Download - BTEC First Business – BTEC Level 2 First Business, Unit 3 Assessment Resource Pack

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Unit 3 Financial Forecasting for Business

BTEC Level 2 First BusinessAssessment Resource Pack

Cert / Ex Cert / Dip

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Unit overview Credits: 5

This unit introduces learners to business finance and the idea of costs, revenue and profit.

Learners will understand the different types of costs which businesses face and the impact that poor management of these could have. They will know how to classify costs as well as how they are calculated.

Revenue, gross and net profit are also covered and learners will learn how to distinguish between them. Again they will be given the opportunity to calculate these for different scenarios.

Following their introduction to finance learners will understand how to calculate and analyse break even. At a higher level learners will be able to explain the changes and the impact this could have on a business.

The final part of this unit gives learners the opportunity to investigate the cash flow of businesses. They will understand how figures in these can be manipulated and adjusted to ensure a business does not run out of cash.

Assessment for this unit is a combination of written and numerical tasks, which give learners the basics required in business finance.

Learners can get information for this unit through visiting speakers from banks, building societies and other financial institutions.

This unit has links with Unit 16 Business Enterprise and Unit 17 Starting a Small Business.

Assignments for this unitThe following ready-made assignments are available in this Pack.

Assignment Learning outcome

Assessment and grading criteria

Summary

A1 Costs, revenue and profit

LO1 Know about costs, revenue and profit in a business organisation

P1, P2, P3 and M1

Learners produce a booklet for ‘Fresh Business’ which covers the different types of costs a business incurs. They must also look at the different revenue streams for the business and outline the differences between gross and net profit.Evidence: a booklet about business finance

A2 Break even LO2 Be able to prepare a break-even analysis

P4, P5 and M2

Learners use suitable software to calculate break even using the data provided. They also produce a supporting handout which annotates the graph showing a clear understanding of the key terms. Following this, they adapt the data in the graphs and explain the outcomes.Evidence: break even graphs for the original and revised figures

Unit 3 Financial Forecasting for Business BTEC Level 2 First BusinessAssessment Resource Pack


A3 Cash flow forecast

LO3 Be able to create a cash flow forecast

P6 and M3 Learners will produce a full 12-month forecast using an acceptable layout. Following this they will analyse the impact of regular and irregular cash inflows and outflows.Evidence: a completed 12-month cash flow forecast; an analysis of the 12-month cash flow forecast; a revised 12-month cash flow forecast

A4 An evaluation of break even and cash flow forecasts

LO3 Be able to create a cash flow forecast

D1 The culmination of this unit incorporates knowledge gained from Assignments 2 and 3. Learners will create fact sheets that evaluate the break even and cash flow forecast, including judgements and diagrams to back up their work.Evidence: two fact sheets evaluating cash flow and break even



Assignment guidance for tutors

A1 Costs, revenue and profit P1 P2 P3 M1

Learners should create a professional looking leaflet that describes the different costs, revenue and profit a business may encounter. For P1 they should include start up, running, fixed, variable and total costs. P2 looks at the different revenue streams and P3 covers the difference between gross and net profit. Learners should be encouraged to incorporate formulas used to calculate costs, revenue and profit. For M1 learners should explain in their leaflet what costs, revenue and profit are and explaining their importance in no more than a paragraph for each.

A2 Break even P4 P5

Learners will need to understand how to calculate break even. It would be advisable to begin this by ensuring learners are competent at calculating these and drawing the graphs by hand. This gives them the understanding required to then move onto creating them on spreadsheets. Some learners will require support with the formula required for this Task as well as producing the graphs. Centres may wish to create a supporting handout to assist learners with this Task.

Once learners are proficient with using the spreadsheet they can then produce the graph required for P4. These should then be annotated using a word processor or desktop publishing software. These allow learners to add text boxes and arrows to annotate the graphs, demonstrating an understanding of what they are showing (P5). At the merit level (M2) learners should adapt the figures in their break even graphs and produce a supporting document which explains what they have done and what the results are showing.

A3 Cash flow forecast P6 M3

Similarly to Task 2 learners should first gain experience of calculating cash flow forecasts by hand prior to commencing this task. Once they are comfortable doing this they can move onto inputting the data into their own spreadsheet (P6). Although it is not a requirement of this task, it would be beneficial to the learners if they used formula to calculate the totals and net cash flow. This allows them to manipulate the figures and demonstrate the impact of regular and irregular cash inflows and outflows for M3.

