Business Management - Analysis Of The Key Functions Of Financial Planning And Control 6q5427

Business Management Techniques

Assignment 2 Select and Apply Costing Systems and Techniques

Business Management Techniques

Business Management Techniques

Manage Work Activities to Achieve Organisational Objectives Assignment

Analyse By Steve Goddard

3

the key functions of financial planning and control

By Steve Goddard

Acknowledgements

David Sullivan – Supplier of lecture resources. Mike Tooley & Lloyd Dingle – For there book on higher national engineering.

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Table of Contents

Section 1 2 -

Description Task 1 Task 2 References

Page 7 13 16

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Task 1 – Identify and describe appropriate Financial Planning Processes. Looking at short medium and long term plans, strategic plans; operational plans; financial objectives and organisational strategy. Financial Planning Processes Short Plans Short-term financial decisions differ from long-term financial decisions in two important ways. First, they are easily reversed in most cases. Second, there is far less uncertainty about the decision variables as you are concerned with the next few months rather than years. This does not mean that short-term financial decisions are any less important. Short-term financial decisions ensure the firm's liquidity and are critical to the short-term survival of the business. Firms finance their operations from short-term and long-term sources. Although short-term financial decisions almost always involve short-lived assets, there is a linkage between short-term and long-term financing decisions arising from a firm's cumulative capital requirements. If you have a surplus of long-term financing, you would need less short-term funds. Ordinarily, financial managers try to match the maturity of capital sources with the life of the assets funded by them. For example, some minimum level of working capital is needed permanently in the business and is financed from permanent sources, whereas the seasonal increase in working capital typically is financed from short-term sources. The primary short-term funding sources are loans from commercial banks and direct market borrowing through commercial paper issues. Commercial banks provide different types of loans and lines of credit and remain a major source of funding for corporations, though their market share has decreased significantly in the last two decades. Example of a short term financial plan which shows a bank loan: 1st Newborrowing 1. Bank loan 2. Stretching payables 3. Total Repayments 4. Bank loan 5. Stetched payables 6. Total 7. Net new borrowing 8. Plus securities sold 9. Less securities bought 10. Total cash raised Interest payments: 11. Bank loan 12. Stretching payables 13. Interest on securities sold 14. Net interest paid 16. Cash required for operations 17. Total cash required

2nd

3rd

4th

38.0 3.5 41.5

0.0 19.7 19.7

0.0 0.0 0.0

0.0 0.0 0.0

0.0 0.0 0.0 41.5 5.0 0.0 46.5

0.0 3.6 3.5 16.2 0.0 0.0 16.2

4.3 19.7 24.0 -24.0 0.0 0.0 -24.0

33.7 0.0 33.7 -33.7 0.0 0.4 -34.1

0.0 0.0 0.0 0.0

1.0 0.2 0.1 1.2

1.0 1.0 0.1 2.0

0.8 0.0 0.1 0.9

46.5 46.5

15.0 16.2

-26.0 -24.0

-35.0 -34.1

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Strategic Plans Business Angels Business angels are wealthy individuals who invest in start-up and growth companies in return for equity in the company. The investment can involve both time and money depending upon the investor. Typically business angels have already made their fortune through other business ventures, possibly their own start-up or a career in business. Most are men aged between 45 and 65. However, investors can be younger – particularly in the technology sector. Business angels can operate independently, but many work as a syndicate. This is because 40% of all angel investments are lost. Only the top 20% achieve more than a 50% return. To avoid losing a lot of money on one big deal, an investor needs to make a number of investments and spread the risk. The British Business Angels Association (BBAA) estimates that business angels invest roughly £300 million every year. BBAA research has indicated that business angels invest more in early stage businesses than formal Venture Capital Funds. The term business angel covers a wide range of individuals investing varying amounts of money at different stages of business development. In general there are six different types of investor: • • • • • •

Virgin. Has not yet invested Latent. Has not invested in the past three years Wealth maximising. Experienced businessmen and women investing for financial gain Entrepreneur. Backs businesses as an alternative to stock market investments Income seeking. Invest for income or to gain a job Corporate. Companies that make regular investments, often for majority stakes.

