Unit 7.1 Sources of finance for expansion Sample assessment

Transcription

1 Unit 7.1 Sources of finance for expansion For this assessment you will need to explore sources of finance for expansion. For the purposes of this assignment you are to assume that you are working as an advisor at a local usiness enterprise advice centre, Northgate Business Venture. Task 1 Pass grade 1 You have een approached y the local Chamer of Commerce to make a presentation to the memers at a forthcoming meeting. The presentation should cover the different sources of finance that are availale to sole traders, partnerships, private limited companies and pulic limited companies. Task 2 Merit grade You have een told that a numer of the memers who will e watching your presentation are planning to expand their usinesses in the near future. 2 You should therefore extend your presentation y explaining the advantages and disadvantages of each of the different sources of finance that are availale to usinesses to support expansion, from sole trader to partnership, private limited company and pulic limited company. Tips to achieve a merit grade To explain a point you will need to include some detail and give reasons. You will need to approach this task in a methodical manner to ensure you do not miss anything out. Therefore: ensure that you cover expansion for sole traders, partnerships, private limited companies and pulic limited companies for each type of expansion, list the different sources of finance that would e appropriate for each source listed you should explain oth the advantages and disadvantages. This means giving sufficient detail and offering examples to clarify the points. Task 3 Distinction grade 3 Conclude your presentation y evaluating the different sources of finance you descried and explained in Task 2. BTEC National Business Unit 7 s 1

2 Unit 7.1 Sources of finance for expansion (cont d) Tips to achieve a distinction grade You are asked to evaluate, which means to review the activities of a plan or an organisation to see if they are likely to meet their ojectives. Evaluating involves making value judgements, and supporting those judgements with facts that you have researched. An evaluation may also extend to suggesting changes to a company strategy or making recommendations for improvement. For this task, therefore, you should e constructively critical of each of the sources of finance that you explained in Task 2. You should: a identify positive and negative aspects of the source, and make a judgement as to how useful the source is in supporting expansion. 2 Unit 7 s BTEC National Business

3 Unit 7.2 Cash flow and working capital For this assessment you will explore the management of cash flow and working capital. This continues the assignment where you are an advisor working for the usiness enterprise advice centre Northgate Business Venture. Today you have een approached y a local sole trader, Miss Wang, who has just egun running a small cleaning company that specialises in cleaning commercial premises. She found the presentation you gave recently very helpful and she has some questions to ask. In particular she is interested in the money cycle, as she has heard that understanding this could e crucial to her usiness success. Task 1 Pass grade 1 Write a letter to Miss Wang, at A1 Cleaning, Pressury House, Greenholme Street, Bolton, Lancs, BL8 5RD, descriing the money cycle and how working capital may e managed. Task 2 Merit grade You should continue the letter egun in Task 1. 2 You should now explain, giving examples, how Miss Wang s usiness may manage inflows and outflows, and explain to her how she may manage the working capital of her usiness. Tips to achieve a merit grade To explain a point you will need to include some detail and give reasons. In this case you should: identify the main inflows and outflows experienced y companies and explain what each of them are outline the potential impact of unexpected expenses on the company explain the methods availale to manage the firm s detors and creditors (give some examples to help your explanations) define working capital explain the methods availale for managing working capital (give some examples to help your explanations). Task 3 Distinction grade You should continue the letter egun in Tasks 1 and 2. 3 Conclude the letter y evaluating the importance to Miss Wang of managing her working capital and cash flow, recommending steps to strengthen these processes. BTEC National Business Unit 7 s 3

4 Unit 7.2 Cash flow and working capital (cont d) Tips to achieve a distinction grade An evaluation means making value judgements, and supporting those judgements with facts that you have researched. It may also extend to suggesting changes to a company strategy or making recommendations for improvement. For this task, therefore, you should: a examine the advantages of managing cash flow note the potential prolems if Miss Wang should fail to do this, and c make recommendations of good practices to strengthen her cash flow management. 4 Unit 7 s BTEC National Business

5 Unit 7.3 Cash flow forecasts These tasks continue the assignment in which you are an advisor working for the usiness enterprise advice centre Northgate Business Venture. Miss Wang has now asked for your help in creating a cash flow forecast. Task 1 Pass grade 1 a Use a spreadsheet to prepare a cash flow forecast using the following details. Although figures are supplied for the coming 12 months, you only need to prepare a forecast covering the first six months of trading. Sales and purchases for the year will e as follows. Miss Wang s clients are all usinesses that tend to pay for services in arrears. This is the reason why she has no sales figures in January she has to wait a month to receive any money. Total sales Purchases January Feruary March April May June July August Septemer Octoer Novemer Decemer These sales and purchase figures do not include VAT, so you must also have rows for VAT on sales and VAT on purchases. VAT will e added at 17.5%. Miss Wang will need to uy a van to use for getting to clients premises. This will cost 5000 and will e paid for in cash in January. She will e injecting 3000 of her own savings into the usiness immediately and will e orrowing a further 3000 from the ank. Both of these amounts will enter the ank account in January. Repayments on the loan will egin the following month: the amounts will e 50 per month capital repayment and 25 per month interest. The rent on her office costs 350 per month. Business rates are likely to e 130 per month, payale in 10 monthly instalments eginning in March. Miss Wang s drawings will e 1900 per month and she will pay 125 per month on advertising ( 500 in the first month). Insurance will e 105 per month. Miss Wang will have just one employee, and the wages ill will e 800 per month rising to 850 per month in June. Overdraft interest will e charged at 10% per annum on a monthly asis. Interest will e paid monthly ased on the previous month s closing alance. The opening alance of the forecast will e 0 as this is a new usiness venture. Do not forget to claim ack excess VAT paid or pay excess VAT collected on your forecast. Descrie any prolems Miss Wang might encounter in seeking to manage her cash flow over this twelve-month period. BTEC National Business Unit 7 s 5