A4 An evaluation of break even and cash flow forecasts D1

The distinction task looks at both the break even and cash flow forecast and requires a detailed evaluation of the importance of these for the business. Learners should go into detail about how these can be used by a business including diagrams and judgements about their effectiveness

© Pearson Education Ltd 2011. This material is not copyright free. Copying permitted for purchasing institution only.

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Unit 3 Financial Forecasting for Business BTEC Level 2 First Business

Assessment Pack

A1 Costs, revenue and profit BTEC Level 2 Business, Unit 1 Business Purposes

TASK 1 − Understanding Business Finance P1, P2, P3, M1 For this assignment you must create a ‘Fresh Business’ booklet, which outlines the important terms Steve will come across as he sets up and runs his business. You also need to include information on how you calculate certain figures.

Your leaflet should be an A5 booklet entitled Business Finance…The Basics. It will need to have three distinct chapters. These are costs, revenue and profit.

In your booklet you must cover the following areas, paying particular attention to any differences between the terms in each:

● What are start up and running costs?

Learner name Assessor name

Date issued Deadline

Scenario

You have been working as a consultant for a company called Fresh Business, which supports new small enterprises

Steve, a business owner and local entrepreneur, has identified an opportunity in his local area to set up a fish and chip shop. He has previous experience of working in the catering industry and following extensive research believes there is a gap in the local market. The area he has chosen has a population of 2,400 people and the nearest fish and chip shop is over five miles away.

He has little experience of running a business and has been looking for information on what he needs to start one up. You have been working as a consultant for the company Fresh Business, which supports new small enterprises like this one.

Steve will be paying a small consultancy fee and in return you will provide him with the resources and materials he requires to understand the financial aspect of running a business.

In this assignment you will have the opportunity to provide evidence towards the following criteria:

P1 identify the difference between start up costs and operating costs, variable costs and fixed costs

P2 identify the different types of revenue

P3 outline the differences between gross and net profit

M1 explain the importance of costs, revenue and profit for a business organisation


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Assessment Pack

● What are fixed, variable and total costs?

● What is revenue?

● What is gross and net profit?

Guidance

For each section you should also explain why each factor is important for a business and what would happen if they didn’t have them.

You can use websites such as www.smallbusiness.co.uk or www.businesslink.gov.uk to help with this task.

Useful sources of information

Student Book pages 68-71 may be useful for Task 1.

Your tutor will have a list of sources of information that you can use for this assignment

Evidence checklist

TASK 1 a booklet about business finance


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Assessment Pack

A2 Break even BTEC Level 2 Business, Unit 1 Business Purposes

Scenario

You have been working as a consultant for a company called Fresh Business, which supports new small enterprises.

Steve, a local entrepreneur, has identified an opportunity in his area to set up a fish and chip shop. He has previous experience of working in the catering industry and following extensive research he believes there is a gap in the local market. The area he has chosen has a population of 2,400 people and the nearest fish and chip shop is over five miles away.

Steve has followed your advice from the ‘Business Finance… The Basics’ booklet and has begun trading. However he isn’t sure if he is going to make a profit, loss or just break even. He has asked you to come up with a graph to show the figures he has given you and two suitable selling prices for his fish and chips. He can produce up to 5000 portions of fish and chips per month.


P4 calculate the break even using given data to show the level at which income equals expenditure

P5 present the break even as an annotated graph showing break even

M2 demonstrate the impact of changing cost and revenue on the break-even point of a selected business

TASK 1 − Chart of government role P4 Using the information provided below, create a break-even graph.

Costs Selling price

Raw materials for fish and chips per portion – £2.50

Fish and Chips selling price 1 – £5.00

Utility bills per month – £700 Fish and Chips selling price 2 – £6.00

Insurance per month – £400

Salaries per month – £2,000

Lease on the premises per month – £1,500

Loan repayment per month – £1,200




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Assessment Pack

Advertising per month – £200

Paper for wrapping the fish and chips per portion – £0.30

Sauces per portion – £0.20

Once you have created your break-even graphs you must show this to Steve in the form of a fact sheet. This will outline what the graph is showing him. You need to annotate each part of the graph and give a brief description of it.

After six months of trading Steve has come back to you with some revised figures. The price of his raw materials has increased by 50 per cent and he has had to double the amount he pays for his salaries. In addition to this his insurance company has increase his premiums by a further £200 per month. He predicts he will have to increase the selling price of his fish and chips to £6.50 and £8.00. Using this new data calculate the changes in the break-even point and create two new graphs for him. Include these two graphs (and the original ones) in a supporting document that explains what these changes are and the impact they may have on the business.