Business angels are a vital tool used to fill the gap between venture capital and debt finance – particularly for start-up and early stage companies. They also provide a useful source of equity finance – where the investor takes a stake in the company in return for a cash injection – for relatively small amounts that would not otherwise be available through venture capital. Investments can be anywhere between £10,000 and £250,000 although in practice most investments are in the region of £25,000. In addition to a first investment, business angels often follow up with later rounds of financing for the same company. As well as cash, business angels can offer years of experience in the business world. Although some prefer to become a sleeping partner, others will get actively involved in your business from writing a marketing plan to taking the company through a flotation on the stock market. One of the most common faces of business angels would be the TV show Dragons Den in the picture above.

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Venture Capitalists Venture capital is also known as private equity finance. Unlike business angels, venture capitalists (VCs) look to invest large sums of money in return for equity in - ie a share in the ownership of - your business. VCs typically invest in businesses with: • • • • • •

a minimum investment need of around £2 million, though many smaller regional VC organisations may invest from £50,000 an ambitious but realistic business plan a product or service that offers a unique selling point or other competitive advantage a large earning potential and a high return on investment within a specific timeframe, eg five years sound management expertise - although VCs tend not to get involved in the day-to-day running of the business, they often help with a business' strategy a proven track record - for this reason, VC's generally do not consider start-ups for investment

The advantages of securing a VC are that they can provide large sums of equity finance and may bring a wealth of expertise to your business. Also, if you successfully attract a VC to your business, you're likely to find it easier to secure further funding from other sources. The disadvantage is that securing a deal with a VC can be a long and complex process. You'll be required to draw up a detailed business plan, including financial projections for which you're likely to need professional help. from your local Business Link may be available for this. Also, if you get through to the deal negotiation stage, you'll have to pay legal and ing fees, whether or not you're successful in securing funds. There are several VC associations. The following are two of the best established: •

The British Private Equity and Venture Capital Association (BVCA) - the BVCA helps larger businesses locate venture capital companies.

•

The European Private Equity and Venture Capital Association (EVCA) - this organisation provides information and networking opportunities for investors, entrepreneurs and policymakers in the equity finance industry.

Mortgages A commercial mortgage is probably the best way to finance the purchase of buildings and land for business purposes, it provides the most flexible and affordable finance solution. Commercial mortgages are specialised due to the fact that the lender has a legal claim over the property until the loan has been repaid in full. Mortgage loans of this type are tailor made for purchasing any commercial property used for business purposes including shops, factories, offices and warehouses. Commercial mortgages can also be used for taking over an existing business, purchasing a brand new building or buying land. Although they often come with higher interest rates and more variables than residential mortgages, commercial mortgages are more flexible and can carry extra incentives for borrowers. With commercial mortgages, the lender has a legal claim over the property until the loan has been fully repaid.

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Benefits A commercial mortgage provides your business with a major asset that is likely to increase in value and offers a wide range of additional benefits. These include:       

The opportunity to consolidate expensive short-term finance The ability to raise money for working capital or an injection of cash flow A reduction in the costs of an existing commercial mortgage An opportunity to increase your earning potential through refurbishing, improving or expanding your business property Avoidance of exposure to just one lending source for both business banking and property investment Mortgage repayments may be similar to rental payments - therefore no need to budget for additional property expenditure or any increase in rent The interest on a commercial mortgage is tax-deductible

Disadvantages A commercial mortgage is a long-term commitment and, similar to a residential mortgage, will need to be paid off over a period of 15 years or more. However, it is vital to ensure all repayments are made on time. Failure to so will accrue additional interest and, if you continue to default on payments, can lead to your property being repossessed and a poor credit status.

