Comprehensive Report: Managing and Running a Small Business

This report provides a comprehensive analysis of managing and running a small business, focusing on key financial aspects. It begins with an introduction outlining the report's objectives, followed by a detailed examination of cash flow forecasting, including equity finance, bank loans, and planning techniques. The report then delves into break-even analysis, explaining its benefits and providing a practical calculation example. Further, the report interprets financial statements, including income statements, balance sheets, and cash flow statements, with detailed interpretations and ratio analysis. Quantitative and analytical techniques are discussed, emphasizing the importance of cash flow statements and break-even analysis in financial management. The report concludes with a discussion on relevant legislation and regulations impacting small businesses, such as the Data Protection Act and the Health and Safety at Work Act. The report aims to offer practical insights and recommendations for local businesses seeking to improve their operations, drawing on a scenario where Aldgate East provides suggestions to local business communities.

Managing and
Running a Small
Business
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Table of Content
Contents
INTRODUCTION...........................................................................................................................3
Main Body.......................................................................................................................................3
P1 Covered in brochure ..............................................................................................................3
P2 Covered in brochure...............................................................................................................3
P3 covered in brochure................................................................................................................3
P4 Provide a monthly cash flow forecast by showing both fixed and variable cost which is
related to income..........................................................................................................................3
P5 Explain Break even analysis in relevance of company..........................................................5
P6 Interpretation of financial statements.....................................................................................7
Interpretation..................................................................................................................................11
Interpretation..................................................................................................................................12
P7 Discuss legislation and regulations that have impact on small business..............................15
CONCLUSION..............................................................................................................................15
REFERENCES .............................................................................................................................16
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INTRODUCTION
There are different objectives of an organisation to operate within market but one common
objective that every business owner has is to earn profit. Small scale businesses are the one that
contribute a lot in development of nation as these are the one that offer employment to people
and also come up with innovative products and services. This report is based on scenario in
which Aldgate East is providing suggestions to local businesses communities for running a
successful business. This report includes monthly cash flow forecast, Break even analysis and
legislation and regulations that have impact on small business.
Main Body
P1 Covered in brochure
P2 Covered in brochure
P3 covered in brochure
P4 Provide a monthly cash flow forecast by showing both fixed and variable cost which is
related to income
Statement which consists information about all inflows and outflows of cash of specific
time period is known as cash flow statement. This statement support organisation in decision
making activity. Various sources of cash flow forecasting are given as follows:
Equity finance: This is most commonly type of finance which is used by several
companies as they tend to raise funds by selling of company’s shares. There are varied reasons
that company would not able to sold its share but main reason is that it is operating at small scale
and possess very limited market value which does not allow to minimise its profitability. So,
another best alternative which is considered by the management of small business enterprise is to
obtain funds its friends or relatives and so on.
Bank loan: This is one of the popular methods which is used by small business enterorise
to raise finance as it involves proper and systematic procedure and is very easy to understand
(Miller, 2020). They provide financial assistance by provide loan to small enterprises in return
for interest which is paid for a particular period of time.
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Planning, budgeting and forecasting: These are three significant aspect which help
company to make an effective financial planning regarding future as it is uncertain. Making
planning regarding the investment of funds so that they could use it optimally. Forecasting is
necessary as it involve several predictions which facilitate proper decisions so that they could
ensure growth in a best possible manner. This provide assistance in preparing budgets by
estimating future and make a decision of long-term schemes. The several methods of planning,
budgeting and forecasting are as follows:
Measure moving average: This tool and technique would aid the company to collect and
gather sources of information which provide a better picture of a company. In a dynamic
environment, changes are taken place rapidly which provide business opportunity. This aspect
would help the company to determine the current position of a business enterprise (Esmerova,
2020).
Time series data as well as other details: This method is more valid as it involves the
preparation of production schedules in a respective time period. Other uses of this technique are
that it helps in proper implementation of planning by allocating the time carefully and the
management of concerned firm provide information by analysing budget so that best and great
decision could be taken.
