BUSINESS AND ORGANISATIONAL

ENVIRONMENT

Mr S M Chaitezvi
Faculty of Commerce
Department of Accounting and Finance
Email: [email protected]
[email protected]
Tel: 0772713331/0716784371
The module shall be split in to two
Section A
• INTERNAL BUSINESS ENVIRONMENT ANALYSIS
• Managing a Business
• Assessing Business Performance
 Qualitative
 Quantitative
 ENTERPRISE
Def:
 Is the driving force, provided by risk-taking
individuals, that combines the other factors of
production into a unit capable of producing
goods and services.
 It provides a managing, decision-making and
coordinating role.
 Classification of goods and services
 consumer goods – are the physical and tangible goods
sold to the general public – they include durable goods
such as cars and non-durable consumer goods such as
food, drinks and sweets that can be used only once
 consumer services – are the non-tangible products sold
to the general public – they include hotel
accommodation, insurance services and train journeys.
 capital goods – are the physical goods used by industry
to aid in the production of other goods and services
such as machines and commercial vehicles.
 Factors of production
•
1. land – refers to land itself and all of the renewable and
non-renewable resources of nature such as coal, crude oil
and timber.
• 2. labour – refers to the manual and skilled labour which
make up the workforce of the business.
• 3.capital – refers to the finance needed to set up a
business and pay for its continuing operations as well as
the man-made resources used in production– these include
capital goods such as machines, factories and vehicles.
• 4. enterprise (or entrepreneurship)
INTERNAL BUSINESS ENVIRONMENT ANALYSIS

• The internal environment generally consists of

elements that exist within or inside the organization
such as:
 Physical resources
 Financial resources
 Human resources
 Information resources
 Technological resources
 Organization's goodwill
 Corporate culture
 Formation of Businesses
(in Zimbabwe)

• Steps to the initial company registration

procedure in Zimbabwe include:
 Name Search and reservation
 Appointment of company directors.
 Appointment of company secretary(s)
 Registering of company addresses.
 Company incorporation.
 Forms of Business Ownership

 Private Business Corporation PBC,(sole trader)

 Limited liability companies (LLC)

 PBC,(sole trader)
• Def: is a business owned and operated by an
individual and is a business in which one
person provides permanent finance and, in
return, has full control of the business and is
able to keep all the profits.
• Most commonly established construction,
retailing, hairdressing or car-servicing trades.
 PBC
• A Private Business Corporation (PBC) is an
alternative type of business structure which is
popular with small businesses or home
industries and professionals who normally
operate as individuals such as lawyers,
doctors, architects but whose members
require limited liability
. The key differences between a PBC and a
PLC are:
• A Private Business Corporation does not have
any directors, shareholders or guarantors;
instead it has members.
• A Private Business Corporation can have 1
member and a maximum of 20; whereas a
Private Limited Company should have at least
2 directors the maximum being 50.
• PBCs are governed by the Companies and
Other Business Entities Act (Chapter 24:31)
 Advantages
• Independent in decision making.
• Fairly easy and inexpensive to set up – no
legal formalities.
• Quick decision making – hence, flexible
enough to adapt to changes in the market.
 Advantages Cont
• Owner has complete control for he is not
answerable to anybody else
• Enjoys privacy – no trade secrets are given
away or published
• owner is able to choose times and patterns of
working
 Advantages Cont
• A Private Business Corporation allows 1
member (1 director and 1 shareholder)
• A Private Business Corporation profits are
shared between all members.
• Private Business Corporation members can be
resident anywhere in the world – there is no
requirement for members to be Zimbabwean
residents.
 Advantages Cont
• can establish close personal relationship with
staff, customers and suppliers.
• hard work is rewarded by personal profits and
mistakes by losses hence, he works hard to
increase profits and minimise costs.
• business can be based on the interests or skills
of the owner, rather than working as an
employee for a larger firm – which is less
rewarding
 Disadvantages
• Unlimited liability – the owner’s personal
possessions and property can be taken to pay
off the debts of the business, should it fail – so,
all of the owner’s assets are potentially at risk.
Quality of decisions increase with more
information – this may not be forthcoming
since the sole trader does not consult anyone –
hence, poor quality decisions.
 Disadvantages
Lack of continuity – as the business does not
have a separate legal status, when the owner
dies the business ends too.
Often lacks working capital since it is difficult to
raise additional capital – hence, limited
chance of expansion
 Disadvantages
long working hours often necessary to make
business pay – one may succumb to the strain
Owner is unable to specialise in areas of the
business that are most interesting – is
responsible for all aspects of management
 Partnership
• Is a business formed by two or more people
(usually up to twenty) to carry on a business
together, with shared capital investment and,
usually, shared responsibilities.
• Normally formed to overcome some of the
drawbacks of a sole trader
• Each member acts as an agent of the
partnership thus, partners are jointly and
severally liable
• Most common in provision of services e.g.
doctors, lawyers, accountants etc
• NB*Partners normally draw up a Deed of
Partnership (although it is not a legal
requirement) to provide agreement on issues
such as:
• Voting rightS
• Distribution of profits
• Management role of each partner
• Who has authority to sign contracts
• salaries and wages to be paid to each member
(where appropriate)
• the manner in which the partnership can be
wound up or terminated
 Advantages
 Can raise more capital through additional
capital injected by each partner
 Quality decisions are made since decision
making is consultative (i.e. shared decision
making)
 Greater privacy and fewer legal formalities
than corporate organisations (companies)
 Partners may specialise in different areas of
business management
 Business losses are shared between partners
 No obligation to publish accounts hence, trade
secrets are not given away
 A partnership does not lack imitativeness and
ideas since new partners bring more money
and ideas
 Disadvantages
 Unlimited liability for all partners (with some
exceptions where some partners have limited
liability).
 Decision making is consultative hence, can be
time consuming.
 Conflicts and disagreements may lead to
winding up.
 Profits are shared.
 The organisatsation may discontinue due to death
of a key partner – there is no continuity since the
business has to be reformed if one partner dies.
 All partners are bound by the decisions of any one
of them.
 New partners may take too long to settle down.
 There is a risk that partners may not be able to
work together at a personal level.
 Limited Companies

 A company is an artificial person (juristic persona)

formed by natural persons with the objective of
making a profit.
Important terms
A shareholder is a person or institution owning
shares in a limited company.
A share is a unit of investment confirming part
ownership of a company and entitling the
shareholder to dividends and other shareholder
rights.
 Characteristics
 Is a regarded as a separate legal entity (legal
personality) i.e. separate from its owners and
independent of its directors
 Capital is raised by selling shares to the external
world.