Loans Business loans are commonly used by business owners to access cash needed for business start up, growth or improvement. There are a wide variety of programs and lenders available, so it’s important to understand your specific needs and pursue a loan that fits your situation. A business loan is a financial tool available to business owners of all sizes who need funding to enhance their business. Small businesses and start-up businesses typically have a more difficult time securing a business loan, but it is certainly not impossible. Regardless of your business size, any lender you work with will want to see firm documentation that s the viability of the business as well as the purpose for the loan. Business loans can be used for many things. Some common uses include start up costs, expansion of the business, capital investments, and refinancing of business debt. Most business owners will pursue a business loan at some point because it is common to need additional funds at various stages of business development. Banks are a common source of business loans, but they are often more conservative in their lending decisions. For this reason a bank is much more likely to underwrite a loan to a larger or more established business. It’s not impossible to get a loan from a traditional bank if you’re smaller or just starting up, but you will usually need to provide more extensive documentation of your business plans. There are many other sources of business loans in the UK, so do some research on other lending sources. There are lenders and angel investors that specialize in small or start up loans, as well as venture capitalists seeking larger investment opportunities. Additionally, there are several government programs designed to assist business owners with securing a business loan.

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Production Plans Overdraft An overdraft is a borrowing facility attached to your bank , set at an agreed limit. It can be drawn upon at any time and is ideal for your day-to-day expenses, particularly to see you through cash flow problems. It is worth noting that loans are probably more appropriate for long-term funding. An overdraft is likely to cost more than a loan for a long-term purchase. Advantages • • • •

An overdraft is flexible - you borrow what you need at the time which may make it cheaper than a loan. You only pay for the funds you use. It's quick to arrange. There is not normally a charge for paying off the overdraft earlier than expected.

Disadvantages • • • • • •

If you have to extend your overdraft, you usually have to pay an arrangement fee. Your bank could charge you if you exceed your overdraft limit without authorisation. The bank has the right to ask for repayment of your overdraft amount at any time. Overdrafts may be secured against business assets - the lender can take control of these if you don't repay the overdraft. Unlike loans you can only get an overdraft from the bank where you maintain your current . In order to get an overdraft elsewhere you need to transfer your business bank . The interest rate applied is nearly always variable, making it difficult to accurately calculate your borrowing costs.

Credit Cards A small business credit card will provide the necessary for the outgoings of your company. It is a fact of life that sometimes your outgoings will exceed immediate available funds, so it is a good idea to be prepared for this event. UK Credit cards for small businesses come with protection from fraud, so you will not be charged for improper use – as long as the issuer is notified of the theft quickly. The potential benefits of having a small business credit card are considerable; it can help with various areas of running your business, from booking travel arrangements to paying for advance mass shipments of products from wholesalers. Credit cards for small businesses can also prove to be invaluable when unexpected investment opportunities arise and you need fast access to funds. Not all, but some banks require you to have a current open with them before you can be eligible for a small business credit card. One of the great things about small business credit cards is that it is fairly easy to add supplementary card holders to your business . This can be very useful in minimising the to-and-froing of money within the business, but some banks charge for the privilege so check this first if you think it will become necessary. Giving other of staff access to your small business can significantly reduce the amount of time spent interpreting where the money has been spent. Many issuers put the infrastructure in place to allow you to manage and track such activity and the benefits of this service will increase as your small business expands. This does not diminish the control you have over the funds of your business as you can allocate spending limits to card holder’s individually, and track their expenditure in detail.

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Discounts and Rewards By taking out a small business credit card; your company will benefit from similar treatment as some of the longer-established businesses in operation. By using your small business credit card you can expect to receive discounts off certain products and services as well as cover for all card holders for things like travel insurance. Check individual issuers for specific details. Some credit cards for small businesses have a system in place which rewards you according to how much you spend on the . This is particularly beneficial if every card holder is included on the programme. Further features can include deals with telecom companies for every member of staff, in order that they can keep in touch in a more cost-effective manner. Charge Cards Charge cards are an appealing option as you can often get up to 2 months of interest free credit-card purchases if you keep up to date with payments. A charge card also doesn’t have a pre-set limit on spending, allowing your business the flexibility it might need.