Hence, above mentioned tools could be applied by as they could make proper financial
planning and emphasise on maximising revenue by assessing the availability of resources so that
they could enhance the greater efficiency. For maximising profitability, company would decide
course of action which provides excellent growth as it also helps in making best use of resources
in an appropriate manner.
Cash flow Statement
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Cash flow forecasting for 12 months:
Interpretation: From above prepared cash flow forecasting table, this can be find out that in the
initial months’ company might net deficit of cash which can start to decrease month by month.
Such as in month one the loss can be of around 9660 Pounds which will fluctuate till month 6
and can become net surplus of 144 pounds in month 7. After month 7, company’s net surplus
may start to increase and they may have ended up with net surplus of cash of 66100 pounds in
month 12. The reason behind negative margin of cash can be higher cash payments as compared
to cash receipts.
P5 Explain Break even analysis in relevance of company
This is a tool which assists a firm to determine a particular point where there is no loss no
profit for the company. In other words, it is a relationship between fixed and variable cost and
other expenses at a desired level of output.
Fixed cost are those which remain fixed and does not vary with the level of output while
variable cost is those which changes over a time period as due to changes in price of raw material
and labour and other factors. Several benefits of break-even analysis are depicted as follows:
 It aids in measuring the profit or loss at varied point of production and sales in a different
time period.
 It depicts a relation between two types of cost that is fixed cost and variable cost.
 It helps in making forecasting when there are changes takes place in cost and sales price
which affect the overall activities of a company.
Calculation of break-even point: The new business managers would consider the following
break even analysis while starting new business.
Break even quantity= TFC/ (P -AVC)
TFC= Total fixed cost
P= Price
AVC= Average variable cost
The calculation of break-even point is presented below by using practical example which
help in making easily understandable of such concept. As the amount of fixed cost is 40,000,
selling price is 18 per unit and the average cost per unit is given as 9 per unit.
Break-even point = TFC/ (P -AVC)
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= 40000/ (18-9)
= 4444.45
Graphically, the break-even point is depicted as follows:
Financial Analysis
Sales £ 620,402.36
Variable Costs £ 71,000.00
Fixed Costs £ 530,581.83
Drawings £ 7,340.00
Variable Costs as a percentage of Sales 11 4/9
Contribution Margin 89
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Break Even Sales Value £ 599,149.63
Survival Sales Volume £ 607,438.19
Analysis: From above prepared table of breakeven calculation, this can be find out that break
even sale is of 599149 pounds which is indicating that at this level, above company will not face
any kinds of loss or may gain any profit. In the context of above organization this concept can be
applied in accordance of computed value. In other words, above company needs to focus that
they have to produce sales till 599149 so that they can cover their cost. Below this value, they
will face loss or above this value will be considered as net margin.
P6 Interpretation of financial statements
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Interpretation
It can be comprehended that balance show a true financial status of a business as in this
total asset and total liabilities are equal. The preparation of financial statement would help the
company to determine its overall position as it is prepared yearly and help them to compare their
performance in relation of previous year (Ghasia, Wamukoya and Otike, 2017). They could also
get the idea about the availability of funds and expenditure incurred which improve the overall
efficiency and improves the profit margin. Firm earns profit which is approximate to 16.06% on
the other hand operating margin is clearly around 2.88% which provide an analysis that company
is having good financial position in a marketplace as its positive result help them to gain
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competitive environment. Hence, the company would focus more on expansion at a global
market in order to enhance greater market coverage.
Income statement
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Interpretation
The above cash flow statement depict that the cash generated from operating activities is
961500 while the negative cash and cash equivalent create a negative overview of company as
more cash is used in investing and financing activity.
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Interpretation
It can be observed that company incur more expenditure as operating cost is
approximately 961500 and cash is used in investing activities which is 25606 while the financing
activity provide a positive balance which is 25641.
Profit and Loss Account
Sales including Debtors £ 620,402.36
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