Student Book pages 41, 76 − 82 may be useful for Task 1.

Your tutor will have a list of sources of information that you can use for this assignment.

Evidence checklist

TASK 1 break even graphs for the original and revised figures

a supporting document explaining the graphs and changes made


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Assessment Pack

A3 Cash flow forecast BTEC Level 2 Business, Unit 1 Business Purposes

Scenario



You have previously created a booklet for Steve, called ‘Business Finance… The Basics’ and a graph with break-even charts using financial information that he had provided you with.

As these figures are estimates, he now wants you to show him when he is likely to have good and bad months.


P6 prepare an annual cash flow forecast using monthly data

M3 analyse the implications of regular and irregular cash inflows and outflows for a business organisation

TASK 1 − Creating a cash flow forecast D1

As you know, Steve is not very good with figures and has just listed them on a scrap of paper for you to work out.

a) You need to use them to create a cash flow forecast for twelve months of trading.

Opening balance for the year – £10,000

Forecast sales January – £17,000 Forecast sales September – £11,000

Forecast sales February – £19,000 Forecast sales October – £18,000

Forecast sales March – £18,000 November – £21,0000




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Assessment Pack

Forecast sales April – £15,000 Forecast sales December – £22,000

Forecast sales May – £11,000 Loan from the bank in January 15,000

Forecast sale s June – £8,000 Gas, Electric and Water bills £700 per month

Forecast sales July – £6,000 Raw Materials £10,000 for January to April

Forecast sales August – £8,000 Raw Materials £12,500 for October, November and December Raw Materials £2,500 for the remaining months Insurance £600 per month

Salaries £4,000 per month Lease for the premises £1,500 per month

Loan repayments £1,200 per month from February onwards

Advertising £200 per month

New cooking equipment £20,000 in November Delivery van £8,000 in May

Fuel for the van £200 per month from May onwards

b) In addition to providing the cash-flow forecast you also need to analyse the cash flow.

Guidance

Working through each section of the forecast, show the impact the income and expenditures could have on the business. By identifying the months when there are likely to be cash-flow issues you will be able give some examples of how they could be avoided.

This can be also demonstrated through an alternative cash-flow forecast, which shows how the business could avoid some of the less favourable months.

Make sure your analysis looks at both the regular and irregular inflows and outflows of the fish and chip shop. Explain to Steve the changes you have made to his cash flow and analyse the impact poor or negative cash flow could have on his business.

Steve has made it clear that he doesn’t understand finance and you need to show him that his business could go bankrupt due to cash-flow problems, despite the fact it appears to be making a healthy profit.


Student Book pages 83−87may be useful for Task 1.

Your tutor will have a list of sources of information that you can use for this assignment.

Evidence checklist

TASK 1 a completed 12-month cash flow forecast

an analysis of the 12-month cash flow forecast

a revised 12-month cash flow forecast


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Assessment Pack

A4 An evaluation of break even and cash

flow forecasts BTEC Level 2 Business, Unit 1 Business Purposes

TASK 1 − Understanding Business Finance D1 For this task you must create two fact sheets that evaluate break-even analysis and cash-flow forecasts. This needs to cover both the positive and negative aspects of both. Use diagrams similar to those you have already created to demonstrate your evaluation. Make judgements on these examples to show Steve the difference between the uses and limitations of break-even and cash-flow forecasts. This should be created using your knowledge of both methods and should include diagrams to explain your evaluation.

Guidance

At the very least you should consider the following points:

● Why is break even useful for businesses?

● How can businesses use break even to benefit them?

● What are the limitations when using break even?



Scenario



You have previously created a booklet for Steve, called Business Finance… The Basics, a graph with break-even charts using financial information that he had provided you with and also shown him when he was likely to have good and bad months.

Steve is now ready to move his business forward without your support, but has asked that you provide him with more details about the effectiveness and limitations of break-even and cash-flow forecasts.


D1 evaluate the importance of cash flow and break even for the effective management of business finance


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Assessment Pack

● Why should businesses take care when using break even graphs?

● Why is it useful for cash flow forecasts to be produced?

● Why should businesses be cautious when using cash flow forecasts?

● What are the limitations when using cash flow forecasts?

