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A: Explore types of business finance available at different stages in the growth of a business.
Vocational Scenario or Context As a budding entrepreneur, itching to start your own enterprise, you realise that you need to understand business finance. No enterprise is successful, if the entrepreneur that runs it does not understand finances i.e. where you can source finance from, where revenue can come from and how this links to the objectives, size and type of the enterprise that you are running.
Now is your opportunity to find out!
You will need to write a report (as this is also an important skill for an entrepreneur) to present your findings.
Task 1 You will need to research the different sources of finance and revenue that are available to different businesses. You will need to research businesses:
• Of differing sizes (e.g. small, medium, large)
• At different stages of development (e.g. start-up, sole trader, partnerships, private and public limited etc)
• That have different business objectives (e.g. expand, to develop products, to develop in new markets, to relocate etc)
• That offer different products (e.g. goods or services or both)
• That operate in different sectors (e.g. retail, electronics, health etc)
In your report, you must include the following for the different businesses at the different stages of their development:
• An explanation of the features of different internal and external sources of finance that are available
• How different sources of internal and external finance can be accessed
• An explanation of how the features of the different internal and external sources of finance influence the decisions made
• An explanation of the different sources and suitability of revenue that is available
• An analysis of the similarities and differences in the approach taken by the different businesses to securing business finance.
• The advantages and disadvantages, including the business risks, of the different types of internal and external sources of finance
• A judgement on how far different types of internal and external business finance meet the requirements
• An evaluation of how far the different types of internal and external finance meet the needs of the different businesses.
• A conclusion determining the most appropriate types of business finance for the different businesses at different stages of their development.
Checklist of evidence required An individual report
To achieve the criteria you must show that you are able to:
Evaluate appropriate types of business finance applicable in a specific business context.
Analyse the types of business finance required in a specific business context
Explain sources and suitability of revenue available in a specific business context.
Explain sources and suitability of finance available in different business contexts
B: Understand how financial planning tools can be used to analyse financial data and assess business risks
C: Understand how financial statements for a sole trader are prepared and used to analyse and evaluate business performance
You are a budding entrepreneur, looking to further your financial literacy skills. Mr Walter White has approached you and asked for your help. He wants you to analyse the performance of his business, identifying the current business risks and suggest ways that their business performance could be improved.
You realise this is a great opportunity for you to truly understand how financial information can help a business monitor and improve their performance including how to prepare a formal financial report.
Your report should include the following:
• Title
• An introduction of the details that are included in the report
• Part One: Cash flow and break-even calculations and analysis, risks faced by the business
• Part Two: Analysis of performance, conclusions and recommendations
Walter runs a car wash that he bought using his private savings for 800 000 USD.
He employs three workers on a full-time contract. They do all around the house – the cleaning, maintenance or accounting (which is pretty simple). Their brutto salary is 40 000 USD per year.
His fixed rate for electricity is 500 USD per month.
The insurance costs are 100 USD per month. Insurance is important, because you can easily break car parts or causes scratches during the washing procedure.
The expenses on water, soap and electricity for a single car wash procedure are 4 USD.
Apart from that, after every 1000 uses he needs to replace his set of cleaning brushes. The cost of the set is 1000 USD.
The price for the car wash procedure is 15 USD.
How many cars does Walter need to get washed before he breaks even?
How long is it going to take to break even if the car wash washes 100 cars per day on average? (The car wash operates daily, including weekends and holidays.)
Prepare:
* the cash-flow forecast at the start of the business for the upcoming year
* the break-even analysis and chart,
* the statement of comprehensive income at the end of the first year
* the statement of financial position after one year of operation
You will need to present your findings in a financial report to the sole trader.
Write a title for your report and an introduction to the business.
Part One of your financial report must include:
• An explanation of the purpose of:
o Cash flow forecasts and statements
o Break even analysis
for Walter´s car wash
• An accurate cash flow forecast and statement and a break-even chart and calculation
• Calculations and in-depth analysis using data from the sole trader’s cash flow forecasts and statements and break even, to identify risks to the business. You should demonstrate your understanding of common risks e.g. an increase in fixed or variable costs, a reduction in selling price, decline in sales revenue etc
• A detailed examination of the factors that impact on the business risks.
• A broad range of conclusions and actions that the business could take to address these risks, based on the analysis of your calculations
Part Two of your financial report must include:
• An explanation of the purpose and the main components for sole traders of:
o Statements of comprehensive income
o Statements of financial position
• Using the financial data from the sole trader, you must prepare an accurate:
o Statement of comprehensive income
o Statement of financial position
These must be professionally accepted and in a vertical format
• For both of the above statements, you need to make adjustments for:
o Depreciation
o Prepayments
o Accruals
o Changes in capital
• Accurate ratio calculations (measuring profitability, liquidity and efficiency), using data you have extracted from the above statements
• An analysis of the business’s performance i.e. a detailed examination of the ratio calculations
• A wide range of justified recommendations for improving the business’s performance, based on the outcomes of the ratio analysis.
Financial report including:
• cash flow forecasts and statements
• break-even analysis
• risks and possible solutions
• statement of comprehensive income
• statement of financial position
• ratio analysis
• recommendations on how to improve the business’s performance
Criteria covered by this task:
To achieve the criteria you must show that you are able to:
Evaluate the impact of different factors that impact on financial risks in a given business context.
Analyse the factors that impact on financial risks in a specific business context.
Perform appropriate calculations using financial planning tools to identify financial risks in a specific business context.
Explain the purpose of financial planning tools in reviewing financial data in a specific business context
Justify recommendations for improvements to business performance for a sole trader, arising from own preparation and interpretation of business financial data
Assess business performance of a sole trader by manipulating financial data and making suggestions for improving business performance
Explain ways to improve profitability, liquidity and efficiency in a given business context
Prepare and interpret financial statements for sole trader businesses.