BTEC INTERNATIONAL LEVEL 2 IN BUSINESS

UNIT 3: FINANCIAL FORECASTING FOR BUSINESS

Unit 3: Financial Forecasting for Business

Delivery guidance
Approaching the unit
In this unit, learners will be introduced to the types of costs that different businesses will
incur. They will explore how the sale of products and services generates revenue to give the
learner the basis on which they can develop their understanding of profit. Using local
businesses will enhance the delivery of this unit and help learners to understand the start-
up and running costs within different business settings. It will also help put a real-life slant
on how financial decisions relating to the business are made to ensure that the business
remains profitable and continues to grow. You should introduce your learners to the costs
involved in business and how to calculate the gross and net profit of a business.
The awareness of profit leads the learner into break-even analysis, a technique used to
determine the point at which sales revenue equals costs. You can use case studies of
successful organisations, e.g. Innocent Drinks, to illustrate how business start-ups identify
costs and calculate the break-even point within their forecasts. Asking local businesses to
come and talk to your group about the key terms used within finance e.g. expenditure,
income and break-even point, such as costs, revenue, total costs, variable costs will help
bring the concepts to life.
In this unit, learners will understand the concept of cash flow forecasting, which estimates
the timing and amounts of cash inflows and outflows over a specific period (usually one
year). This is followed by exploring how cash flows can be managed more effectively and
learners will be given an insight into one of the primary causes of business failure – the
problem of payment timing rather than that of profitability alone. You could use small
businesses, relevant to the learners’ experience, to illustrate the concept of cash flow. A
good example is a business set up to produce games/applications for smart phones; initial
costs are likely to be high and, invariably, payment will not occur until the end of a project
or job, potentially causing cash flow issues. Another good source of information would be to
use examples of businesses that have failed due to cash-flow rather than levels of profit.
The knowledge and skills developed in this unit are essential for anyone running a small
business venture or involved in the financial management of business organisations.
Learners will develop vocational skills, knowledge and techniques through simulating the
kinds of tasks that a real business would be expected to complete to ensure it manages
its finances successfully.

Delivering the Learning aims

Learning aim A focuses on the revenue and costs of a business in order to calculate profit/loss.
Leaners should be able to identify and distinguish between different types of costs (start-up,
operating/running, fixed and variable) in order to calculate total costs. Learners could use local
businesses to help them understand the actual costs involved in running different types of
businesses. Learners need to be aware that certain operating/running costs can also be classified
as a start-up cost, e.g. initial rent, initial advertising. Learners should be familiar with the different
sources of revenue a business might have and be able to calculate whether a business is making a
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BTEC INTERNATIONAL LEVEL 2 IN BUSINESS
UNIT 3: FINANCIAL FORECASTING FOR BUSINESS

profit or a loss. They will need to know how to calculate gross profit/net profit and be able to
recommend actions a business can take to try to increase the amount of profit they are making. A
good way to help learners understand this is to use real-life examples which allow the learners to
practice calculating gross and net profit. The learners could then be encouraged to work in groups
to suggest ways of improving the level of profit.
Learning aim B requires learners to prepare a break-even chart from a given set of data. In order
to do this they need to have a detailed understanding of the different types of cost covered in
Learning Aim A (fixed, variable and total). They need to be able to calculate revenue for a business,
using quantity and price data. A good way for learners to fully understand break-even is to give
them lots of case study practice questions so they become confident in calculating the break-even
point for a business. Learners need to be able to draw and annotate a break-even chart, as well as
being able to use the formula to calculate the break-even point. Learners should be able to
interpret a break-even chart and its benefits/implications for business planning and decision
making. For example, they should be able to analyse the impact of changes in fixed and variable
costs on the break-even point and the margin of safety.
Once learners have a good understanding of costs and revenue, you should introduce cash flow
forecasting and the implications to a business of cash flow problems. Learners should practise
using a range of cash flow forecasts and be able to draw up a 6-month forecast. It is worth using
some videos at this point to show real-life examples of businesses. Programmes such as Dragons’
Den use key financial terms and these can help learners understand them and put them into
context. Learners need to be able to analyse the cash flow forecast and suggest ways to improve
the cash flow position for the business.