Remember to brand your fact sheets with your Fresh Business logo.


Student Book pages 83 − 89 may be useful for Task 1.

Your tutor will have a list of sources of information that you can use for this assignment

Evidence checklist

TASK 1 two fact sheets evaluating cash flow and break even



Sample learner work and assessor commentsCommentary for tutorsSample learner work and assessor comments follow for the assignment A1 Cost, revenue and profit (P1, P2, P3, M1).

The learner work that follows is of a standard expected when a learner is achieving Merit criteria at Level 2. This standard is achieved because the evidence for P1, P2, P3 and M1 is thorough. However, this assignment only addresses some of the criteria for this unit (see the assignments listed on page xx). The other unit assignments would need to be completed before the learner’s work can be graded and an overall unit grade awarded.

This unit of work will be many learners first foray into the business finance. They are introduced to the key financial terms, break even analysis and cash flow forecasting.

The first sample of work is a purely written task which requires the learner to identify, outline and explain key terms relating to business finance. This particular sample covers:

Costs – start up, running, fixed, variable and total

Revenue – Sales, donations, sponsorship, loans and grants

Profit – gross and net.

The learner has identified and described these terms correctly and in sufficient detail. Where necessary they have included the formula required to calculate them.

The learner has demonstrated how to calculate the break even formula using both a graph and the formula. The graphs have been calculated using a spreadsheet and demonstrate the learner’s understanding of the calculations. These are supported with a handout providing more detailed information, such as the margin of safety, break-even point, profit and loss.

Centres can adapt this unit of work by adjusting the figures set out in the assignment brief. The result could be simpler or more complex figures for the learner to dissect and incorporate in their work.

Sample learner work for A1 Cost, revenue and profit

Business Finance … The Basics

An introductory guide for new businesses2010 Edition

Fresh Business


Unit 3 Financial forecasting for business BTEC Level 2 First BusinessAssessment Resource Pack


IntroductionStarting a business is a daunting task. We know how difficult it can be to understand the different terms so that is why we have created this booklet for you.

Within this guide you will find out information about costs, revenue and profit. We will look at what each term means and why they are important. Please remember this is not a complete guide to finance, just an introduction to the basics you will need to get you through the early difficult stages.

CostsThere are many different costs associated with running a business. These can include: • Start up costs• Running costs• Fixed costs • Variable costs

This section will look at each one and tell you what they mean and give you some examples of each one. It will also include some examples of each one.

Start-up and Running CostsStart-up costs are costs that a business has to pay when they begin. They are not usually paid on an ongoing basis.

These can take a large chunk of your initial budget and you must watch that they are monitored and kept under control at all times. Whereas running costs are the day-to-day expenses that a business has to pay. These will usually be paid on a weekly or monthly basis depending on the agreement. As with start-up costs it is important that accurate records of these are kept so that you don’t overspend. If they are not kept then the business could find itself insolvent (out of money) and unable to exist.

Start-up costs include the fixtures and fittings for the business. This can mean shelving, furniture for display cabinets. Also included in this is the deposit for a premises or store. Other costs can include the forming of the company or the setting up of a website and computer system.

Running costs include the wages and salaries of staff, the purchasing of stock and the paying of utility bills such as gas, electricity and water.

Fixed, Variable and Total CostsFixed Costs

These are costs that have to be paid by the business and are not dependent on the output of the business. It is important that fixed costs are paid in the agreed time otherwise a business will have a bad credit rating which

Assessor’s comment: This is a good introduction which is written in the correct context. It includes a summary of the contents.

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could affect future requests for borrowing money or purchasing goods.

Also suppliers like their customers to pay for their goods and services on time and it will look good if you keep up regular payments.

To calculate the fixed costs you must add them all up.

Some fixed costs are also running costs. These include rent payable for a premises or store and utility bills. However they can also include payments for advertising and salaries. Salaries are not dependent on the number of hours worked and are agreed annually, but paid monthly.

Variable CostsThese are costs which change depending on what you produce. This could be the number of products you make and sell or the amount of stock you purchase. Variable costs change from week to week and month to month, while fixed costs will usually stay the same each month or year. If you have a large surplus of one item you stock then you don’t need to keep buying more of it. This means that the costs will change.

Variable costs include items such as stock and bonuses. If you have a really good month then you may want to reward your staff with a party or a bonus. This wouldn’t happen every month so therefore becomes a variable cost.

With stock it can depend on sales in the previous week or month. For example if you have a seasonal product then you may need more during certain times of the year.

