Table of Contents
Principles of Costing and Business Control Systems
The cost principle is one of the most fundamental guidelines of accounting. Costing is the system of computing the costs of running a business by assigning expenditures to various operations of the firm. There are various important principles of costing. According to the first principle, costs are always related to their cause (Bean & Hussey, 1997). Abnormal costs are also charged in costs. The third principle proposes that costs are charged after they are incurred. It is noteworthy that past costs are not taken into consideration for future expenses. Lastly, keeping accounts for costs is based on the principle of double-entry (Bean & Hussey, 1997). On the other hand, business control systems are subsets of business that help in protecting the organization from careless, hasty, uninformed, and costly decisions. They could be visual, procedural, or embedded controls. The following principles of costing and business control systems will be vital in the running of Life Hope Care.
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Irrespective of the type and size, every organization tries to cut costs and maximize profits. Cost control refers to the process of managing costs associated with a particular process in the organization. Its primary goal is to improve business cost-efficiency by reducing costs and restricting their growth. Typically, the process involves investigative processes to detect variance of actual costs from budgeted costs, analytical procedures to determine the causes of variation, and corrective measures to effect realignment between budgeted and actual costs.
A cost-benefit analysis could also be useful to the new care home. A cost-benefit analysis (CBA) is the process by which the benefits of a particular business-related action are summed, and the costs associated with the action are subtracted (Bean & Hussey, 1997). Therefore, before starting the new care home, a cost-benefit analysis must be conducted to evaluate all the probable revenues and costs that may be generated if the business is initiated (Entrepreneur, n.d.). The results of the analysis will determine whether the project is feasible.
Costs and Incomes
Costs include direct and indirect costs including opportunity costs, costs of potential risks, and intangible costs. On the other hand, benefits include all direct and indirect income and intangible benefits such as goodwill. Quantitatively comparing the results of the aggregate cost and benefits will determine if the benefits outweigh the costs. If the expected income and benefits outweigh the costs, then it is rational to implement the idea.
Sometimes, it may be more profitable for the company to allocate specific business processes to a specialist external service provider. In healthcare and social care, outsourcing involves contracting out a business process and non-core functions to a third-party provider. This process is advantageous to the firm because of factors like swiftness and expertise, risk-sharing, and reducing operation and recruitment costs for the company. Also, it allows the company to concentrate on its core processes rather than supporting non-core operations. The care home can outsource services such as cleaning services, logistics, and recruitment to focus on its core purpose of offering quality care for the elderly.
Before starting the business, it is essential for the partners to have some capital. Business capital is the money used for investment in a project and is the backbone of the success of any venture. Normally, a firm that has access to capital has a significant advantage. Capital can be obtained through loans from banks, gifts from friends and family members, savings, crowd-funding, Small Business Innovation Research Grants, and smart leases. Primarily, capital is grouped into working capital, equity capital, and human capital.
Information Needed to Manage Financial Resources
Financial management is the practice of managing financial resources. It includes financial reporting, budgeting, accounting, collecting accounts receivable, insurance for business, and risk management. By and large, the financial management system of a small business entails how it is financed and how money is managed in the firm. In the new home care, financial management programs will revolve around components of cost management, human resource, administration, buildings, equipment, finance, income streams, and consumable items.
It is important for the business to be careful in managing the relationships it has with its employees, suppliers, and service users. By and large, the success of these relationships has a significant influence on the overall success of the business. The financial department must maintain a reliable bookkeeping system that records all the daily operations of its accounting systems and records routine transactions within the appropriate accounts. The nursing home must also implement an accounting system that records the collected bills, pays the employees, and suppliers, and also manages its tax payments appropriately (References for Business, 2016).
Providers in the health and social care industry require the possession of specific devices. These equipment, such as kidney dialysis machines, are often costly. For this reason, the company must ensure that the resources are used in the most efficient way possible. Management of equipment involves making sure that the available equipment is adequate for use within the nursing home to cater to the needs of the elderly while avoiding an overabundance so that all the equipment available is utilized in the provision of care. Moreover, it may involve routine servicing of the available equipment (References for Business, 2016). Efficient management of equipment will guarantee that there are fewer downtimes in the facility.
The management of finance dictates the success of any business. While excellent financial management results in business success, poor management may lead to failure. Therefore, it is vital for the financial manager to understand efficient accounting methodologies, investing strategies, and effective debt management (Bates, 1993). Furthermore, they must devise methods of bringing income into the business, either through taking on debt or taking advantage of credit arrangements, financing through equity investments, and earning income. Making wise and profitable investments can help fund the business without any major costs. Likewise, investing in products such as interest-bearing bank deposits and blue-chip bonds can hedge against risks.
Building management comprises the supervision of the hard and soft services of a built facility within the health or social care institution. Management of hard services frequently relates to the physical and structural services like fire alarm systems and lifts within the facility. On the other hand, soft services comprise landscaping, cleaning, and security. Therefore, the home should employ a building manager to ensure proper management of the center’s buildings.
