Tactical Money Laundering? 3.5 Selecting Financial Strategies Thursday, 13 September 2018 Tactical Money Laundering? 3.5 Selecting Financial Strategies Objective; Define and outline what a cost centre is Understand the meaning and significance of specific financial strategies; raising finance, implementing profit centres, cost minimisation, allocating capital expenditure

The influence of finance… Financial objectives and strategies MUST be derived from the overall corporate strategy Grumpy Production Tired Marketing Joyous Finance Caring Human Resources

Implementing Profit Centres Allocating Capital Expenditure Raising Finance Implementing Profit Centres Common Financial Strategies Cost Minimisation Allocating Capital Expenditure “long-term financial plan to achieve the financial objectives of the business”

The four common strategies… A2 Business Studies: Financial Strategies The four common strategies… Raising Finance Why? – Purchasing Equipment, R&D, Takeovers, ad campaigns, etc… How? Use of retained profit (opportunity cost, shareholders viewpoint) Borrowing (impact on gearing, interest rates) Selling Shares (impact on ownership & control ROCE) Sale of Assets (leaseback increases costs)

The four common strategies… Implementing Profit Centres “a section of the business for which costs and revenues and therefore profit can be attributed” – decentralisation is an important feature Benefits Avoids ‘diseconomies of scale’ such as co-ordination and communication of very large centrally controlled organisations Delegation of control may lead to motivation Good and poor performing areas are easier to identify Drawbacks Possibility of a loss of focus on overall objectives in a bid to ‘turn a profit’ Local market conditions may not allow fair comparisons to be made Implementation require training, which effectively increases costs

What basis could these profit centres be based upon? Profit centres can be assigned by product, department or location: which is suitable here?

The four common strategies… Cost Minimisation “Reducing costs to a minimum whilst maintaining quality and service levels” Minimising Labour Costs Reductions in staffing levels Adopting flexible workforces (e.g. zero hour contracts) Outsourcing (common for IT provision) Relocation Offshoring (“locating functions of the business overseas”); common for labour intensive operations to lower wage rate regions. Offset by increase transportation costs etc. Using Technology (capital intensive) Replacing labour with capital where feasible

The four common strategies… Allocating Capital Expenditure “Spending on non-current assets (capital)” – significant opportunity cost Investment in technology Increase efficiency, quality, USP etc… Investment in other assets Buying land and property, for future development, to block competitors (Tesco) and as an investment

Who would authorise the following expenditure at BHS? The appointment and salary of a new teacher? The construction of a new £2million Business Suite? A reprographics request for 30 single page handouts? A video camera for Business Students to use?