs) of the business as a result of the business’ ‘trading’ ie buying and selling. This might be buying raw materials and selling finished goods; it might be buying goods wholesale and selling them retail. The figure at the end of this section is the Gross Profit.
2) The Profit and Loss Account proper
This starts with the Gross Profit and adds to it any further costs and revenues, including overheads. These further costs and revenues are from any other activities not directly related to trading. An example is income received from investments.
3) The Appropriation Account. This shows how the profit is ‘appropriated’ or divided between the three uses mentioned above.
Uses of the Profit and Loss Account.
1) The main use is to monitor and measure profit, as discussed above. This assumes that the information recording is accurate. Significant problems can arise if the information is inaccurate, either through incompetence or deliberate fraud.
2) Once the profit(loss) has been accurately calculated, this can then be used for comparison ie judging how well the business is doing compared to itself in the past, compared to the managers’ plans and compared to other businesses.
3) There are ways to ‘fix’ accounts. Internal accounts are rarely ‘fixed’, because there is little point in the managers fooling themselves (unless fraud is going on) but public accounts are routinely ‘fixed’ to create a good impression out to the outside world. If you understand accounts, you can usually (not always) spot these ‘fixes’ and take them out to get a true picture.
Example Profit and Loss Account:
An example profit and loss account is provided below:
£'000 £'000
Revenue 12,500 10,000
Cost of Sales 7,500 6,000
Gross Profit 5,000 4,000
Gross profit margin (gross profit / revenue) 40% 40%
Operating Costs
Sales and distribution 1,260 1,010
Finance and administration 570 555
Other overheads 970 895
Depreciation 235 210
Total Operating Costs 3,035 2,670
Operating Profit (gross profit less operating costs) 1,965 1,330
Operating profit margin (operating profit / revenue) 15.7% 13.3%
Interest (450) (475)
Profit before Tax 1,515 855
Taxation (455) (255)
Profit after Tax 1,060 600
Dividends 650 400
Retained Profits 410 200 0 nhận xét

Người đăng: Sophie vào lúc 13:52

Balance sheet

In our introduction to the methods available to calculate depreciation, we suggested that there are two main methods that can be used:
- Straight- line depreciation
- Reducing balance method
We emphasised the point that these two methods simply provide an alternative way of allocating the total depreciation charge over several accounting periods. The total depreciation charge using either method will be the same over the total useful economic life of the asset.
To illustrate the straight line depreciation method, we have calculated the depreciation charge for the following asset:
Data
A business purchases a new machine for £75,000 on 1 January 2003. It is estimated that the machine will have a residual value of £10,000 and a useful economic life of five years. The business has an accounting year end of 31 December.
Straight line depreciation method
Using the straight line depreciation method, the calculation of the annual depreciation charge is as follows:
Dpn = (C- R)/ N
where:
Dpn = Annual straight-line depreciation charge
C = Cost of the assetR = Residual value of the assetN = Useful economic life of the asset (years)
So the calculation is:
Dpn = (£75,000 - £10,000) / 5
Dpn = £13,000
in the accounts of the business a depreciation charge of £13,000 will be expensed in the profit and loss account for each of the five years of the asset's useful economic life.
In the annual balance sheet, the machine would be shown at its original cost less the total accumulated depreciation for the asset to date.
Example of how this would be disclosed in the accounts
At the end of the third year of ownership of the machine, the financial accounts of the business would include the following items in relation to the machine:
In the Profit and Loss Account:
Depreciation of Machinery - Charge: £13,000
In the Balance Sheet at 31 December 2005:
Machine at Cost 75,000
less: Accumulated Depreciation 39,000
Machine at net book value 36,000
The figure for accumulated depreciation of £39,000 at 31 December 2005 represents three years' worth of depreciation at £13,000 per year.
The cost of the machine (£75,000) less the accumulated depreciation charged on the machine (£39,000) is known as the "written-down value" ("WDV") or "net book value" ("NBV").
it should be noted that WDV or NBV is simply an accounting value that is the result of a decision about which method is used to calculate depreciation. It does not necessarily mean that the machine is actually worth more or less than the WDV or NBV. 0 nhận xét

Người đăng: Sophie vào lúc 13:52

Annual Report

• An annual report is a document produced annually by companies designed to portray a true and fair view of the company’s annual performance, with audited financial statements prepared in accordance with company law and other regulatory requirements, and also containing other non-financial information.• The Companies Act 1985/9 requires companies to publish their annual report and accounts.• It should include:– A balance sheet– A profit and loss account– A cash flow statement– A Directors Report
Stakeholders in the annual report• Shareholders (the owners of the business).• Potential shareholders.• Managers and employees.• Creditors and potential creditors.• Suppliers – especially if the supply goods on credit.• Employees and their trade unions.• The government – for tax purposes.
Functions of the annual report• The stewardship and accountability function– Reporting to shareholders.• The decision making function– To provide information about performance and changes in the financial position of an enterprise that is useful to a wide range of users in making economic decisions.– Providing users, especially shareholders with financial information so that they can make decisions such as buying or selling shares.• The public relations function– The annual report is an opportunity to publicise the corporate image
A true and fair view• Directors are responsible for the preparation of the accounts which must give a true and fair view.• A true and fair view is one where accounts reflect what has happened and do not mislead the readers.• The accounts must be prepared in accordance with relevant accounting standards.
Information to be included • The rules governing the content of the annual report are derived from:• Statute law - the Companies Act • Accounting standards• Stock Exchange rules• Codes of best practice in corporate governance.
Companies Act 1985/9• Directors have stewardship of limited companies.• Directors are required to publish accounts which show a true and fair view of the company’s financial position.• Accounts must be sent to:– All shareholders– All debenture holders– The Registrar of Companies at Companies House.– This must be done within 10 months of the year-end for a private company and within 7 months of the year end in the case of a public company 0 nhận xét