 Can sue or be sued in its own name (can own assets

e.g. land)
 Characteristics
 Shareholders enjoy limited liability
 Members buy shares
 Shareholders hold annual general meetings
 Must have a memorandum of association
 Characteristics

 There is separation of ownership and control

of the business.
 The day to day activities of the firm is in the
hands of the board of directors of the
business.
 Characteristics
 The company prepares the memorandum of
association together with the articles of
association and submits them to the registrar
of companies for approval.
 The registrar of companies then issues a
certificate of incorporation.
 Must have an articles of association
 Must be registered with the Registrar of
Companies
 The board of directors of the business is
elected by the shareholders at an annual
general meeting.
 Differences between companies and other
‘unincorporated’ business Organisations

• Limited liability – people buy shares to

become shareholders (i.e. part owners of the
business). – All shareholders enjoy the
advantage of limited liability.
– Limited liability means
that the only liability (or potential loss) a
shareholder if the company fails is the amount
invested in the company, not the total wealth
of the shareholder.
 Differences cont
• Legal personality – a company is recognised by law
as having a legal identity separate from that of its
owners – this means that it can sue or be sued in a
court of law e.g. if foods sold by a company are
found to be dangerous or contaminated.
• Continuity – in a company, the death of an owner
or director does not lead to its break-up or
dissolution – ownership continues through the
inheritance of the shares, and there is no break in
ownership at all.
 Raising of capital and sources of finance
This done through the following ways:
 Selling of shares privately to invite individuals
 Ploughing back profits from the business.
 Obtaining loans and overdrafts from banks
 Obtaining mortgage finance
 Obtaining trade credits
 Buying on higher purchase from finance houses
 Leasing of assets
 Debt factoring.
 PRIVATE LIMITED COMPANIES

• Characteristics
 Is formed between 2-20 members.
 It is governed by the companies act.
 Involves complex legal formalities required to
set up the business.
 Must be registered through the issue of
certificate of incorporation by the registrar of
companies
 CONTROL AND MANAGEMENT
 Name of the company ends with PVT LTD.
 The business is a separate legal entity i.e.it
exists as a legal person independent of its
owners.
 It is owned by shareholders.
 CONTROL AND MANAGEMENT

 It is controlled and managed by the board of directors

elected by shareholders at an annual general meeting. The
managing director is elected from the board of directors

 Directors report back to shareholders at least once per

year by statements of accounts and Directors reports.
Ordinary shareholders vote at the annual general meeting.
 CONTROL AND MANAGEMENT
 Annual accounts of the private company are
not published to the public but are filed with
the registrar of companies for tax purposes.
 There is strictness on the transfer of company
shares. However the company may or may not
appoint an auditor.
 Advantages
 There is enjoyment of limited liability
 Can raise more capital compared to Sole
traders and Partnerships
 There is continuity of existence
 Founder members can retain control of the
company by holding a majority of its shares.
 Financial affairs are not published.
 There is efficiency in operations.
 Disadvantages
 Too many legal formalities are required for set
up of the business activity.
 Shares cannot be traded on the Zimbabwean
stock of exchange
 Can be expensive to set up
 There is a lot of inefficiency
 Inefficient or not flexible.
 PUBLIC LIMITED COMPANIES

FORMATION
 Membership is open to the public;
membership is by invitation through a
prospectus. It is formed by at least 2 people
and no upper limit.
 Characteristics Cont…..
• However governance is done as per the
stipulation of the companies act. Promoters of
the company draft and submit to the registrar
of companies the prospectus , Articles of
Association and Memorandum of Association.
 Characteristics Cont…..
 The registrar of companies having approved
the documents will issue a certificate of
incorporation.
 After the company issue of shares the
company is granted a certification of
incorporation
 Raising of capital
 It is done through the selling of shares to the
general public
 Issuing of debentures to members of the
public.
 Loans overdrafts mortgage finance from
banks
 Hire purchase and ploughing back of profits.
 Factoring /selling debts to finance houses.
 Leasing of equipment
 Buying of goods on credit for resale.
 Raising of capital
 It is done through the selling of shares to the
general public
 Issuing of debentures to members of the
public.
 Loans overdrafts mortgage finance from banks
 Raising of capital
 Hire purchase and ploughing back of profits.
 Factoring /selling debts to finance houses.
 Leasing of equipment
 Buying of goods on credit for resale.
 Control and Management
 It is controlled or regulated by the board of
directors elected at an Annual General
meeting.
 The board of directors decides on the
company’s policy and also chooses a
Managing Director.
 Managing Director is in charge of the day to
day running of the business.
 Joint Ventures
 These occur when two businesses agree to
work closely together on a particular project
and create a separate business division to do
so.
 This is not the same as merger, but can lead to
mergers of businesses if their joint interest
coincide and if the Joint Venture is successful.
 Reasons for Joint Ventures
 Costs and risks of a new business are shared-this is
a major consideration when the cost of developing
new products is rising rapidly.
 Different companies may have different strengths
and experiences and they fit well together.
 They might have their major markets in different
countries and they could exploit these with newly
introduced products than if they decide to go it
alone.
 Risks Involved
 Styles of management and culture might be so
different that the two teams do not blend well
together.
 Errors and mistakes might lead to one
blaming the other for mistakes
 Business failure of one of the partners would
put the whole project at risk.
 Co-operatives.
• Features of Co-operatives.
• 1. All members have one vote at meetings.
• 2. Profits are shared equally among members.
• 3. All members can contribute to the day to
day running of the business, sharing work and
responsibilities.
• Producer Co-operatives or worker co-operatives
are involved in producing goods.
• b) Consumer co-operatives – they sell goods and
hence they are known as retail co-operatives.
• c) Agricultural Co-operatives.
• Members buy seeds and materials in bulk and
benefit from economies of scale. Co-operatives
can buy the produce of members and sell
collectively at a higher price.
 Advantages of co-operatives.

• 1. Members are motivated to work hard as

they share profits.
• 2. Buying in bulk.
• 3. Working together in problem solving.
 Disadvantages of Co-operatives.