Retained Profit Retained profits are when a business makes a profit and it does not spend it, it keeps it - and ants call profits that are kept and not spent retained profits. That's all. The retained profit is then available to use within the business to help with buying new machinery, vehicles, computers and so on or developing the business in any other way. Retained profits are also kept if the owners think that they may have difficulties in the future so they save them for a rainy day!

Trade Credit For many businesses, trade credit is an essential tool for financing growth. Trade credit is the credit extended to you by suppliers who let you buy now and pay later. Any time you take delivery of materials, equipment or other valuables without paying cash on the spot, you're using trade credit. When you're first starting your business, however, suppliers most likely aren't going to offer you trade credit. They're going to want to make every order c.o.d. (cash or check on delivery) or paid by credit card in advance until you've established that you can pay your bills on time. While this is a fairly normal practice, you can still try and negotiate trade credit with suppliers. One of the things that will help you in these negotiations is a properly prepared financial plan. When you visit your supplier to set up your order during your start-up period, ask to speak directly to the owner of the business if it's a small company. If it's a larger business, ask to speak to the CFO or any other person who approves credit. Introduce yourself. Show the officer the financial plan you've prepared. Tell the owner or financial officer about your business, and explain that you need to get your first orders on credit in order to launch your venture. Depending on the available from your suppliers, the cost of trade credit can be quite high. For example, assume you make a purchase from a supplier who decides to extend credit to you. The the supplier offers you are two-percent cash discount with 10 days and a net date of 30 days. Essentially, the supplier is saying that

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if you pay within 10 days, the purchase price will be discounted by two percent. On the other hand, by forfeiting the two-percent discount, you're able to use your money for 20 more days. On an annualized basis, this is actually costing you 36 percent of the total cost of the items you are purchasing from this supplier! (360 ( 20 days = 18 times per year without discount; 18 ( 2 percent discount = 36 percent discount missed.) Cash discounts aren't the only factor you have to consider in the equation. There are also late-payment or delinquency penalties should you extend payment beyond the agreed-upon . These can usually run between one and two percent on a monthly basis. If you miss your net payment date for an entire year, that can cost you as much as 12 to 24 percent in penalty interest. Effective use of trade credit requires intelligent planning to avoid unnecessary costs through forfeiture of cash discounts or the incurring of delinquency penalties. But every business should take full advantage of trade that is available without additional cost in order to reduce its need for capital from other sources.

Factoring Factoring is a flexible form of loan, which advances money to a company as it issues new invoices. This is different to overdrafts or more formal loans, which are usually for a fixed amount. There are two major advantages of factoring compared to overdrafts or other loans. Firstly, factoring is flexible in that the amount a company can borrow grows with sales. This is often essential to enable companies to fund that growth, since they must usually pay for supplies before they receive payment from customers. The second advantage factoring offers is that no other assets are needed to secure the funding. How does it work? A factoring company will lend a company a certain percentage of each invoice that it issues; it will then collect the invoice when it becomes due and pay the balance back to the issuing company. The factoring company charges a fee, usually a very small percentage of the value of each invoice, and interest on the amount of money borrowed. A company must notify all its customers of the new arrangement, and hand over the task of collecting debts to the factoring company. Often at the start of a new factoring relationship, the factor will take on existing debtors, which can involve a very substantial payment being made right at the start. Setting up a factoring deal can be done far more quickly than most other forms of finance.The staff at factoring companies are often more commercial than at some other lending institutions, and will work hard to help find a solution for potential client companies. What about bad debts? Even though some factors technically buy the invoices from a company, their contracts are very specific that if an invoice is not paid within a certain time period (usually 90 days) the factor will reclaim any advances it has made against the invoice. However most factors will offer a “without recourse” service where the debts are insured. This costs quite a bit extra but can be worthwhile. Typically insurance will cover 80% of a debt rather than the whole thing, but when a customer goes bust, getting 80% feels far better than getting nothing at all!