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Consumables are those goods that are capable of being consumed. Mainly, they may be destroyed, wasted, dissipated, or spent. They include elements such as food, water, cleaning supplies, patient care gloves, disposable bedpans, and medicine, among others. The new care home should invest in an efficient consumable inventory. Maintaining a consumable inventory provides current inventory tracking for all consumable items and supplies.
Administration includes all aspects of overseeing and supervising an organization’s operations. It also involves decision-making and efficient organization of employees and resources to direct the center’s activities towards the provision of high-quality services to the elderly (Ledue 2010). Therefore, it is crucial for the new care home to invest in a group of qualified administrators to supervise the day-to-day operations of the proposed business (Ledue, 2010).
The income stream is one of the building blocks of a business, and it shows the income that a company earns from all the methods by which the firm generates money. The care home will have several revenue streams including recurring revenue, transaction-based revenue, and service revenue. Having multiple sources of income reduces the risk of insolvency (Bates, 1993). The new care home could obtain income from the service payments made for medical services for the elderly, accommodation services to the care home’s residents, and interests earned from investments such as bonds. Therefore, when one source of income fails, the center will have other sources of revenue.
Impact of Regulatory Requirements
Life Hope Care must conform to the necessary regulatory requirements to guarantee the success of its operations. These conditions help the organization to operate within the standards of the statutory provisions of the UK. The UK legislation stipulates the standards of all binding contracts made in a health or social care organization. Such contracts include agency, pledges, bailments, and indemnity letters. The Health and Social Act 2012 dictates that any person who provides healthcare services for purposes of NHS must hold a license. Therefore, Life Hope care must obtain a legal operation license before commencing business.
Additionally, there are policies with regard to the issue of quality management. Part 8 of the Health and Social Act 2012 stipulates the quality standards that social care providers must meet. These standards are set to ensure that health and social care institutions meet the quality standards of credibility to their investors and stakeholders without fraud. Therefore, Life Hope Care must meet all the quality standards before being able to operate within the country. There are federal bodies charged with the responsibility of enforcing quality standards within social care units that provide services to members of the community. Furthermore, the Care Act 2014 relates to care and support for adults and the law relating to carers. The bill makes provisions for safeguarding adults from neglect and abuse.
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Evaluation of Systems for Managing Financial Resources
Sources of income
Sources of revenue that may be available to Life Hope Care may include fees for services rendered and dividends received from shares held in other companies. The care home will be keen on increasing its income streams and therefore may decide to invest in shares in profitable companies. Another source of revenue will include bank loans.
Life Hope Care is set to develop comprehensive budgets. Normally, such budgets are detailed and are used in circumstances where there is a limitation in spending. Given that it is a new business, the center will seek to reduce all unnecessary expenditures and costs. Comprehensive budgeting will, therefore, help the business in having a financial overview of the way the organization will be spending its capital on the proposed projects.
Administration of Budgets
Life Hope Care could integrate budget monitoring systems to track the performance of the business in various areas. Such an approach will indicate any variations in the business projects such as overruns, thereby allowing corrective action by the management. Besides, regular reporting within the institution will offer the necessary information on the present and future impacts that result from the social care centers’ activities.
Cost centers could entail the use of cost-benefit analysis in making expenditure decisions for the care home. A cost-benefit analysis will give the organization the required tools in making decisions that allow efficient and equitable allocation of resources within the institution (Bean & Hussey, 1997).
Audit and Accountabilities
Life Hope Care must set aside resources and hire an internal auditor and an external auditor to check on the financial statements of the facility. External auditors can be consulted every financial year while the internal auditor verifies the authenticity of the organization’s financial records routinely. This will reduce the levels of unaccountability and fraud.
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Advantages of the Financial Resource in HSC
Financial resources are an important aspect of HSC. Having a sufficient and secure amount of financial resources for the business enables an institution to operate efficiently and sufficiently well to promote the success of the social care business. Moreover, financial resources enhance the planning and proper management of an organization’s funds. It also allows the financial managers to identify specific trends and forecast for the future.
Disadvantages of the Financial Resource in HSC
The information, time, and expertise involved with the management of financial resources have a significant cost to the business. As Such, Life Hope Care must employ personnel to manage buildings, consumable inventory, administration duties, equipment, and income streams. Thus, social care must incur expenses to manage these resources.
- Bates, J.G. 1993. Managing values for money in the public sector, pp. 40-125. New York: Chapman & Hall.
- Bean J., & Hussey L. 1997. Costing and pricing public sector services, pp. 34-89. San Fransisco: HB publication.
- Entrepreneur, Cost-benefit analysis. [Online] Available from: https://www.entrepreneur.com/encyclopedia/cost-benefit-analysis [Accessed 16 Oct. 2016].
- Ledue, C. 2010. Managing resources, setting goals is key to hospital financial health. [Online] Healthcare Finance News. Available from: http://www.healthcarefinancenews.com/news/managing-resources-setting-goals-are-key-hospital-financial-health [Accessed 16 Oct. 2016].
- Reference for business, 2016. Cost Control – benefits, expenses. [Online] Available from: http://www.referenceforbusiness.com/encyclopedia/Cos-Des/Cost-Control.html [Accessed 16 Oct. 2016]. 206507.