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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Direct Costs
Initial Stock & Material £ -
Add Purchases £ 71,000.00
Less Year End Stock £ -
Sub Contract Labor £ -
Gross Profit £ 549,402.36
Overheads:
Wages/Sub Con. £ 87,300.00
Rent & Rates £ 97,820.00
Light/Heat/Power £ 15,590.00
Telephone £ 3,600.00
Stationery £ 3,900.00
Insurance £ 10,500.00
Advertising £ 10,500.00
Repairs/Renewals £ 13,680.00
Motor & Travel £ 47,100.00
Consumables £ 31,901.83
Accountancy/Legal £ 54,000.00
Loan Repayments £ 48,000.00
Bank Charges £ 1,690.00
Depreciation =
Other Expenses £ 105,000.00
Total Overheads £ 530,581.83
Pre - Tax Net Profit £ 18,820.53
Add Non Trading income £ -
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New Business Support £ 228,762.75
Less Personal Drawings £ 7,340.00
Profit Surplus £ 240,243.28
The above calculated table is showing that their net margin will be of 240243.28 pounds at the
end of year. This is indicating that, above business will be in favor in upcoming time period if
they will keep their cost below the entered value in above profit and loss statement.
For better analysis, some ratios are calculated which are as follows:
Gross margin: Gross profit/net sales *100
Particulars Amount
Gross profit 549402
Net sales 620402
Calculation 549402/620402*100
Gross margin 88.55%
Interpretation: from above calculated value of gross margin this can be stated that company’s
gross margin is around 88.55% which is excellent. The cause behind this effective performance
is lower expenses on sales.
Net margin: Net profit/net sales*100
Particulars Amount
Net profit 240,243
Net sales 620402
Calculation 240243/620402*100
Net margin 38.72%
Interpretation: The above calculation is showing that company is generating effective value of
net margin that is of 38.72%. It is indicating that company is able to keep their overall expenses
below sales margin. In order to maintain consistency in net margin, above company have to
control their expenses.
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Quantitative and analytical techniques
Every organisation whether small or big would analyse and collect more and more
information using analytical method as this help in grabbing information in a consistent and fair
manner. The top management of Aldgate East would analyse the break even point and take
several measures so as to improve the overall financial performance which accelerate the greater
efficiency and help in attaining their targets in a short span of time.
Break even analysis plus cash flow statement
Both cash flow statement as well as break even analysis play a vital role in an
organisation as it helps in depicting the financial status of a company which provide an
enormous growth and help in managing and carrying overall business activities in a
predetermined manner (Hodges and Link, 2019). The cash flow would help in providing the
information about the availability of funds and involve inflow and outflow of cash in managing
day to day operations of a company. The break-even analysis would help in facilitating decision
as it depict a situation in which there is no profit and no loss situation.
P7 Discuss legislation and regulations that have impact on small business
It is necessary that small and medium enterprises must abide all rules and regulation
which ensure fairness and transparency in a corporate world. In relation to Aldgate East, some
laws and legislations are presented below:
Data protection act: This legislation focuses on providing protection towards personal
details of employees such as their contact number, email id, and other privacy information. The
management of respective firm would ensure that there is protection towards the details of
employees as it should not be leaked because this affects the image of a company.
Health and safety laws: This law emphasise on protection of health among the workers
and provide them with proper working environment (Kijanka and Lipska, 2020). There are also
other laws that state that by providing consumers with protection and good health, a business
should comply with the standards of safety and wellness. This inspires workers and makes an
individual feel good about their workplace safety. It also helps support the organisation's clients
by providing services and incentives.
Record keeping: It is important regulation because it offers information by management
to support decision making process and it is usually needed by statutory retention criteria. Paper
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records, digital records, communications (such as letters, faxes and e-mails) and information
used in company systems and services can be registered. This regulation helps the Aldgate East
to store their data at single place and used it, whenever it required by the managers to
management to formulate any business strategy in respect of the organization to get successes.
Tax and employment: Under this regulation, individual has to pay tax on their annual
income as well as in the organization, employees also has employment right. Employment law
introduce in order to save worker’s right in the workplace. This law extends to taxes and careers
wherein executives are expected to pay tax on the taxable income they have received. It affects
charity-based social care and is actually offering work opportunities.
Cyber-security measures: In order to compel businesses and organisations to secure
their networks and data from cyber-attacks such as malware, worms, phishing, Trojan horses,
denial of service (DOS) attacks, unauthorised access, a cyber-security regulation provides
directives that safeguards information technology and computer networks. To avoid cyber-
attacks, there are various steps available. Cyber safety measures involve firewalls, programmes
for detecting and preventing intrusion, anti-virus software, encryption and passwords for logging
in. In order to facilitate voluntary changes to cyber-security, efforts have been made to enhance
cyber-security by legislation and joint initiatives between private sector and government sector.
CONCLUSION
From the above information, it is analysed that business environment in which a company
operates its operation is dynamic so the manager of a firm highlights on maintaining proper
relation with customers and build their trust which raises productivity. Various financial
statement and balance sheet plus cash flow position is also provided in this report which provides
financial information about the company.
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REFERENCES
Books and Journals
Crane, A., and et.al., 2019. Business ethics: Managing corporate citizenship and sustainability in
the age of globalization. Oxford University Press, USA.
Esmerova, E., 2020. MANAGER CORPORATE GOVERNANCE AND BUSINESS MODEL.
ANGLISTICUM. Journal of the Association-Institute for English Language and
American Studies, 8.
Galyer, J., 2019. Managing business like a boss 2019. Professional Beauty, (Jan/Feb 2019), p.34.
Ghasia, B.A., Wamukoya, J. and Otike, J., 2017. Managing business records in small and
medium enterprises at Vigaeni ward in Mtwara-Mikindani municipality,
Tanzania. International Journal of Management Research and Reviews. 7(10). pp.974-
986.
Hickman, C.R. and Silva, M.A., 2018. Creating excellence: Managing corporate culture,
strategy, and change in the new age. Routledge.
Hodges, N.J. and Link, A.N., 2019. Innovation by design. Small Business Economics. 52(2).
pp.395-403.
Kijanka, E. and Lipska, K., 2020. The More Aging, The More Managing?: Examples of Senior
Entrepreneurs and Managerial Practices in Poland. In Senior Entrepreneurship and
Aging in Modern Business (pp. 115-129). IGI Global.
Long, T.B., Iñigo, E. and Blok, V., 2020. Responsible management of innovation in business. In
Research Handbook of Responsible Management. Edward Elgar Publishing.
Miller, B., 2020. Weekend warriors: Managing an understaffed workforce in a crisis. SAGE
Publications: SAGE Business Cases Originals.
Mitchell, D.L., 2020. The" R" factor: perceptions of retirement as a consideration in small
business owner succession planning.
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