Essential Business Finance and Management Concepts

Sources of Finance

Internal Sources

• Retained profit
• Sales of existing assets
• Reduction of stock levels

External Sources

Long-Term

• Shares
• Debentures
• Long-term bank loans
• Grants
• Leasing and hire purchase
• Medium-term bank loans

Short-Term

• Bank overdrafts
• Bank loans
• Creditors
• Debt factoring
• Trade credits

Profitability Ratios

Net Profit Margin

Formula: Net Profit / Revenue

This represents the percentage of revenue remaining after all expenses have been deducted from sales. It reveals the amount of profit a business extracts from its total sales.

Gross Margin

Formula: (Revenue - COGS) / Revenue

A profitability ratio that measures how much of every dollar of revenue is left over after paying the cost of goods sold.

Business Planning and Structure

Business Plan

A formal statement of business goals, the reasons they are attainable, and the strategies for reaching them.

Organizational Structure

The internal framework of a business. This includes workforce roles, job titles, decision-making hierarchies, accountability, relationships between positions, and internal communication protocols.

Leadership Styles

• Autocratic: The manager sets objectives, allocates tasks, and insists on obedience; subordinates are dependent on the leader.
• Democratic: Encourages participation in decision-making. This can be persuasive or consultative.
• Paternalistic: Similar to autocratic, but takes the well-being of subordinates into account.
• Laissez-faire: Allows employees to carry out activities freely within broad limits.

Research and Operations

Primary Research

Any type of research collected firsthand. Examples include surveys, interviews, observations, and ethnographic research.

Economies of Scale

Cost advantages obtained due to the size or scale of operation. The cost per unit of output generally decreases as fixed costs are spread over more units.

Stock Control

• Just in Time (JIT): A methodology aimed primarily at reducing flow times within production as well as response times from suppliers and to customers.
• Just in Case (JIC): A traditional model of production where products are created in advance and in excess of demand.