Người đăng: Sophie vào lúc 13:51

Budgets

Budgets and budgeting•
Budget is a future plan which sets out a business’s financial targets.• Budgeting refers to the preparation of budgets - the drawing up of financial plans and monitoring the performance of a business in attaining them
Formal definition of a budget•
“A budget is a quantitative statement, for a defined period of time, which may include planned revenues, expenses, assets, liabilities and cash flows. A budget provides a focus for the organisation and aids the co-ordination of activities and facilitates control”. (CIMA)• Budgets are prepared in advance of a defined period of time. They are based on the objectives of the business and are intended to show how policies are to be pursued in order to achieve objectives.
What is a budget?• A budget – is a financial plan.– sets out a businesses financial targets.– is a plan expressed in money. – an agreed plan of action over a given period.– an agreed plan establishing, in numerical or financial terms, the policy to be pursued and the anticipated outcomes of that policy.
Forecasts, plans and budgets• A forecast is a prediction of future events and their quantification for the purpose of planning.• A forecast relates to events in the environment over which the business has either no control or only very limited control.• Hence we have a weather forecast - not a weather plan.• A forecast is not a budget but a prediction of the future.• However, a forecast of future sales is the starting point in the budgeting process.• Planning is the establishment of objectives and the formulation, evaluation and selection of the policies, strategies, tactics and action required to achieve the objectives.• A plan is the end product of planning.• Whereas a forecast is simply a prediction, a plan is what we are going to do about it.• A budget is a plan because it concerns actions to be taken rather than a passive acceptance of future trends.
Time horizons for a budget• Budget time horizon - this refers to the immediate future where on the basis of past business decisions and commitments the consequences are action can be predicted with a reasonable degree of certainty e.g. the next 12 months.• Business planning horizon - the period over which future forecasts can be made with a reasonable degree of confidence e.g. 3-5 years.• Strategic planning horizon - far into the future- it is concerned with the long term aspirations of senior managers e.g. 5+ years. 0 nhận xét

Người đăng: Sophie vào lúc 13:51

Incremental Budgeting

Incremental budget
• This is a budget prepared using a previous period’s budget or actual performance as a basis with incremental amounts added for the new budget period
• The allocation of resources is based upon allocations from the previous period.
• This approach is not recommended as it fails to take into account changing circumstances
• Moreover it encourages “spending up to the budget” to ensure a reasonable allocation in the next period. It leads to a “spend it or lose” mentality.
Advantages of incremental budgeting
• The budget is stable and change is gradual.
• Managers can operate their departments on a consistent basis.
• The system is relatively simple to operate and easy to understand.
• Conflicts should be avoided if departments can be seen to be treated similarly.
• Co-ordination between budgets is easier to achieve.
• The impact of change can be seen quickly.
Disadvantages of incremental budgeting
• Assumes activities and methods of working will continue in the same way.
• No incentive for developing new ideas.
• No incentives to reduce costs.
• Encourages spending up to the budget so that the budget is maintained next year.
• The budget may become out of date and no longer relate to the level of activity or type of work being carried out.
• The priority for resources may have changed since the budgets were set originally.
• There may be budgetary slack built into the budget, which is never reviewed-managers might have overestimated their requirements in the past in order to obtain a budget which is easier to work to, and which will allow them to achieve favourable results. 0 nhận xét

Người đăng: Sophie vào lúc 13:51

Purpose of Budgets

Six Key Purposes of Budgets
• A method of planning the use of resources
• A vehicle for forecasting
• A means of controlling the activities of various groups within the firm
• A means of motivating individuals to achieve performance levels agreed and set.
• A means of communicating the wishes and aspirations of senior management
• A means of resolving conflicts of interest between groups with the organisation
Role of Budgets
• To aid the planning of the organisation in a systematic and logical manner that adheres to the long term strategy• To determine direction• To forecast outcomes• To allocate resources• To promote forward thinking• To turn strategic objectives into practical reality• To establish priorities.• To set targets in numerical terms• To provide direction and co-ordination• To communicate objectives, opportunities and plans various managers.• To assign responsibilities.• To allocate resources.• To delegate without loss of control. • To provide motivation for managers to achieve goals• To motivate staff.• To improve efficiency.• To establish targets and standards which employees are motivated to achieve• To evaluate performance against the budget • To provide a framework for evaluating the performance of managers in meeting individual and department targets• To control activities by measuring progress against the original plan, making adjustments where necessary• To control income and expenditure• To facilitates management by exception• To take remedial action when there is deviation from the plan 0 nhận xét

Người đăng: Sophie vào lúc 13:50

minimum wage

ADVANTAGES OF THE MINIMUM WAGE
- Fair for workers to be paid a minimum wage. - Helps low earners gain a higher standard of living- Extra disposable income should lead to extra spending in the economy- Helps increase the gap between wages for low earners and unemployment benefit- May help reduce unemployment
DISADVANTAGES OF THE MINIMUM WAGE
- Increases the cost to businesses-Businesses may increase their prices (cost push inflation)- Businesses may be unable to afford to employ as many workers- Could cause unemployment- Other workers may now ask for a pay rise- Doesn’t help the unemployed who don’t receive a wage
In the diagram above, £3.80 is the free market equilibrium wage, supply is equal to demand. At this point 1000 people are employed.
Imagine that a minimum wage is imposed at £4.20. Some businesses can’t afford their wage bill and reduce their workforce. Now only 750 workers are employed. 250 have become unemployed.

0 nhận xét

Người đăng: Sophie vào lúc 13:50