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Task 2 - Examine the factors influencing the decision-making process during financial planning Decision Tree A way to look at all the factors influencing a decision within business would be too draw a decision tree.

• Planning Tool o

Applies logic to decision

making

• Disadvantages o

Reliant on the accuracy of the data used

o

Requires qualitative input to give complete

o

Identifies likely outcomes

picture

o

Quantitative decision making

o

Probabilities only estimated

o

Real time data problems

• Advantages o

Useful for operational decision

making

o

Enables effective use of back

data

o

Use of probability allows

flexibility

o

Scientific/objective analysis to

decision making

o

Encourages clear thinking and

planning

• Process o

The Decision

o

The Alternative

o

Estimates of financial cost and benefits

o

Identify probability of outcomes

o

Squares - where decisions have to be

made

o

Expected Value - Financial outcome of a

decision

o

Do Nothing is an option!

•

Decision trees Enable a business to quantify decision making

•

Useful when the outcomes are uncertain

•

Places a numerical value on likely or potential outcomes

•

Allows comparison of different possible decisions to be made

Limitations:

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•

•

How accurate is the data used in

time?

the construction of the tree?

•

Data may be historical – does this data relate to real

•

How reliable are the estimates of the probabilities?

Necessity of factoring in the qualitative factors – human resources, motivation, reaction, relations with suppliers and other stakeholders

Business Analysis Data •

Purpose: – Identify where the business stands in relation to rivals, etc. – Collect and use data to inform business decision making – Identify strengths and weaknesses in the business – Use information to inform strategic planning

Method: •

Collection of • • • • •

data from a range of sources: Market research Past sales data Market growth data Specialist analyst data Secondary data, e.g. Mintel

You would then collect this data and analysis it using some or all of the following techniques: Analysis Trends

Averages

Variance

• Looking for patterns in

•

•

•

data collections Frequency and reliability of trends

• Impact of external

•

factors, e.g. seasonal variation, random events, cyclical trends

Averages are a measure of central tendency – the most likely or common item in a data series Calculated through 3 measures: – Mean – Median –

Mode

Correlation

Time Series Analysis

•

•

The degree to which there is a relationship between two or more random

•

Averages have limitations – measures of data spread used to assess width Range – difference between the highest and the lowest value

• Standard Deviation – used to measure the variance of the data set from the mean – can highlight how reliable the mean is as being representative of the data set

Used to analyse movements of a variable over a time period – usually years, quarters, months, etc.

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• •

•

variables The closer the relationship the higher the degree of correlation Perfect correlation would be where r = 1

Importance of assessing the: – Trend – Seasonality – Key moments – Magnitude

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Forecasting

• Focus groups - a group of individuals selected and assembled • • •

•

by researchers to discuss and comment on, from personal experience, a topic, issue or product groups – similar to focus groups but consisting of those who have experience in the use of a product, system, service, etc. surveys – repeated measurements from the same sample of people over a period of time Delphi method – calls on the expertise and insights of a of experts to help with forecasting – seen as being more reliable than data analysis only – Could be drawn together from around the world as there is no need to have people together at the same time In-house judgements – Use the expertise and judgements of those involved in the business in aiding and making judgements

Advantages and disadvantages: • • •

Data from several years can give accurate guides to future performance Statistical techniques can make the data informative and useful All depends on the quality of the data and the accuracy of the techniques used to analyse the data

Investment Appraisal

• • •

A means of assessing whether an investment project is worthwhile or not Investment project could be the purchase of a new PC for a small firm, a new piece of equipment in a manufacturing plant, a whole new factory, etc Used in both public and private sector