• 1. Slow decision-making if all members are to

be consulted.
• 2. Shortage of capital since no sale of shares to
non- members is allowed.
• 3. Lack of managerial expertise unless
professional managers are employed.
 Franchises.
 A franchise is a legal contract between two firms. It
allows one firm (franchisee) to use the name, logo and
marketing methods of the other e.g. Kentucky Fried
Chicken in Bulawayo is an example of a franchise
(franchiser) (KAC). McDonalds, Nandos, Coca-cola are
examples of franchise. Franchises are rapidly expanding
forms of business operation.
 This concept has allowed certain big companies, which
are household names, to expand much more rapidly
than they would have done by setting up their shops in
various centers and countries.
 Advantages to the Franchisee.
 The Franchisee will receive technical training
from the franchiser, this is much cheaper than
investing in the technology required when one
is setting a business.
 Easy access to well known products, logos,
and names for sale in a defined geographical
area. The marketing, branding, product
development and innovations are all done by
the Franchisor.
Advantages of franchises to franchisor
 It facilitates rapid expansion without incurring the
high capital cost of direct ownership of all business
within the chain. Coca-cola is found in most
countries of world through franchising. Nandos is
found in all the SADC countries through franchising.
 The Franchisor will save on running costs since the
franchisee will finance most of the capital and
physical requirements for the franchise.
 The franchiser will benefit from the efforts of
committed enthusiastic franchisees.
 Disadvantages to the franchisee.
 The franchisee is required to pay for the use of
the name, logo, and methods. These charges
can be exorbitant.
 May be restricted not to sell competing
products in the same area. Also the franchisee
is not allowed to sell in areas other than the
areas specified in the contract.
 Disadvantages of franchises to the
franchisor
 There may be costs in ensuring that they all adhere to
the operational methods that are designed to achieve
uniformity.
 Failure by an individual franchisee will reflect badly on
the whole franchise operation
 Franchisee will have different objectives from those of
the franchisor and in the long-run may begin to resent
the control exercised by the franchisor.
 The franchisee may under-declare sales to reduce
franchise loyalty payment or engage in ancillary activities
that are not regarded as compatible with the franchise.
 Holding Companies
 This is not a different legal form of business
organization, but it is an increasingly common
way for businesses to be owned.
 A holding company is one that owns and
controls a number of separate businesses, yet
does not unite them into one unified company.
 Diversified interests will be achieved
 Businesses are independent of each other for
major decisions or policy changes.
 Public Corporations
 Are organizations owned by the central or
local government
 Have no profit objective
 Are in the public sector
 Advantages

 They are managed with social objectives

rather than solely with profit objectives
 Loss making services might still be kept
operating if the social benefit is great enough
 Finance raised mainly from the government
 Disadvantages

 Tendency towards inefficiency due to lack of

strict profit targets
 subsidies from government can also encourage
inefficiencies.
 Government may interfere in business
decisions for political reasons, e.g. opening a
new branch in a certain area to gain popularity.
 PRIVATISATION

 Involves the selling of state owned and

controlled business organizations to investors
in the private sector.
 The main aspect of privatization is the transfer
of ownership of nationalized (state owned)
industries into the private sector by creating
private limited companies
 It also involves features like forcing schools,
hospitals and local authorities to ‘contract out’
many services to private business.
 It involves denationalization, deregulation
and contracting out as the road map to
privatization.
 Denationalization

 It involves selling government owned

enterprises to the private sector. In Zimbabwe
this is done by selling shares to private
individuals.
 This is done so that the business can be run on
a profit basis eg DMB, CMB Dairy Board in
Zimbabwe.
 Deregulation

 This involves lifting restrictions that prevent

private sector competition.
 It is the removal of government regulations
 Arguments for Privatization
 Profit motive of private sector businesses will
lead to much greater efficiency than when a
business is supported and subsidized by the
state.
 Decision making in state bodies can be slow
and bureaucratic
 Arguments for Privatization
 It puts responsibility for success firmly in the
hands of the managers and staff who work in
the organization.
 This leads to strong motivation as they have
direct involvement in the running of the
organization and greater sense of
empowerment.
 Arguments for Privatization
 Market forces will be allowed to operate; failing
businesses will be forced to change or die and
successful ones will expand, unconstrained by
government limits on growth.
 There is always a temptation for governments
to run state industry for political reasons or as a
means of influencing the national economy eg
keeping electricity prices artificially low, thus
decisions may be taken for commercial reasons.
 Sale of nationalized industries can raise
finance for government which can be spent on
other state projects.
 Regulatory bodies set up by government eg
CCZ can be used to ensure free competition
and no consumer protection.
 Private businesses will have access to the
private capital markets and this will lead to
increased investment in these industries.
 Arguments against Privatization
 The state should take decisions about essential
industries e.g. based on the need of the society and
not just on the interest of shareholders. This may
involve keeping open business activities that
private companies would consider unprofitable.
 With competing privately run businesses it will be
much more difficult to achieve a coherent and
coordinated policy for the benefit of the nation at
large e.g. railway systems, electricity grid and bus
services.
 Arguments against Cont…
 Through state ownership an industry can be
made accountable to the country i.e. by
means of a responsible minister and direct
accountability to parliament.
 Many strategic industries could be operated
as ‘private monopolies’ if privatized and could
exploit consumers with high prices.
 Arguments against Cont…
 Breaking up nationalized industries, perhaps
into several competing units, will reduce the
opportunities for cost saving through
economies of scale.
 Discussion questions

 Qn 1Evaluate the reasons why government

should privatize business organizations
 Qn2 What are the advantages and
disadvantages of a sole proprietorship? [
 Qn3 Analyse the difference between LLCs
and PBCs
 When does a private limited company become
a public company? Discuss the advantages and
disadvantages of each type of company? [25]
 Discuss the role of the small firm as;
• (i) An independent organization. [6]
• (ii) Part of an Industry. [6]
• b) Compare the problems of a small firm and
those of a large one[10].
 Popular and the most likely forms of business in Zimbabwe

The entrepreneur
* is someone who takes the financial risk of
starting and managing a new venture.
The role of the entrepreneur
*an entrepreneur can start a new business
venture based on a totally new idea, or a new
way of offering a service, or a new location for
existing business idea, or an attempt to adapt a
good or service in ways no one else has tried
before.
 Characteristics of successful entrepreneurs

• *the personal qualities and skills needed to make a success

of a new business venture include:
1.innovation – refers to one’s ability to come up with
original ideas and to do things differently – an entrepreneur
must be able to carve his own new niche in the market and
attract consumers in innovative ways that present one’s
business as different.
2.commitment and self-motivation – refers to willingness to
work hard, keen ambition to succeed, energy and focus
 Characteristics Cont..
• 3. multi-skilled – one should be able to make
the product (or provide the service), promote
it, sell it and handle the money as well as
keeping accounting records.
• 4. leadership skills – one has to lead by
example - must have a personality that
encourages people in the firm to follow him
and to be motivated by him.
 Characteristics Cont..
•
5. self-confidence and an ability to bounce back –
many business start-ups fail but a true
entrepreneur always has absolute self-belief in
oneself and one’s business idea such that one
would always bounce back from any setbacks.
6. risk-taking – an entrepreneur must be willing
to take risks in order to see results e.g. through
investing one’s own savings in the new business.
Challenges faced by entrepreneurs

