1. Selecting Financial Strategies

2. Financial Strategies Cost minimisation Raising finance
Introducing & implementing cost & profit centres
Allocating capital expenditure

3. Cost minimisation How can a company cut costs? TASK
There have been plenty of examples during the recession – research some of the methods that companies have used & feedback to the rest of the group (15 minutes)

4. Cost-minimisation Cut direct costs Reduce overheads
Target functional areas
Impact must be fully considered

5. Raising Finance
Internal v. External
Short-term v. Long-term

6. Internal Sources Retained profit (or trading profit) Sale of assets
Sale & leaseback

7. External sources Ordinary share capital Loan capital Venture capital
Debentures
Bank loan
Bank overdraft
Venture capital
Business angels

8. Internal or external? Legal structure of business Use of finance
Amount required
Firm’s profit levels
Level of risk
Views of the owners

9. Time span Capital expenditure Revenue expenditure
Spending on items that can be used time and time again (non-current assets)
Long-term source of finance
Revenue expenditure
Spending on current, day-to-day costs
Short- or medium-term source of finance

10. Profit centre
An identifiable part of an organisation (e.g. a department, product, or branch) for which costs & revenue, and thus profit, can be calculated

11. In favour of profit centres
Focused study of firm’s finances
Benchmarking can take place
May motivate
Increased efficiency

12. Against profit centres
Allocating costs
May demotivate
Diseconomies
Target-setting may be too haphazard

13. Allocating capital expenditure
Introduce capital equipment to replace labour
Investment decisions on whether it is financially viable to put money into a capital project