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Finance department: Finance department The Costs of Starting a New Company: When a club starts up for the first time or launches a new product it has to work out carefully the costs involved. It also has to look at the money it will receive from our sale of the new product. The club will then be in a position to decide whether or not to go ahead and this will depend on whether it can cover its costs. A club starting up for the first time or launching a new product will need to plan what resources we needs, e.g. new staff, new premises, new till machine and all these involve an added cost for the business. Some costs are off start-up costs e.g. premises and machinery. Some costs are day to day running costs e.g. wages, advertising, and rent. Starts up costs When starting a club for the first time, or when it expands, I need to plan what will need to get going first for example. Premises we can rent the premise, which is cheaper in the short term. Machinery and Equipment the business may need machinery, such as computers, photocopiers, and delivery vans. Also we can rent if we don’t have the cars. Market research and advertising, time and money can be spent in market research finding out the questionnaires and interviews whether the new business idea will sell. People will need to be hired to do this if necessary and this will cost money. Any new product will also need effective promotion and advertising, which can be expensive. Running costs for the new business The start-up costs we have just looked at, there will be a wide variety of running costs that a new or an expanding our club business that we need to think about. It is important to know the difference between running costs and start-up costs. For example if you think of buying a new radio. The start-up costs are the price of the machine; the running costs are items like batteries, which you buy from time to time to keep it playing. Running costs in a business are normally estimated for the period of a year. Types of running cost Running costs for each of these areas Production goods bought by a shop to sell to our customers, air fares and hotel charges for travel and food for restaurants. Sales and marketing, make sure that the right products reach the right customers in the best possible way, advertising, getting customer feedback, providing customer care. Human resources, the cost of employing staff, e.g. wages, recruitment costs, staff perks, training, Health and safety (making sure people are safe at work). Finance The finance cost of running a club, paying interest to the bank if money is borrowed, bank charges, paying accountants fee. Administration, The day to day costs of running the club insurance, rent, rates, power, stationary, telephone bills and postage etc. THE DESCRIPTION OF BUSINESS TYPE OF RUNNING COST PRODUCTION OR SALES & HUMAN SERVICE TYPE OF OPERATION MARKETING RESOURCES FINANCE ADMINISTRATION EXPENSEA $ $ $ $ $ Finance Manager: Plans, records and monitors the flow of money in and out of the business. The financial cost to run the business, paying interest to the bank if money is borrowed, bank charges, paying accountants’ fees, Paying all the workers, Financial documents must be completed accurately to avoid expensive mistakes and loss of business. TOTAL COSTS FOR THE FIRST YEAR: $ PREMISES PURCHASED $ ELECTRICITY BILLS $ OFFICE ADMINISTRATION COSTS $ EQUIPMENT PURCHASED $ FURNITURE PURCHASED $ RATES $ FUEL $ INSURANCE $ WAGES $ INITIAL MARKET RESEARCH FOR BUSINESS $ LAUNCH CARS AND VANS PURCHASED $ INSURANCE FOR CARS AND VANS $ ADVERTISING DURING THE YEAR $ The finance department deals with all the financial matters in the business. The modern finance department has an extensive data processing system backed up by computers. The main functions of the finance department are: Obtaining financial information from different departments Recording financial information (this is commonly known as book – keeping). Working out payment of staff wages or salaries Providing information about the amount of money (capital) needed to run the business effectively. Analysing and interpreting financial information. Providing information about the business’s performance to teams and shareholders The activities within the finance department and its Responsibilities Raising invoices and obtaining payment for goods or services supplied to customers Making sure that invoices from suppliers match the goods or services that are supplied to the organisation Dealing with payments to suppliers Paying staff Dealing with debts Analysing the financial performance Providing financial information on business performance to managers and shareholders Arranging loans and additional finance for the business To decide on the business credit policy To ensure the effectiveness of the payroll system To make sure that outstanding bills are paid and money has been collected. To make sure that the business’s financial books are balanced and kept in order. To decide on the best method of obtaining finance for the business To ensure that the company’s activities are profitable Paying wages and salaries The finance department is responsible for the payment of wages and salaries. If employees are paid weekly, this is normally called a wage and if employees are paid monthly, this is normally called salary. Wage and salary are the returns (payment) for the people who work (Labour). Whether payment is made by cash, cheque or credit transfer to the bank account, the employee receives a pay advice. This is usually a slip of paper that is filled in by the wages section in the finance Department and often done by computer. Employees can see how much their gross pay is and what deductions there are. There are two different types of deductions: Compulsory deductions such as income tax and National Insurance Voluntary deductions such as union membership fees, contributions to company social club, private pension schemes, private medical schemes e.g. Medico or Cemas What employees actually receive is called net pay. This the amount of money left after deductions have been made. Key Terms Accounts: The financial records of a business that are used by manager’s owners, employees, creditors, and others to show how well the business is doing. Also one of the main functions of a finance department is to record and keep financial records (accounts) so that the firm can keep track of how money has come in and how much has gone out. This allows costs to be measured against revenue (income) so that it is possible to calculate levels of profits or losses made. The finance department also has to supply accounts to the revenue for tax purposes, and keep accurate records of all VAT (Value added Tax) for customs and excise. Another job of the Finance Department is to produce the annual report if the company is a public limited company. Management accounting One of the main functions of the finance Department is not only to obtain financial information, but also analyse this information. Also this analysis is important because it helps managers to make the right decision about the running of the business and find out how well the business is doing and helps them to make decisions about the business. For example the Finance Department keeps accurate records of all payments so it will be able to help the marketing department decide on prices. Gross Pay: Is the total amount that is earned by the employee before any deductions have been made? Income Tax: Money deducted from each wage or salary payment through the payee (pay as you earn) system. National Insurance: Is a weekly or a monthly contribution to the state welfare scheme (for example health services in Europe countries)? This is taken from each payment of wages or salaries. Both employer and employee make a contribution to the scheme. Net Pay: The amount of money an employee receives after deductions have been made for income tax, national insurance, and any voluntary contribution. Pay: The payment or reward for labour, providing its service usually compromising either a weekly wage or monthly salary. Payment System: A method of organising payments of employees, either time rate, or piece rate, and bonus if available. Salary: a type of payment to an employee where a certain sum is negotiated on an annual basis and is paid monthly, salaries are common for payment of highly earned workers. Tax: the compulsory contribution of money to the government. It is a major source of income to the government. Wage: the basic reward paid for the provision of labour as a factor of production. A wage is usually paid on an hourly or weekly basis.
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