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BTEC INTERNATIONAL LEVEL 2 IN BUSINESS
UNIT 3: FINANCIAL FORECASTING FOR BUSINESS

Assessment model
Learning aim Key content areas Assessment approach
A Explore the costs A1 Business costs
and revenue of a A2 Revenue
business to calculate A3 Profit
profit

B Explore break-even B1 Calculating break-even

analysis and cash flow B2 Using break-even
forecasting This unit is assessed through
B3 Preparing a cash flow
Forecast a Pearson Set Assignment.
B4 Analysing a cash flow
forecast

Assessment guidance
The unit is assessed by a Pearson Set Assignment (PSA). The assessment is set by Pearson and
must be taken under controlled conditions before it is marked by tutors.
There are 30 guided learning hours assigned to the unit, of which 10 hours will be required for
assessment.
Before attempting the summative assessments, learners must be prepared and have acquired the
underpinning knowledge, understanding and skills. They must have a sound understanding of the
requirements of the assessment and evidence they need to produce. Learners must be ready to
independently complete the assessment for each learning aim/s and know how to organise and
manage their time and meet the set deadlines.
Set assignments are available from September each year and are valid for one year only.
Delivery must cover all the unit content and prepare learners to produce evidence to meet
the assessment criteria and assessment guidance in preparation for taking the PSA. Sample
Assessment Materials are available on the Pearson website. These can be used or adapted
to help learners prepare for assessment.

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Getting started
This gives you a starting place for one way of delivering the unit, based around the
recommended assessment approach in the specification.

Introduction
This unit gives learners the opportunity to explore the different types of revenue/costs
associated with running a business and how a business calculates whether it is making a profit
or a loss. It shows how financial planning tools are used to analyse financial data and assess
business risks and develops learners’ knowledge of calculating break-even analysis and
preparing cash flow forecasts. Learners need more than a theoretical knowledge and
understanding of business finance – they need to be able to apply their knowledge to a range
of real business scenarios. Where possible, theoretical teaching should be minimised and
preference given to visits to businesses, guest speakers, case studies, problem-solving and
practical or interactive activities. Such approaches reinforce the importance of applying the
underpinning concepts to real-life situations.

Learning aim A – Explore the costs and revenue of a business to calculate profit
• For Learning aim A, the teaching focuses on the different sources of revenue and types of
costs involved in running a business, in order to calculate whether the business is making a
profit or a loss.
• For content area A1, learners need to fully understand the difference between start-up
and running/operating costs. Learners should be provided with practical activities to
identify the types of costs associated with different types of businesses. Guest speakers
could be used to help illustrate the different sources of revenue/costs for different types of
businesses. Learners can work in groups to determine the sources of revenue and types of
costs associated with a start-up business of their choice, in order to help distinguish
between start-up and running costs. They could present their findings to the rest of the
class and discuss any differences in opinions regarding classification of costs (which may
arise from initial running/operating costs being classified as start-up costs). Practice
activities can be used to help learners develop confidence in classifying difference types of
costs.
• For content area A2 learners need to be able to calculate revenue from sales (unit sales
price × number sold) and practical activities should be used to develop confidence in their
calculations. They should also understand revenue can come from other sources (interest,
rental income/leasing) and local case studies/guest speakers/videos could be used to
illustrate examples for the learners. They could also research some well-known brands and
consider the main sources of revenue for each brand.
• For content area A3 learners then need to use their knowledge of revenue and costs in
order to calculate gross and net profit. Learners should be able to calculate total revenue
and total costs before moving on to look at how profit is calculated. A video could be used
to discuss a real example of how profit is calculated in a business. Practical activities can be
provided to the learners to help illustrate how gross profit and net profit is calculated.
Learners should then be provided with case study data to carry out their own calculations,
to develop confidence in the calculations. Learners can use these data sets to work in
groups to discuss how costs/revenue could be changed to improve the level of profit for the
business.

