Portfolio of Evidence
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.
Unit Learning Outcomes
Know key costs and expenditure for businesses.
Key costs of running a business may include:
- start up costs
- operating costs - fixed, indirect, variable, direct costs, total costs
Types of expenditure may include:
- building eg lighting, heating
Identify the key costs associated with running a business.
1.2Identify different types of expenditure associated with running a business
Know about key records needed to manage finance in a business context.
For 2.1 learners need to define key business terms.
Examples of financial records that may be kept include:
- invoices, receipts
- income and expenditure
- income tax
Importance of financial records may include:
- know costs, income and expenditure to make sure you can afford what to do
- report income and expenditure to appropriate authorities eg Inland Revenue, shareholders, managers, owner
- helps with forecasting future plans
- required for auditing purposes
2.1Define key business terms, for example, income, expenditure, turnover, cash flow, gross and net profit.
2.2Describe the financial records that a business needs to keep.
2.3Explain why financial records are important, including legal requirements.
Know why managing cash flow is important to businesses.
The role and importance of cash flow may include:
- net change of a business from one period to the next
- may not have sufficient 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
- increased costs and overheads
- timing of payments by the business and to the business
Ways cash flow can lead to business failure may include:
- poor management of cash flow
- loss of key accounts
- limited or no new customers
- lack of management control
- inadequate or inappropriate financing
Ways to monitor and manage cash flow may include:
- analysis of cost, revenue and profit
- breakeven analysis
- cash flow analysis
3.1Explain the role and importance of cash to the operation of a business.
3.2Describe factors that affect cash flow in a business.
3.3Explain how cash flow problems can lead to business failure.
3.4Describe how to monitor and manage cash flow.
Be able to produce and use financial documents
Learners must provide sufficient and valid evidence to achieve this outcome.
4.1Produce a basic spreadsheet showing income and expenditure.
4.2Interpret simple accounts over a specified period.