Explain the importance to a selected business of cash ow, working capital, costs and budgets and break-even.

Next, Working capital is another factor which is helpful for business survival. Working capital is the cash available to a business that allow them to operate on a day-to-day basis. Working capital is the engine of the business, and is what produces profit. Working capital can be seen as an investment; the business wants to gain more money at the end of every cycle. The working capital cycle consist of a starting amount of cash which is used to buy raw materials, then labour turn the raw materials into the finished product which is then sold, this then makes cash which starts the cycle again. If they are not making more cash it is evident they need to rethink their plan. Working capital can identify problems. Nintendo can do this by looking at their cash flow forecast and identifying where they may be at risk. Nintendo will then be able to solve this problem before it happens, for example have a loan to pay for fixed costs when they may not be selling enough products to pay for it itself. Moreover, working capital can be used to improve their business. They can do this by identifying where they can make improvements for example they can increase the amount of cash coming into their business like obtaining external finances or selling stock so that they are not holding as much. And they can also decrease money going out, for instance selling assets, leasing rather than buying or spreading their costs out.

Costs are something else Nintendo need to consider. Costs are an amount that has to be paid or given in order to get something. Costs are important for business survival because Nintendo can calculate their total costs. Nintendo will be able to do this because they will know their fixed and variable costs. Therefore Nintendo will be able to total those costs and will be able to classify how much money they need to have in order to be able to pay for them. Additionally, because Nintendo will be able to know their total costs they will then be able to determine a selling price for their products. This is because they will know how much money they have to pay, therefore they can set a price which allows them to meet those payments but also allows them to make a profit. Furthermore, costs allow Nintendo to calculate other important tools. If they know their costs they will be able to calculate tools such as cash flow forecasts, budgets and break-even analysis; these tools are extremely important to use. Finally, costs are important because Nintendo need to be aware that fixed costs have to be paid no matter how much they sell; fixed costs include, staff salaries and overheads.

Furthermore, Budgets are another important factor; a budget is an estimate of income and expenditure for a set period of time. Budgets are important because it will allow Nintendo to set business objectives; these are usually targets which have to be met at a specific date. If they have objectives Nintendo are most likely going to meet them because their staff will know exactly what they have to do in order to achieve them. Budgets can also allow Nintendo to see where they are succeeding and where they may be failing. If Nintendo do not have enough funds to meet budgeted targets they will need to follow their contingency plan. However a budget may be able to identify where they can save money before they need to follow their back up plan. This can be done especially if Nintendo decide to use zero-based budgets. This is because everyone in each department will have to justify why they need money, therefore Nintendo will be able to highlight the departments that who don’t need as much money as they may have been given in the past. Finally, budgets can control Nintendo’s spending; this because there are boundaries in which they have to stay in which eliminates unbudgeted spending.

Lastly, break-even is another factor that Nintendo need to consider. Break-even occurs when the total costs are equal to the total revenue. To work out a business’s break-even they will need to use break-even analysis; this is a way of determining the point of profitability. To do this they will need to use the formula: fixed costs divided by contribution (contribution cost is the selling price divided by the variable costs per unit). Nintendo will need to work out their break-even point in order to determine how many products they will need to sell in order to make a profit. However if they cannot reach break-even point then Nintendo may need to cut costs by finding cheaper raw materials or making some staff redundant. Nintendo may also need to raise the prices of their products. However they will need to ask them self’s if customers will be willing to pay a higher price and do research within competitors in order to higher their prices. From break-even analysis Nintendo will be able to see how changing costs and sale prices will affect how much they need to sell. They can see this by using a spreadsheet or chart which highlights clearly the break-even point. If the fixed costs increase Nintendo will need to sell more products to break-even. Whereas if fixed costs decrease they won’t have to sell as much. In addition, if Nintendo increase the selling price they will need to sell less however if they lower the price they will need to sell more to meet break-even.

In conclusion, all these things talked about will help Nintendo prepare for business survival. Cash flow, working capital, costs, budgets and break-even are really important factors to consider. If done correctly Nintendo will make large profits and will become one of the largest and most successful businesses in the world.