Understanding Finance in a Business Context

Overview

Framework:
RQF
Level:
Level 2
Unit No:
H/618/3437
Credits:
3
Guided learning hours:
24 hours

Assessment Guidance

Portfolio of evidence

Aim

The aim of this unit is to help learners understand the importance of cash flow and the impact of efficient management of money in a business.

For the full unit details, please download the latest version of the qualification specification. This is available for download on the relevant qualifications page.

Unit Learning Outcomes

To view the assessment criteria and any additional content, please expand the relevant learning outcome below.

1 — Know key costs and expenditure for businesses.

Key costs of running a business may include:

  • start-up costs
  • operating costs (variable and fixed costs)
  • variable costs change in proportion to the amount of output produced or amount sold (e.g. raw materials. employee wages, energy, commission to sales staff);
  • fixed costs do not change in relation how much output a business produces (e.g.
  • Premises/rent, management salaries, insurance, marketing)

Types of expenditure may include:

  • staffing
  • premises e.g. rent, lighting, heating
  • equipment
  • suppliers
  • raw materials

Assessment Criteria

  • 1.1

    Identify the key costs associated with running a business.

  • 1.2

    Identify different types of expenditure associated with running a business.

2 — Know about key records needed to manage finance in a business context.

Examples of financial records that may be kept include:

  • invoices, receipts
  • income and expenditure
  • corporation tax
  • VAT

Importance of financial records may include:

  • know costs, income and expenditure to ensure solvency
  • report income and expenditure to appropriate authorities e.g. HMRC, shareholders, managers, owner
  • helps with forecasting future plans
  • required for auditing purposes

Assessment Criteria

  • 2.1

    Define key business terms, for example, income, expenditure, turnover, cash flow, gross and net profit.

  • 2.2

    Describe the financial records that a business needs to keep.

  • 2.3

    Explain why financial records are important, including legal requirements.

3 — Know why managing cash flow is important to businesses.

The role and importance of cash flow may include:

  • to pay for immediate expenses
  • indicates net change of a business from one period to the next
  • lack of cash may mean insufficient money to pay for next period
  • key indicator of the financial health of a business

Factors that affect cash flow may include:

  • poor or good sales
  • loans
  • change in costs and overheads
  • timing of payments by the business and to the business

How cash flow problems can lead to business failure:

  • poor management of cash flow may mean lack of accessible funds to finance day to day expenses
  • unable to buy supplies
  • unable to pay staff
  • lack of management control
  • inadequate or inappropriate financing

Ways to monitor and manage cash flow may include:

  • analysis of cost, revenue and profit
  • break-even analysis
  • cash flow analysis

Assessment Criteria

  • 3.1

    Explain the role and importance of cash to the operation of a business.

  • 3.2

    Describe factors that affect cash flow in a business.

  • 3.3

    Explain how cash flow problems can lead to business failure.

  • 3.4

    Describe how to monitor and manage cash flow.

4 — Be able to interpret financial documents.

Learners must provide sufficient and valid evidence to achieve this outcome.

Assessment Criteria

  • 4.1

    Interpret a basic spreadsheet showing income and expenditure.

  • 4.2

    Interpret simple accounts over a specified period.