(a) identifying successful business

opportunities
(b) sourcing capital (finance)
(c) determining location
(d) competition
(e) building a customer base
Reasons why new businesses often fail

(a) lack of record keeping

(b) lack of working capital
(c) poor management skills
(d)changes in the business environment
Impact of enterprise on a country’s economy

• *Employment creation – in setting up a new

business, the entrepreneur employs himself as
well as other people thus, reducing
unemployment
• *Economic growth – an increase in output of
goods or services from start-up businesses will
increase gross domestic product (GDP) of a
country – increased output and consumption also
lead to increased tax revenues for the
government.
 Impact cont…
• *Firm’s survival and growth – when new firm
survive, they employ a considerable number of
workers and take up the place of declining firms
that may be forced to close due to changing
consumer tastes and technology.
• *Innovation and technological change – new
businesses tend to be innovative and this
creativity adds dynamism to an economy – it helps
to make the nation’s business sector more
competitive.
 Impact cont…
• *Exports – most business start-ups tend to offer goods and
services that meet local and regional markets – however,
some expand to export markets and thus, increase the
country’s exports and international competitiveness.
• *Personal development – starting and managing a
successful business can aid in the development of useful
skills and thus, help an individual towards self-
actualisation (a real sense of achievement) – others can
copy leading to more successful new enterprises that will
boost the economy further.
• .
 Impact cont…
• *Increased social cohesion – unemployment
often leads to a plethora of social problems
and these can be reduced by a successful and
expanding small business sector – by creating
jobs and career opportunities and by setting a
good example, entrepreneurship can help to
achieve social cohesion in a country
 Business Plan
• Purposes of a business plan
 To clarify your own thoughts and objectives
by writing them down.
 To support an application for finance
 To monitor performance and pleasure success
by assessing progress against the plan
 To set targets for sales and profit
 To identify the resources which are needed & the
costs involved
 Business plan is presented in five key parts:
(i) Objectives
(ii) Sales and marketing
(iii) Production
(iv) Resource requirements
(v) Financial support data
BUSINESS OBJECTIVES AND STRATEGIES

• A business objective is a broad statement of

intent. It says what the business wants to
achieve
Importance of business objectives

• They provide a guide to action.

• 2. Provide a framework for decision making.
• 3. Coordinate activities
• 4. Facilitate prioritisation and resolve some conflicts
between departments.
• 5. Measures and control performance.
• 6. Motivate employees.
• 7. Provides a sense of direction and unity.
• 8. Encourages concentration on long term factors.
• Businesses have a hierarchy of objectives and at the top is
a mission statement.
• a. This identifies the organisation’s goals and it is a general
statement e.g having quality services, good customer care
and provide for the community at large.
• b. The mission statement is not specific and does not show
the performance measures.

• Objectives should be seen as more specific and

quantifiable and should help in the achievement of the
mission statement.
 Objectives should meet the SMART
Criteria
• S- Specific
• M-Measurable
• A-Agreed with all involved in achieving them.
• R-Relevant and realistic to the needs of the
organisation
• T-Time framed i.e. to give a date for final
completion.
 Corporate Objectives
• Are based on the central aim or mission
statement of the business but they are
expressed in terms that provide a much
clearer guide for management action or
strategy.
• Examples
• 1. Maximising Profits

• It is when a firm achieves the greatest

difference between total revenue and costs
which is positive. This is because entrepreneurs
who invest capital expect a high net return for
taking risk.
• 2. Growth
• Growth is mainly measured in terms of market share and expansion
of business activity. Larger firms are less likely to be taken over and
benefit from economies of scale. A business that does not grow
loses the competitive advantage and does not attract potential
investors. However, too much growth can lead to cash flow
problems and can be achieved at the expense of lower profit
margins and experiences diseconomies of scale.
• 3. Increasing Market share
• This involves selling a greater proportion of the total sales in the
whole market. It indicates that the firm’s marketing strategies are a
success and there is a competitive advantage.
• Retailers will be willing to stock and promote the bestselling brand.
• Increasing Market share
• This involves selling a greater proportion of the total sales in the whole market.
It indicates that the firm’s marketing strategies are a success and there is a
competitive advantage.
• Retailers will be willing to stock and promote the bestselling brand.
• 4. Social, ethical and environmental considerations
• 1. It is the responsibility of firms to the community or the public at large.
Increasingly pressure groups are forcing businesses to reconsider their
approach to decision making and also legal changes have forced businesses to
refrain from certain practices.
• 2. Firms have to consider their pricing, product quality, employment levels and
the way they treat the environment.
• 3. This is reflected in the passing of laws requiring firms to provide equal
employment opportunities, promotion prospects and compensation benefits
to women, racial minorities and the handicapped.
• Survival
• i. Firms seek to cover only their costs by
getting enough revenue to do so. This is an
objective during times when the economic
situation is bad and firms cannot make profits.
Firms aimed survival so that they will not fail
and go out of business.
• Maximising Shareholder Value
• A firm aims at increasing share prices and returns to
shareholders. Potential shareholders will also seek to purchase
shares.
• 7. Increasing Sales revenue
• Firms aim to increase these as bonuses and salaries depend on
sales revenue levels.
• Strategy Analysis
• 2.37. Strategy is a long-term plan of action, aiming to achieve a
specific objective.
• ii. Strategic analysis is the process of reviewing existing plans and
identifying new opportunities and risks associated them.
• SWOT analysis
• Identifies and analyses the main internal and external
factors that will influence the future direction and
success of a business.
• It comprises:
• S -Strengths
• These are internal factors about a business that can be
looked upon as advantages. An internal outlet of the
firm shows its strength. Examples are loyal workforce,
good product range and experienced management.
• W -Weaknesses
• These are the internal factors about the business that can be seen as negative
factors. They include poorly trained workforce, limited production capacity and
ageing equipment.
• O -Opportunities
• These are the potential areas for expansion of the business. An external audit
of the market the firm operates in and its major competitors provides the
opportunities. Examples are export markets expanding faster than domestic
markets and lower rates of interest increasing consumer demand.
• T- Threats
• These are also external factors gained from an external audit. It analyses the
business and economic environment, market conditions and the strength of
competitors. Examples include new competitors entering the market,
globalisation driving down prices, changes in the law regarding the sale of the
firm’s product and changes in government economic policy.
• Organizational Culture
• Culture is a code of behavior and attitudes that influence the decision making style
of managers and subordinates in an organization. It is a way of doing things shared
by all in a company. Cadbury Schweppes 1999 Annual Report stated, that “culture
is about people, how they deliver, what they are accounted for, how aggressive
they are in pursuit of objectives and how adaptable they are in the face of
change”.These are the norms, values, shared attitudes which determine the
systems, structure and rules in an organisation and the way things are done.
• Importance
•  Culture influence patterns of behaviour, attitudes to change and the motivation,
immoral and performance of employees
•  It has an impact on business development and staff recruitment because the
cultural reputation can attract people to or deter them away from an organisation.
•  Culture is expressed in symbols, rituals and language
• Types of Culture
• 1. Power Culture

