Introduction

Business Aims

All businesses have aims. These may include:

• Increased market share
• Higher turnover
• Benefit the wider community with an ethical approach
• Increase reputation/prestige
• Maximise customer satisfaction

Financial Aims

Perhaps the two most fundamental aims, however are:

• to survive
• to make a profit

Survival

The first aim seems fairly obvious but the number of businesses that do not survive is considerable. Many innovative and interesting businesses fail (go into insolvency) because they did not take care of their finances.

With poor management of cash, a business may quickly find that it has a liquidity problem - it does not have enough money to pay its bills and debts. In such a situation, the business may have to stop trading - it will not be able to survive.

Profit

If the study of business had a subtitle, it would be the study of how businesses use their resources in order to achieve their goals. It is also the study of how these businesses take risks.

Launching a new product involves risk. What if nobody buys it? What if the supplier you rely upon goes out of business? What if the government decides that people buying your product should pay a tax in order to do so?

Profit is the reward that owners and investors receive for taking the risk of putting their money into the business.

You could go and buy shares (invest) in a limited company. If you were buying your shares direct from the company (rather than from an existing shareholder who wanted to sell theirs), the company would be able to use your money to invest, perhaps by purchasing new equipment or buildings. The business will, you hope, make a profit (get more money from sales than it spent on costs) and will give you a share of its profit in the form of a dividend. NB sole traders and partners take a portion of the profit the business makes in the form of drawings.

What would happen if the business didn't make a profit and didn't pay a share of that profit to its owners? Well, would you invest in a business if you weren't going to make any gains? In most cases, answer would be 'no.' Sole traders and partnerships are unlikely to set up in business if they won't get a return and individuals are unlikely to buy shares (invest) in a company if they won't get a dividend.

An unprofitable business, therefore, has little chance of growing and is likely to risk failure in the long run.

Accounting

Accounting involves tracking the way the business has used its money and recording the details in specific documents - accounts. Limited companies have to do this by law and many other businesses do this as well because they find it a helpful way of analysing their situation.

In these pages, we will look at two specific types of accounts - the profit & loss account and the balance sheet - along with some of the tools (ratios) that can be used to analyse them. We will also look at how businesses use cash flow forecasts to predict their future cash needs and the sources of finance they can use to fund their activities. There will also be a look at how businesses create budgets.

Relax

The finance unit is not aimed at transforming you into an accountant and you do not need to be the world's greatest mathematician to do it. So long as you are comfortable with looking at a few numbers and capable of doing some basic arithmetic, you won't have any troubles.

The point of finance and accounting is that you will be able to look at some figures and diagnose any problems a business may be having, in the same way that a doctor can look at a patient's symptoms, recognise an illness and suggest a cure.

• You will be able to spot the winners and losers.
• You will be able to say why one business is 'wiping the floor' with its competitors and why another is disappearing 'down the toilet.'
• You will be able to evaluate decisions made by managers and you will be able to suggest improvements that can be made in the future.

About the Site

This site is aimed at supporting students taking GCSE Business Studies and is specifically tailored to address the CCEA/ICAA (formerly NDTEF) syllabus.

The introduction to each section contains the wording from the syllabus in bold, with key terms underlined.

The final section offers a set of tasks that could be adapted and used to meet the assessment requirements for the coursework option.

Tech Stuff

The Author