1. 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

2. 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

3. 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”

4. 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)

5. 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

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

7. 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

8. 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

9. 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?