• It emphasizes the risk taking attitude and low respect for

established procedures. It is associated with small firms
• 2. Role Culture

• Has well defined procedures, conformity and emphasizes

on rule bound behaviour. This form is bureaucratic in
nature and found in public sector enterprises.
• Task Culture
• Is made up of teamwork and problem solving
behaviour in groups. The emphasis is on
creativity and flexibility and is used in scientific
research.
• Person oriented culture
• Emphasis is on meeting the needs of clients and members of the
organisation and it is commonly found in small consultancy type
firms.
• Business Culture will determine.
• Individual worker behaviour, future attitudes and thoughts
• 1. The corporate image and long term achievement of objectives
• 2. The way in which objectives are expressed
• 3. Participation of workers in setting the objectives
• 4. The motivation of staff and the actions required to achieve
objectives
• Factors influencing culture.
• 1. Size of the organization. In small firms the personality of the owner will impact on
the rest of the staff. An aggressive entrepreneur will quickly communicate to the
organization, the necessary attitudes in decision-making situations.
• 2. Structure of the organization. A centralized and rigid organization structure will tend
to make the business more resistant to change and less adaptable to market needs.
Only senior managers make all decisions. A culture of fear is planted throughout the
organization. Some business cultures are adaptive and open to change. This increases
the chance of survival of the organization. Employees are encouraged to accept
change, and be innovative, creative and to challenge each other.
• 3. The nature of business culture is determined by its focus. Some organizations place
their focus on getting the job done, not the people doing the job. This is called a ‘task
culture’. Other organizations are people-focused with greater concern for the people
doing the job and their extent of involvement in it. This is called a ‘people culture’.
Such an attitude leads to increased motivation for workers resulting in high
productivity and team spirit.
• Therefore business culture will affect:
•  Business objectives.
•  The way business objectives are expressed.
•  Workers involvement in setting objectives.
•  The action required to achieve objectives.
•  The motivation of the workforce.
 Motivation & Leadership.
• Leadership is the art of influencing people so
that they perform assigned tasks willingly in an
effective and efficient manner. It is essential to
distinguish between managers and leaders.
Managers must have leadership qualities.
Managers who are not leaders will achieve some
but not all of the objectives. Managers who are
leaders will strive for total and enthusiastic
cooperation from their subordinates.
• Styles of leadership.
• This refers to the way in which managers take
decision and deal with their staff.
• a) Autocratic leaders.
• Autocratic leaders make decisions on their own
without consultation. They set objectives
themselves, issue instructions to workers and check
to ensure that work is carried out. Workers can
become so used to this style that they depend on
the leader
• for all guidance and will show no initiative. Motivation of staff will be very low and
supervision of workers become essential. Communication is one – way with no
feedback. This style is useful in armed forces and police. It is also applicable in crisis
such as an oil tanker disaster, or a railway accident. Leaders may have to take full
control and issue orders in emergencies as there would be no time for consultation.
• b) Democratic leaders.
• Democratic leaders will engage in discussion with the staff before taking decisions.
Communication is two way with every opportunity for staff to respond and initiate
discussion.
• (i) Managers must have good communication skills so that they are able to explain
issues clearly and to understand responses from subordinates.
• (ii) Full participation in decision-making is encouraged. This may lead to better final
decisions as subordinates can offer valuable experience to new situations.
• (iii)Consultation with staff is time-consuming, yet sometimes quick decisions will be
required.
• Laissez – faire management.
• (i) Allow workers to carry out tasks and take
decisions within very broad limits.
• (ii) There will be very little input from
management into the work to be carried out by
staff.
• (iii) It is effective in cases of research and
design teams. In other cases such a style can be
disastrous.
• Approaches to leadership
• Trait Approach
• - Three main traits should occur-together for successful leadership that is intelligence,
communication skills and ability to assess group goals.

• Behavioural Approach
• - Researchers have identifies two leadership styles which reflect different behaviour patterns

• 1. Task-oriented managers-who monitor their subordinates closely to ensure that the task is
completed to their standards
• 2. Employer-oriented managers- who try to motivate rather than control their subordinates, they
encourage them to participate in decisions affect them and to develop friendly relationships
among themselves.

• 3.78. Managerial Grid

• Blake and Mouton booked at various combinations of task and people relationships and identified
various management styles resulting from interaction between task oriented and employee
oriented behaviour managers.
 Motivation
• Motivation refers to the way human needs
and aspirations explain, control or direct
behavior.
 Effects of poor motivation
• Poor motivation in a department, branch or
the whole organisation will result in at least
one of the following: low productivity, high
labour turnover, poor quality products,
absenteeism, lateness, and sickness.
• Overcoming poor motivation.
• 1. Changes in organization culture.
• 2. Introduction of suggestion schemes.
• 3. Improving conditions of work.
• 4. Improving the levels of pay relative to those
offered by firms in the same industry.
• 5. Changing to a democratic style of management.
• 6. Offering fringe benefits e.g. transport,
subsidized food, education facilities e.t.c.
• Theories of motivation.
• Non
• Team working
• 1. Workers are laced into small teams of employees
• 2. Team working leads to more and better ideas from the
workforce, improving the product and the manufacturing
process. Workers can learn several skills and it helps to create
a more flexible and adaptable workforce.
• 3. However, some workers may find it difficult to work closely
with others and may not get in with other team workers.
• - Financial Methods of Motivation
• Quality Circles
• 1. These are voluntary groups of workers who meet regularly to discuss work-related problems
and issues.
• 2. Groups are informal and workers are encouraged to contribute to decisions.
• 3. Results of the quality circle meetings are presented to management and implemented across
the whole organisations.
• 4. It allows participation of all staff and offers challenging tasks that require workers to accept
responsibility.

