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Outline of UK Business Finance
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Outline of UK Business Finance

Businesses must be aware of the documents required and how and when they should be completed as this will help maintain company finances. It is important to understand the purpose of each document and the important role it plays in the sequence of ordering, checking, recording and paying for goods and services. It is equally important to complete each document accurately and in time in order to help the business run smoothly.

Knowing only documentation won’t help in today’s fast changing business scenario. It is also important to know the use of Information Technology (IT) since automated documents are prepared these days. But this does not rule out the use of manual documentation completely. Apart from the above job description, to run a successful business you’ll need to know things like:

• How financial documents provide the basic information for business accounts: purchase orders, delivery notes, goods received notes, invoices, credit notes, statements of account sent by the business, remittance advice slips, cheques and receipts are the soul of any business.

• Number of cash and non-cash payment methods, including cash, cheque, credit card, debit card and credit transfer/direct debit.

• Identify sources of revenue and the following costs i.e., start-up costs and running costs.

• Recognise typical costs and revenues involved in a range of businesses (e.g. in manufacturing, retailing and service industries).

• Recognise the role-played by IT in helping reduce costs.

• Preparing and using a cash-flow forecast can help businesses to decide whether or not to: produce new goods or services, invest in new resources, carry out new activities and expand or reduce existing activities.

• Identify which are: inflows - sales revenue, loans from banks, grants from government; outflows - payments for raw materials, wages, rent, interest on loans, telephone, new machinery, taxes.

• Interpret a cash-flow forecast and identify possible problems, such as regular outflows outstripping inflows, larger than expected bills, or too large a level of surplus cash.

• Construct a simple spreadsheet to record costs and revenues for a business.

• Understand how the preparation and use of a budget can help a business to: plan its expenditure, check on its performance, calculating the break-even point.

• Work out the break-even point of a business, you’ll need to know: variable costs (e.g. cost of raw materials). These are running costs that are directly related to how much is produced by the business; fixed costs (e.g. costs of overheads such as rent, rates and insurance). These must be paid, however much the business produces the revenue that will be received from sales of the goods or service

• Calculating the profit or loss of a business: sales, cost of sales, gross profit, overheads/expenses and net profit.

• Understanding a balance sheet: shareholders' funds, liabilities, fixed assets and current assets.

• Understand the format of a balance sheet, and how calculations of assets and liabilities are made for a business activity.

• The importance of business accounts: shareholders, managers, employees, banks, customers and sources of business finance

• Why a business may prefer to use the following sources of finance: owners' funds, profits, loans, government grants, hiring and leasing, issuing shares, selling assets, venture capital, financial planning.

• How financial plans are of use to: business departments, the business as whole, investors in the business, creditors who might lend money to the business.

• Understand how financial documents can be used to plan for: an expansion of a business, the costs of unexpected events and reductions in the costs of the business.

Although these are just some of the important grey areas that need to be understood in order to run a successful business.

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