Financial Factors (SQA National 5 Business Management): Revision Note
Exam code: X810 75
The importance of finance
For a business to succeed, it must both raise enough money and also manage its finances effectively
Poor access to funds or weak financial management can hold back growth, reduce competitiveness, and even threaten survival
Why finance matters
Investment in change
Customer tastes constantly evolve, requiring financial investment
Shops may need to refurbish their stores, restaurants might update décor or menus, and manufacturers must improve products to stay relevant
Growth and expansion
To win new customers and increase market share, businesses often need extra finance
Projects such as opening branches, upgrading equipment or launching advertising campaigns require investment
Running costs
Finance is also essential for everyday expenses, such as paying wages, utility bills and suppliers
Crisis management
Unexpected events, such as machinery breakdowns or sudden drops in sales, can only be managed if the business has financial reserves or quick access to funds
The role of financial management
A business must also manage its finances well
This includes
Budgeting to track income and expenses
Monitoring cash-flow to avoid shortages
Setting aside reserves for emergencies
Reviewing whether investments deliver value for money
Without strong management, even well-funded businesses may fail to use money wisely
Case Study
Caledonia Outdoor Adventures, a small eco-tourism company based in the Highlands, aimed to expand by offering guided kayaking trips and building a new visitor centre.
However, a lack of finance and weak financial management prevented the business from achieving its growth objective.
The business struggled to raise enough finance from the bank and did not have experienced financial managers in-house
Plans for the visitor centre were delayed, marketing campaigns were underfunded, and cash-flow problems meant staff wages were sometimes paid late
Competitors with stronger finances attracted more tourists, leaving Caledonia unable to grow and eventually forcing it to scale back operations
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