• Delegation and empowerment

• Delegation involves passing down of authority to perform tasks to workers and empowerment
goes further to allow workers some degree of control over how the task should be undertaken.
• Target setting
•  It is related to MBO, it enables direct feedback to workers on how their performance
compares with agreed objectives.
•  The idea behind is that people are more likely to do well when they are working towards a
goal that they helped to establish.
 Management Theory
• 3.62. Management Theory
• Classical Scientific Management
•  This came up as a consequence of the need to increase productivity. The demand of
goods and services was increased but labour supply was limited and was in short supply.
•  The emphasis of scientific management was to try and find the best way in production
processes by examining how work was to be done.

• 3.63. Frederick W. Taylor

• Proposed that scientific methods should be applied to factory problems and the proper
use of human labour and time in carrying out some tasks. He introduced time studies to
analyse workers’ movements on the job. Taylor established how much workers should
be able to do with the given materials and equipment. From this analysis it was easy to
determine the quickest way to perform a task. He emphasized on job specialisation as
seen in modern day assembly lines and the time and motion studies as the foundation
for efficiency in work.
• Scientific selection and training of workers was the basis for good staffing programmes
• Classical Administrative Theory
• This emphasized on the development of
managerial principles rather than methods of
operations like the classical scientific theory
which focused on productivity.
• Henri Fayol
• Believed that management was not an in born
behaviour or a personal talent but skill that
could be learnt or taught. His main emphasis
was on understanding the principles that
under lie good management and on
developing a general theory of management
practice to serve as a guide to managers
• He developed 14 principles and these are:
• 1. Division of work- specialisation, increases output by making employees more efficient.
• 2. Authority-managers must be able to give orders, authority gives them the right to give orders and
authority brings responsibility.
• 3. Discipline- employees must obey and respect the rules that govern the organisation.
• 4. Unity of Command- every employee should receive orders from one superior.
• 5. Unity of direction- each group of organizational activities that have the same objective should be
diversified by one manager using one plan.
• 6. Subordination of individual interests to the general interest. The interest of any one employee or group of
employees should not take precedence over the interest of the organisation as a whole.
• 7. Remuneration- workers must be paid a fair wage for their services.
• 8. Centralization- refers to the degree to which subordinates are involved in decision making.
• 9. Scalar chain- the line of authority from top management to the lowest ranks is the scalar chain all
communication flows.
• 10. Order-people and materials should be in the right place at the right time.
• 11. Equity managers should be kind and fair to all their subordinates.
• 12. Stability of tenure of personnel- high employee turnover inefficient.
• 13. Initiative-employees who are allowed to originate and carryout plans will exert high levels of effort.
• 14. Espirit de Corps- promoting team spirit will build harmony and unity in the organisations.
• Max Weber-He described the type of organisation as bureaucracy with the following
characteristics.
• 1) Impersonal relations- rules and controls are applied uniformly avoiding involvement with
personalities and personal reference of employees.
• 2) Appointments based on rent-the only criterion used to appoint a person to fill a vacancy post
merit. Merit is demonstrated by the kind of training and education acquired and the level of
examination undertaken by an individual.
• 3) A prior specification of job authority- before people apply for any job the organisation or
management must specify the job description.
• 4) Hierarchy/Authority-officers or positions are organised in a hierarchy each lower one being
controlled and supervised by a higher one.
• 5) Formal rules and regulations- to ensure uniformity and to regulate the activities of employees,
managers must depend heavily on formal organisational rules
• 6) Specifications- Jobs are broken down into simple, routine and well defined tasks.
• 7) Career orientation- managers are professional officials rather than owners of the units they
manage. They work for fixed salaries and pursue their careers within the
• organisation.
•
• FW Taylor (1856- 1917)
• Taylor’s aim was to reduce inefficiency that
existed in US manufacturing firms. He wanted
any productivity gains to be shared between
employers and employees. The majority of
workers were untrained and non- specialized.
They were poorly led by supervisors and
managers with little or no formal training in
dealing with people. There was no formal
• selection and appraisal system of staff and the majority were recruited
on a daily or weekly basis with no security of employment.
• Taylor’s approach to increase productivity.
• Select workers to perform a task. Observe them performing the task
and take note of the key elements of the task. Record the time taken to
do each part of the task. Identify the quickest method recorded. Train
workers in the quickest method and do not allow them to change it. Pay
workers on the basis of results. Supervise workers so that the “best
way” is carried out. His view was that man was driven by money alone
and could stimulate further effort with chances of extra money. He
introduced a piece-rate system which involves paying workers for each
unit produced. To encourage increased output, a low rate per unit is set
for the first units produced and a higher rate becomes payable if output
targets are exceeded.
His contribution is still being rejected in the importance being giv
capital selection of staff in all firms.

Widely adopted and has become known as motion and time stud
Regarded with suspicion by workers though as a way of making t
But it is still applied with the co-operation and support of staff.

Still being applied as efficiency depends on the method being us

Taylor’s approach of giving instructions without feedback is howe
 Herzberg’s Two-Factor Theory.
• Herzberg distinguished between motivation which gives positive
satisfaction and what he called hygiene factors. Hygiene factors do
not cause job satisfaction but their absence cause dissatisfaction.
• These factors include pay, supervisors, work conditions, company
policy and interpersonal relationships. These have to be satisfactory
to get effort from workers but by themselves are not enough.
• Motivational factors are intrinsic to the work and include
achievement, recognition, advancement, promotion and the work
itself. Herzberg’s the theory led to the idea of job enrichment. He
suggested that managers should provide motivation in the form of
satisfactory jobs through job rotation, job enrichment schemes and
at the same time ensuring that hygiene factors are present.
• McGregor’s Theory X and Y.
• 1. McGregor identified opposing attitudes
towards the workers.
• 1. He referred to the negative attitudes as X
and the positive Y.
Theory X management assumes Theory Y management assumes:

Workers inherently dislike work and will Spending effort at work is as natural as
try to avoid it where necessary. play or rest and the average person likes
work.

Because of this workers should be Employees can exercise their own control,
controlled, directed or threatened in direction, and are rewarded through
order to get effort towards company efforts towards achievement of
goals. organisational objectives.