Types of investment appraisal:

• • •

Payback Period ing Rate of Return (ARR)

•

Profitability Index

•

Net Present Value (discounted cash flow)

Internal Rate of Return (IRR)

A fork lift may be an important item but what does it contribute to overall sales? How long and how much work would it have to do to repay its initial cost? Payback Period • •

•

The length of time taken to repay the initial capital cost Requires information on the returns the investment generates e.g. A machine costs £600,000, It produces items that generate a profit of £5 each on a production run of 60,000 units per year. Payback period will be 2 years.

ing Rate of Return A comparison of the profit generated by the investment with the cost of the investment. ARR =

Average

annual return or annual Initial cos t of investment

profit

For example: • • •

• •

An investment is expected to yield cash flows of £10,000 annually for the next 5 years The initial cost of the investment is £20,000 Total profit therefore is: £30,000 Annual profit = £30,000 / 5 = £6,000 ARR = 6,000/20,000 x 100 = 30%

Net Present Value

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• • • • •

Takes into the fact that money values change with time How much would you need to invest today to earn x amount in x years time? Value of money is affected by interest rates NPV helps to take these factors into consideration Shows you what your investment would have earned in an alternative investment regime

For example: • • • •

Project A costs £1,000,000 After 5 years the cash returns = £100,000 (10%) If you had invested the £1 million into a bank offering interest at 12% the returns would be greater You might be better off re-considering your investment!

Internal Rate of Return • •

Allows the risk associated with an investment project to be assessed The IRR is the rate of interest (or discount rate) that makes the net present value = to zero – Helps measure the worth of an investment – Allows the firm to assess whether an investment in the machine, etc. would yield a better return based on internal standards of return – Allows comparison of projects with different initial outlays – Set the cash flows to different discount rates – Software or simple graphing allows the IRR to be found

Qualitative Factors •

Other factors need to be taken into , particularly the effects of decisions on stakeholder groups and their response to such decisions, e.g. – The takeover of Manchester United by Malcolm Glazer might make financial sense but the reaction of the ers might make the move unworkable

• Qualitative factors look to take of these other issues that may influence the •

outcome of a decision Can be wide ranging and especially need to consider the impact on human resources and their response to decisions

SWOT Analysis

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•

•

A decisions (for example, investment in a new production plant) could be considered not only in financial but also to apply other techniques of decision making to look at wider issues: A SWOT analysis might be part of this: – Strengths – Weaknesses – Opportunities – Threats

PEST Analysis •

•

Might also need to factor in other external issues that might influence the decision making process which can be summarised as: – Political – Economic – Social – Technological Political could be in its widest sense, e.g. the internal politics of a firm as well as the national and international political effect

For example: •

•

The decision to site a series of wind turbines in a coastal area might be justified on financial grounds but: – What is the reaction of the local community? – Does government policy such planning developments? – Are there social impacts – e.g. noise pollution, damage to eco-systems, etc? Such factors may make the difference between success and failure

Stakeholder Analysis •

Wider – – – – – – – –

impacts on stakeholder groups may also be necessary, such stakeholders include: Employees Shareholders Managers Environment Local Community Suppliers Government Consumers

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Task 3 – Apply standard costing techniques and analyse deviation from planned outcomes You are planning to spend money to get your project to work and there will be a requirement on you to establish your BUDGET for your project. Now! A budget is a guestimate of what you will need to spend and in a lot of cases the proposed budget will be exceeded. As part of this task you must, after you have established your budget tell your MD (me) the areas that are likely to be exceeded and why. -----------------------------------------------------------------------------------------------------------------------------------The act of budgeting for your business forces you to think through all the important numbers and to develop a picture of what your business is going to look like in three, six, nine and 12 months. A budget is a powerful business tool that will help make better decisions. It enables you to develop and maintain a thorough understanding of the internal financial workings of your business. The ability to set financial goals for sales, expenses and profits is a true measure of the businesses ability to succeed. The purpose of a budget is to give a visual description of the expected financial results of your business activities. When preparing a budget, that: •

It should cover 12 to 24 months of business operation.