6 Unit 7.3 Cash flow forecasts (cont d) Task 2 Merit grade Miss Wang has asked you to send her a letter outlining her future cash flow position for the coming six months. In your letter you should: 2 a Analyse Miss Wang s cash flow situation over this six-month period. What comments would you make concerning her ank alance over the six-month period? Explain in your letter any prolems she might experience in the coming year. c Do some what-if analysis. Make at least two adjustments to the original spreadsheet and comment on the changes. Explain in general terms how a usiness may encounter prolems in managing cash flow. Tips to achieve a merit grade When analysing a company s cash flow situation, the first row to look at is the ottom one, the alance C/F row. This shows the company s projected ank alance at the end of each month, and should indicate the minimum alance that we should expect to see on the ank account each month. When examining this row you should look at trends. A ig negative figure indicates a ig overdraft which could e alarming, ut the trend may put this in etter perspective: a ig ut falling overdraft is clearly healthier than a ig and increasing one. Once you have estalished a trend, use your spreadsheet creatively y amending different figures in turn to see how the situation changes when some of the expenses are altered. For example: What would e the position if Miss Wang paid her employee less? Alter the figures and see what impact this has. What if she could spread her loan over a longer period and reduce her payments? What if she ought a cheaper vehicle? What if she paid herself less? Or started low and increased gradually? By amending the figures in the spreadsheet you will e ale to comment oth on potential prolems and possile solutions. 6 Unit 7 s BTEC National Business

7 Unit 7.4 Insolvency and ankruptcy These tasks continue the assignment in which you are an advisor working for the usiness enterprise advice centre Northgate Business Venture. A year later Miss Wang has come ack to see you. She has now developed her usiness and is also selling cleaning products to customers. However, she tells you that she has een having difficulty making ends meet and sometimes finds it hard to pay her ills on time. Task 1 Pass grade You examine Miss Wang s accounts and find the following figures: Stock: 1500 Detors: 3000 Creditors: 1500 Overdraft: Cash: a Using the aove figures you should descrie Miss Wang s working capital position. Explain each of the entries and what they mean to her. You should also comment on what is meant y solvency, and what each of these figures means for Miss Wang s solvency. You should also explain ways in which Miss Wang could seek to maintain adequate levels of solvency y seeking to either raise or lower some of these figures. Task 2 Merit grade 2 a Explain how you would calculate the current ratio and acid-test ratio for Miss Wang s usiness. State the formulae required and how to use them. Explain how these solvency ratios may e used to monitor the financial health of Miss Wang s usiness. Tips to achieve a merit grade You will need the ratio formulae found on page 282 of the BTEC National Business textook to help with this task. Rememer that: current assets are those things that a usiness owns that can quickly e turned into cash to pay dets current liailities are amounts of money that the usiness will have to pay in the very near future, such as stock that has not een paid for or lending from a ank that must shortly e repaid. To explain their use you should do the following: a Explain the significance of each ratio. Explain how ratios are compared year y year and etween companies in the same industry to monitor company performance. BTEC National Business Unit 7 s 7

8 Unit 7.4 Insolvency and ankruptcy (cont d) Task 3 Distinction grade 3 a Using the figures from Task 1 you should calculate the current ratio and acid-test ratio for Miss Wang s usiness. Finally, evaluate the adequacy of these ratios as a means of monitoring the financial health of Miss Wang s usiness. Tips to achieve a distinction grade You will need the ratio formulae found on page 282 of the BTEC National Business textook to help with this task. When calculating the ratios rememer that: current assets are those things that a usiness owns that can e quickly turned into cash to pay dets current liailities are amounts of money that the usiness will have to pay in the very near future, such as stock that has not een paid for or lending from a ank that must shortly e repaid current liailities have a hait of growing, as interest can e added oth to overdrafts and the value of goods received on credit stock is sometimes difficult to sell quickly, and if it is sold quickly it often does not realise its full value it is always possile that some of a company s detors may not pay up, in which case the dets ecome ad dets. 8 Unit 7 s BTEC National Business