The average person wants to be The average person learns to both accept
controlled and directed, has little and seek responsibility
ambition and seeks to avoid responsibility.
• Supporters of Theory X advocate for an
authoritarian organisational structure
scientific management and centralized
decision-making.
• Advocates of Theory Y argue that the main
limiting factor in an organisation is
management’s ability and willingness to
develop employee potential.
• Problems arise when employees who expect
Theory Y approaches are subjected to Theory
X approaches and vice versa.
 Seminar questions
• Qn briefly describe Maslow’s hierarchy of needs
and their importance to the business [25]
• Give a detailed analysis of the importance of
McGregor's Theory X and Theory Y to the work
station. [25]
• Organizational objectives are not the same as
that of the individual employee. Hence
managers must motivate their employees.” Do
you agree with this statement? [25]
• Money is the prime motivator of all human
beings.’ Discuss this statement in terms of
employee motivation. [25]
 ACCOUNTING FUNCTION.
• Accounting – it is a technique for collecting, recording,
analysing and evaluation of financial data of a particular
company so as to describe the present situation and to assist
the process of decision making.
• 7.1. Types of accounting.
• Financial accounting - that part of accounting which is
concerned with external reporting to various stakeholders It
refers to people and or organisations having interest in the
financial state of the company.
• Internal users- the workers and mangers.
• External users - Government, shareholders and other
stakeholders.
 Differences between financial and
management accounting
• Budgets
• B Costing techniques such as Marginal costing,
Absorbing costing and standard costing
 The main functions of management
accounting
• To classify and calculate costs of production. This is known as cost accounting.
• 2. To provides estimates of future Management accounting is concerned mainly with
internal reporting to the managers of an enterprise while financial accounting is
concerned mainly with external reporting to shareholders , government and other users
of accounting information outside the enterprise
• 3. Management accountants seek to support management decision making by the
provision of information and the analysis of financial performances while financial
accounting acts as the steward of financial resources entrusted to it by the owners (e g
shareholders)of the enterprise.
• 4. As the data is required for internal purpose the management accountant is not
constrained by the need to comply with regulations on the format for presentation while
in financial accounting there is need to comply with regulations as accounts are prepared
for external reporting.
• 5. Management accounting emphasises the control and decisions making function while
financial accounting relates to the stewardship function of management and also it is a
means of ensuring the accountability of the controllers to the owners of the enterprise.
• The major financial accounts
• A Profit and loss account
• B Balance sheet
• C Cash flow
• Major management accounts
• 1. expenses and revenues. This is known as
budgeting.
• 2. To identify inefficiencies within the organisation.
• 3. To control costs and manage the flow of cash.
• 4. To seek opportunities, e g to identify tax breaks,
possible cost savings and movements in foreign
exchange rates which could be exploited by the
firm.
 Stakeholders of accounting data and
reasons for their need of the data.
• Business managers.
• 1. To measure the performance of the business.
• 2. To help them take decisions such as new
investments closing departments and launching
of new products.
• 3. To control the performance of each division in
the Organisation.
• 4. To set targets / budgets for the future and
compare these with actual performance
• Creditors.
• 1. To see if the business is secure and liquid
enough to pay off its debts.
• 2. To decide whether the business is a good
credit risk.
• 3. To decide whether to press for payment
• Banks.
• 1. To decide whether to lend money to the
firm.
• 2. To decide whether to allow for an increase
in overdraft facilities.
• 3. To decide whether to continue with loans or
overdraft facility
• Local community.
• 1. To see if the business is profitable and likely
to expand operations.
• 2. To determine whether the business is
making profits or losses as this could affect its
future.
• 3. To decide if there is need to get involved
and if so, how?
• Workforce.
• 1. To decide whether the business is secure
enough to pay wages and salaries.
• 2. To determine whether the business is likely
to expand or to be reduced in size.
• 3. To decide whether jobs are secure.
• 4. To find out how the average wage in the
business compared with salaries of directors.
• Government and tax authorities.
• 1. To calculate how much tax is due from the
company.
• 2. To determine whether the business is likely to
expand and create more jobs.
• 3. To decide whether the business is in the danger of
closing down, creating more economic problems.
• 4. To confirm that the business is operating within
the law.
• Investors – shareholders of the business.
• 1. To asses the value of the business and their investment in it.
• 2. To decide whether the firm is becoming more or less profitable.

• To determine what share of the profits investors are receiving.

• 4. To decide whether the business has potential for growth.
• 5. If they are potential investors, to compare these details with
those from other businesses before making a decision to buy
shares in the firm.
• 6. If they are actual investors, to decide whether to consider
selling all or part of their shareholding
• Customers.
• 1. To decide whether the business is secure.
• 2. To determine if they will be assured of
future supplies of the goods they are buying.
• 3. To decide whether there will be security for
spare parts and service facilities.
 Statement of comprehensive income

• Income Statement (Statement of comprehensive income)

• It is a financial statement which records the revenue, costs and profits or losses
of a business over a given period. It shows the gross profit and the net profit.
• Gross profit is pure profit from trading activities before deducting expenses. It is
obtained by deducting cost of sales from sales.
• Cost of sales is equal to opening stock + purchases less closing stock.
• Net profit is the profit obtained after deducting operating expenses from gross
profit.
• Retained profit is that part of profit which is not distributed as dividends to
shareholders. It is kept in the business and belongs to the shareholders.
• The income statement shows how the net profit is split up or appropriated
between dividends (the share of profits paid to shareholders as a return on
investment) and retained profits.
 Uses of the Income Statement (IS)

• The I.S. can be used to measure and compare the

performance of a business over time or with other firms.
Ratios can be used to help with this form of analysis.
• The actual profit data can be compared with the expected
profit levels of the business.
• Bankers and creditors of the business will need the
information to help decide whether to lend money to the
business based on profitability and gearing.
• Prospective investors may assess the value of putting
money into a business from the level of profits being made.
 Uses of P/L accounts.
• It can be used to measure and compare
performance over/time or with other
businesses.
• Can be assessed in comparison with expected
level of the business.
• Bankers and lenders will need the information
to decide whether to lend money to the firm.
• Investors may judge the value of putting their
money with business.
 Statement of Financial position).

• It is an accounting statement that records the

values of business assets and liabilities and
shareholders’ equity at one point in time.