•

You should work out a complete budget before beginning business operations.

•

Each month, you should review, revise and update your budgets for the next 12 months.

A basic business budget contains four major numbers: projected sales and revenue; projected total costs of achieving that level of sales and revenue; the profit or loss from operations based on the two numbers above; and the cumulative total of profits and losses over time. The first and most important number is the top line-the estimated sales for the month. This number should be the result of a complete analysis of marketing and sales activities. Make sure this figure contains high, medium and low sales estimates. The sales and revenue projections should be based on experience, market analysis and research. However, it's worth nothing that the business should still be profitable even if the low sales estimate turns out to be correct. The next part of a budget should include all the costs of operation involved in producing and delivering the product or service to customers. These include: •

The costs of purchasing or producing the product or service.

•

Sales and marketing costs.

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•

Your business's istration and operation costs.

•

All fixed, variable and semi-variable costs of business operation.

Your final number should include 100 percent of all out-of-pocket expenses necessary to achieve your estimated sales revenues. The next part of your budget is the total profit or loss from operations for that month. There will sometimes be months of the year where your business loses money. In a new business startup, the first few months will usually show losses. The general sales and profit trends are most important. Lastly, your budget should reflect the cumulative profits or losses of the company over a period of months. Profits and losses are added together each month to get a total; these totals tell you when your business will break even and begin earning a profit. The total of losses will tell you how much money you will have to borrow or provide to the business before it is profitable. An accurate budget should reveal the truth about ther businesses potential. Each major number in your budget should be reviewed each month. You should compare the actual results in each category against the projected results. The act of studying each number each month will improve performance in that area. Areas of a Budget Rent A payment made by a tenant at intervals in order to occupy a property or a similar payment for the use of equipment or a service. Generally rent will be a fixed price but it may need to deviate from the planned outcomes for such reasons as: a need to expand, you could get half way through the year after introducing your product and it could turn into a huge success and you may need to expand your plant to cope with rising demand for your product. If this is the case then ideally profits from the extra units being sold will cover the cost for the extra rent. Rates Rates are costs such as electricity, gas, water etc. These costs are also counted as “fixed costs” normally but as I said above in respect to rent there could be an increase in demand for your product which will require more work and you will need your electricity, water, gas etc. to run the extra buildings required to increase output. Salaries A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis. As long as you keep the same amount of employee’s in your business you will know the salaries are going to stay the same. The only thing to watch out for here is annual inflation increases and possible pay strikes. You may also need to hire extra workers to cope with extra demand. Or make workers redundant if sales are low.

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Raw Materials A raw material is something that is acted upon or used by or by human labour or industry, for use as a building material to create some product or structure. Often the term is used to denote material that came from nature and is in an unprocessed or minimally processed state. Iron ore, logs, and crude oil, would be examples. Raw material costs will change as demand changes. Although with increased demand you may be able to benefit from economies of scale and buy your material for a discounted bulk price. Delivery Costs This is the amount of money it will take to get the product from the factory to the suppliers, this will depend on where the suppliers are, the amount you are transporting and also external factors like fuel prices.

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References

Books Tooley & Dingle HNC Engineering Internet Pages http://highered.mcgraw-hill.com/sites/0072467665/student_view0/chapter30/ - Short Term Planning http://www.startups.co.uk/6678842908316653519/what-are-business-angels.html - Business Angels

http://www.glitec.co.uk/business-loans/ - Business Loans BusinessLink.gov.uk – Various Research Information www.entrepreneur.com www.startups.co.uk http://www.bized.co.uk/learn/business/strategy/decision/index.htm

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