To calculate variable costs you must add them up and then multiply the amount by the quantity made.

It is important not to overstock your business as products which have a use-by date could be wasted and thrown away. The same with if you have a product that is fashionable, it may be in one week and not next one. If you overstock you are left with items you have to probably sell at a loss.

Total CostsTotal costs are all the costs a business has to pay. This is the variable costs added to the fixed costs. This is important and is used when calculating break even.

RevenueRevenue is money that is coming into a business. This is usually made from sales, but can also be from donations, sponsorship, loans or grants.

SalesThis is money that comes in when an item is sold. Businesses aim to increase their sales so that their revenue increases.

Assessor’s comment: P1, A good clear description of the costs of a business.

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DonationsThis is when organisations or people hand money over to you. It normally the way in which charities make their ‘sales’.

SponsorshipIf you have a successful product then other companies may want to be associated with you. They will pay you money in order for you to promote their business.

LoansThis is when you borrow money from a bank, building society or other financial institution. This will have to be paid back over an agreed time with interest.

GrantsThese are handed out to businesses and other organisations. They are not expected to be paid back. The Prince’s Trust give grants to new businesses started by young people.

Total revenue is calculated by multiplying the selling price by the quantity sold.

Revenue is important for businesses as without it they will not be able to pay their costs. For businesses to succeed in the long term they should have higher revenue than they do costs.

ProfitThere are two different types of profit gross and net.

Gross profit is the profit made by the business after the variable costs have been taken out. These are the costs of making the product or delivering the service and are not all of the costs to a business. To calculate this you take the total revenue and minus the total variable costs. Gross profit is different from net profit as it doesn’t include some of the costs.

Net profit is the amount of profit made after all costs such as rent and salaries have been paid. It can be both before and after tax. To calculate the net profit you take the gross profit and minus the fixed costs.

Profit is important for a business. It maybe so that they can share it with the investors of the business, this is known as a dividend. Another reason why it is important is that businesses can use it to expand and grow in new parts of the country or world. Without making profit you will not have a successful business.

We hope you find this leaflet useful how if you need any more information then contact us on 0110 444 1234

Assessor’s comment: P2, You have covered a good range of sources of revenue for a business.

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Assessor’s comment: Well done Tom you have met the criteria for P1, P2 and P3. A very good piece of work which covers the costs, revenue and profit of a business.

Assessor’s comment: P3, the difference between gross and net profit have been outlined.

Assessor’s comment: Both gross and net profit have been covered.



Assessor’s comments

Qualification Edexcel BTEC Level 2 Certificate, Extended Certificate and Diploma in Business

Assessor name Peter Brown

Unit number and title Unit 3 Financial Forecasting for Business Learner name Tom Smith

Assignment A1: Cost, revenue and profit

Criteria reference

To achieve the criteria the evidence must show that the learner is able to:

Achieved?

P1Identify the difference between start up and operating costs, variable and fixed costs

Yes

P2 Identify the different types of revenue Yes

P3 Outline the differences between gross and net profit Yes

M1Explain the importance of costs, revenue and profit for a business organisation

Yes

Learner feedback

This unit of work has given me a good introduction into finance for a business. I now know how to calculate costs, revenue and profit for businesses. I can also create a break even graph both on paper and using the computer. The computer is easier to use if you want to make any changes to the graph as you don’t have to draw it out over and over again. The same goes for the cash flow. This is easier to do on the computer because if you make a mistake you can simply change it whereas if you make a mistake on paper you have to rub it out and start again. I have also learnt how to write a report for a business. My analysing and evaluating skills have also improved during this unit. I have enjoyed doing this unit as it included a lot of practical tasks.

Assessor feedback

Tom has created some good resources for Steve and Fresh Business. His leaflet is clearly laid out with the relevant sections required for P1, P2 and P3. He has also included M1 within his leaflet. His break-even graphs are effective and he has clearly labelled them in the supporting document. The cash-flow forecast covers all of the information laid out in the assignment brief and he has calculated this correctly. The report is a detailed analysis of the cash flow and the implications that arise from it.

Action plan

Continue to read generally around this subject and build on your excellent work. Remember to check your grammar after you’ve submitted.

Assessor signature Peter Brown Date 4.11.2010

Learner signature Tom Smith Date 11.11.2010

Download - BTEC First Business – BTEC Level 2 First Business, Unit 3 Assessment Resource Pack

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