• It is a statement showing a company’s assets

liabilities and owners equity at a specific date.
 Elements of the Balance sheet

• An asset is a resource or an item of monetary value that is owned and

controlled by the business as a result of previous transactions from which
future economic benefits are expected to flow to the business.
• Fixed assets can be tangible like motor vehicles or Intangible assets.
• Intangible assets are those assets which do not have a physical form or
substance but are of income earning value to the business e.g. patents,
copyrights, brands, goodwill and investments.
• Liabilities are the financial obligations of a business that it is required to pay
in future.
• Shareholders equity is the total value of assets less total value of liabilities. It
comes from capital invested and retained profit of the business.
• Share capital which is the total value capital raised from shareholders by the
issue of shares.
• Working capital is the sum of current assets less current liabilities.
• A balance sheet shows the net worth of the business. This refers to
the level of capitalisation, the actual amount of capital that belongs
to the firm.Net worth is important because it gives investors or
creditors an opportunity to assess the leverage (gearing),liquidity
and credit worthiness of the firm.
• Goodwill is the value of the business less the value of the net assets.
• Goodwill=Purchase price –value of net assets
• Purchased goodwill is included as an intangible fixed asset in the
balance sheet. The goodwill is then amortised (depreciated) over a
period of up to 20 years
• Limitations of the balance sheet
•  A balance sheet is prepared at a certain date and it is in a sense
a snapshot of the position at that date. It is possible that the
position will change fundamentally within a short space of time.
•  The balance sheet only includes items that can be expressed in
monetary value so it ignores assets which cannot be expressed in
monetary terms.
•  There is a considerable discretion over the valuation of
assets .e.g. Net Book value of assets varies with the method of
depreciation used and the stated value of stocks depends on the
method of stock valuation used.
 Limitations of balance sheets
• A balance sheet is prepared as at a certain date and it is, in a sense , a snapshot of the
position at that date . It is possible that the position will change fundamentally within
a short space of time
• A balance sheet ignores items that cannot be expressed in monetary terms e g the
level of motivation of workers
• Various accounting concepts used in the preparation of Balance sheet will affect the
figures shown in the balance sheet e g the net book value of fixed assets varies with
the method of depreciation used , while the value of stock depends on the method
used for valuing stock.
• The balance sheet does not reveal the current value of assets unless property is
revalued to show current value
• The balance sheet is does not record the value of the business unless it includes the
value of intangible assets especially goodwill.
• The size of profit of a business is affected by the method used to calculate:
• 1. Depreciation of fixed assets.
• 2. Valuation of stock.
• The balance sheet does not reveal the current
value of assets unless property is revalued to
show its current value.
•  It does not show the value of the business
unless it includes the value of intangible assets
especially goodwill
 Cash flow statements (IAS7)
• IAS7 states that a statement of cash flows should report cash flows during the reporting period
classified on the basis of operating, investing and financing activities.
• The standard does not recognise return on investment and return on servicing of finance. Cash
flows from operating activities are those which are primarily derived from an entity’s primary
revenue generating activities. These include:
•  Cash receipts from royalties, fees, commissions and other revenue
•  Cash receipts from sale of goods and services.
•  Cash payments to suppliers for goods and services.

• Cash flows from investing activities are those which show the extent to which expenditures are
made for resources intended to generate future revenue. These include.
•  Cash payment to acquire fixed asset, intangible assets
•  Cash receipts from the disposal of fixed and intangible assets.

• Cash flows from financing activities are those which are based on transactions between the firm
and its capital providers. These include cash flows from issue of shares, debentures and long term
loans or their redemption.
 Depreciation of assets.
• Depreciation is an expense, since it is
deducted from the income, it results in low
reported profits. However depreciation does
not involve any cash movement. The
diminishing balance method will result in
reported profits that will increase, as the asset
grows old, as it charges falling amounts with
the asset’s useful life.
 Advantages of cash flows

• It directs the attention to cash flows, on which a business survival depends.

•  It shows which part of the business generates more revenue and which one
uses more cash.
•  The liquidity position of the business can be evaluated.
•  It helps stakeholders to see how much cash the day to day operations raised.
•  Creditors are more concerned about the firm’s ability to repay loans than its
declared profits.
•  Profits are subjective as they depend on the firm’s accounting conventions
used in constructing the accounts while cash flows are objective
•  The cash position of the business is more important for management decision
making and is also meaningful to shareholders.
•  Cash flows can be used to show how capital expenditure was financed.
• It can be used to project future cash flows,
assess the future ability to pay debts, dividends
and interest.
• The cash flow statement can be prepared using
the following two methods
• 1 Direct method
• 2 Indirect methods.
Cash flow management and budgeting.
• Why is cash flow important to business.
• Many businesses fail due to lack of cash. Cashflow i.e. cash
inflow and outflow is crucial due to the following problems
facing companies. With insufficient cash the firm will be
unable to pay creditors on time leading to loss of discounts.
Some suppliers will insist on tight conditions such cash on
delivery and in some case legal action will be taken in against
the firm by creditors.
• Tax bills will either be delayed or may not be paid and the
Government will take legal action. Investment in fixed assets
will be difficult. Wages and salaries may be delayed leading to
a high labour turn over, absenteeism, and demotivation.
• Is profit cash?
• A profitable business may experience acute cash shortages
while a company recording a loss may have a cash surplus.
Profit or loss received by a firm in one time period may not
be the same as its cash balance. This is due to:
• Capital expenditure is recorded in the profit and loss by
including depreciation as an expense. Depreciation does
not involve a cash outflow.
• A business may be selling more of its products on credit.
Profit will be made as goods are recorded as sold, yet cash
payment from customers will be done at a future date.
• Cash flow management.
• Effective management of cashflow requires that managers
assess:
• 1. The size and time of payment (outflows). This is
influenced by the period of credit offered by suppliers and
costs to the business.
• 2. The size and time of receipts (inflows). This will depend
on the time taken by debtors to pay.
• 3. If other sources of finance are present to cover periods
of cash shortages.
• 4. Time is of crucial importance to cashflow management.
• Cash flow forecasts.
• 1. They contain estimates of cash receipts and payments. An
expected cash deficit can be made good by making an
arrangement for an overdraft.
• 2. A cashflow forecast enables management to plan ahead to
prevent future cash problems.
• 3. Bank Managers are prepared to assist with loans firms that
have shown the ability to repay.
• 4. Substantial cash balances have an opportunity cost of
interest.
• 5. Overdrafts due to cash shortages have great cost in terms of
interest charges.
• Distinguish between tangible and intangible fixed
assets.
• Explain the term ‘Statement of comprehensive income,
Statement of Financial Position and Statement of Cash
flow’ being the three main financial state. What
information do you expect to get from them. [25]
• Discuss why financial statements alone would not
adequately assess business performance