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Learning aim B: Understand break-even analysis and cash-flow forecasting

• Learning aim B focuses on financial planning tools such as break-even analysis and cash
flow forecasting.
• Content area B1 looks at break-even analysis. Learners need to have a clear
understanding of the different costs associated with producing a good/service. Learners
could be asked to classify the costs in terms of their behaviour for a selected business to
determine fixed costs, variable costs and total costs. A case study approach will be useful to
allow learners to identify the key figures needed to calculate the break-even point (using
table and formula) and/or draw the break-even chart. Learners should be encouraged to
work in pairs to help develop confidence in this area.
• For B2 learners need to be given several case studies until they are confident with
drawing/annotating break-even charts and analysing what each one means for the
business in terms of profit/loss. Learners then need to be introduced to the concept of the
margin of safety and case studies should be used to help learners analyse the impact of
changes in revenue/costs on the break-even point. Learners need to understand how
break-even analysis can be used in the planning process of a business. A video illustration
could be used to provide a practical overview of the benefits/limitations of break-even
analysis to a selected business.
• For B3 learners need to understand the role of cash flow forecasting in terms of listing the
inflows and outflows of the business. A case study approach could be used to illustrate the
importance of cash flow timings and the impact of a negative cash flow balance on a
business. A local business could be invited to speak to learners in relation to their own
experience of cash flow forecasting and the impact it has on the success of the business.
• For content area B4 learners should practise completing as many cash flow forecasts as
possible. Learners could be asked to create a cash flow forecast from given figures from a
business case study, and to analyse how the business could improve its cash flow position.
● There are many useful videos that can help learners gain an understanding of why cash
flow matters from the perspective of businesses. Learners must have knowledge of the
causes of cash flow problems and possible solutions. The Learn Loads website is a useful
tool which can be found by searching online for ‘Learn Loads why cash flow matters’.

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UNIT 3: FINANCIAL FORECASTING FOR BUSINESS

Details of links to other BTEC units and qualifications, and to other

relevant units/qualifications
This unit links to:
• Unit 4: Bookkeeping for Business
• Unit 17: Managing Personal Finances.

Resources
In addition to the resources listed below, publishers are likely to produce Pearson-endorsed
textbooks that support this unit of the BTEC International L2 Qualifications in Business. Check the
Pearson website at: (http://qualifications.pearson.com/endorsed-resources) for more information
as titles achieve endorsement.

Textbooks

Bentley P, Carysforth C - BTEC Level 2 First Business Student Book (Pearson 2013)
ISBN 9781446901366

Unit 2 will provide some useful coverage of the specification content for this unit

Pearson - BTEC First in Business Revision Workbook (Pearson 2014) ISBN 9781446906699

This revision booklet will provide opportunities to test knowledge of the unit content

Pearson - BTEC First in Business Revision Guide (Pearson 2014) ISBN 9781446906682

This resource is ideal for classroom or independent study. It has revision activities and worked
examples of some of the topic areas covered in this unit

Videos
Revenue, cost and profit - Video - GCSE Business - BBC Bitesize - this video provides examples of
costs in a business and how to manage them
VIDEOS | Two Teachers – this video illustrates how to prepare a cash flow forecast
Net Profit and Gross Profit | Formulas, Margin Calculations and How to Interpret Figures
Explained - Bing video – this video gives an introduction to calculating gross and net profit
Break-Even Analysis | How to Calculate the Break-Even Point Explained. - Bing video – this video
introduces how to calculate the break-even point

Websites
Revenue - Revenue, cost and profit - GCSE Business Revision - Other - BBC Bitesize– this website
provides an overview of the specification content such as Revenue, Costs, Profit, Cash Flow and
Break Even
FREE BUSINESS STUDIES RESOURCES | Two Teachers – this website provides a range of
worksheets and activities relevant to the topic areas for this unit
why-cash-flow-matters2.pdf (learnloads.com) – this website provides an overview of the
importance of cash flow forecasting to a business

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Pearson is not responsible for the content of any external internet sites. It is essential for tutors to preview each website before
using it in class so as to ensure that the URL is still accurate, relevant and appropriate. We suggest that tutors bookmark useful
websites and consider enabling students to access them through the school/college intranet.

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