Communication with Management & StaffCommunication with Management & Staff
Effective financial management
Effective financial management
Budget preparationBudget preparation Effective financial management is
when a management team is able to predict future trends either to their advantage or take corrective action where necessary.
The preparation of a budget is the most fundamental exercise management can undertake in order to control business activities and introduce effective financial management.
Budget preparationBudget preparation Effective financial management is
when a management team is able to predict future trends either to their advantage or take corrective action where necessary.
The preparation of a budget is the most fundamental exercise management can undertake in order to control business activities and introduce effective financial management.
Monitor budgets - Performance Reports
Monitor budgets - Performance Reports
A plan is of no value unless it is monitored and controlled.
So together with the budget there needs to be a system in place that will monitor the business activities.
This is generally done by monthly reports that will compare the actual activities to the budget expectations.
Any differences between the two will be notified to the manager concerned for investigation.
This report is called a "Performance Report" and will be discussed during the manager's monthly meetings.
The feedback is designed to enforce the principle that a budget prepared by the participative approach is the responsibility of the team and that each individual manager has ownership of his department's budget and is responsible for the outcomes.
A plan is of no value unless it is monitored and controlled.
So together with the budget there needs to be a system in place that will monitor the business activities.
This is generally done by monthly reports that will compare the actual activities to the budget expectations.
Any differences between the two will be notified to the manager concerned for investigation.
This report is called a "Performance Report" and will be discussed during the manager's monthly meetings.
The feedback is designed to enforce the principle that a budget prepared by the participative approach is the responsibility of the team and that each individual manager has ownership of his department's budget and is responsible for the outcomes.
Performance report Performance report
The three main features of a performance report are:
1) Compares actual performance against budget
2) Management is given feedback on performance
3) Management can take corrective action
The three main features of a performance report are:
1) Compares actual performance against budget
2) Management is given feedback on performance
3) Management can take corrective action
Performance reports must be:Performance reports must be:
Prepared regularly and promptly Simple and informative Highlight variances that are
controllable Give accurate information Directed to accountable manager
(See “Appendix A" for sample of a Performance Report)
Prepared regularly and promptly Simple and informative Highlight variances that are
controllable Give accurate information Directed to accountable manager
(See “Appendix A" for sample of a Performance Report)
Cash Flow Statement Cash Flow Statement
Effective financial management also involves regular monitoring of the "Cash Flow Statement" with comparison to the budgeted cash flow statement.
The cash budget indicates the estimated cash receipts and cash payments for the budget period.
Its purpose is to monitor the cash flow and highlight periods of cash shortage or surplus.
It relates to the liquidity of the company and supports the company's capital budget and development plans.
The cash flow statement will monitor receipts from trade debtors and will alert management to check on slow /delinquent payers, thus avoiding the potential of bad debts and maintaining a regular inflow of cash.
Effective financial management also involves regular monitoring of the "Cash Flow Statement" with comparison to the budgeted cash flow statement.
The cash budget indicates the estimated cash receipts and cash payments for the budget period.
Its purpose is to monitor the cash flow and highlight periods of cash shortage or surplus.
It relates to the liquidity of the company and supports the company's capital budget and development plans.
The cash flow statement will monitor receipts from trade debtors and will alert management to check on slow /delinquent payers, thus avoiding the potential of bad debts and maintaining a regular inflow of cash.
Stock / inventory control Stock / inventory control
Inventory is one of the most important assets of a business; it could also be one of the most expensive.
It should therefore be kept to a minimum whilst maintaining a safety level to protect against unusual events.
Inventory is one of the most important assets of a business; it could also be one of the most expensive.
It should therefore be kept to a minimum whilst maintaining a safety level to protect against unusual events.
Why is inventory necessary?Why is inventory necessary?
To deliver sales made to customers To maintain stock for future sales To avoid stock shortages To negotiate price on order quantity -
discounts To overcome supplier inefficiencies To sell bulk stock on special prices To use certain stocks as loss-leaders
a type of pricing strategy where an item is sold below cost in an effort to stimulate other, profitable sales. It is a kind of sales promotion.
To deliver sales made to customers To maintain stock for future sales To avoid stock shortages To negotiate price on order quantity -
discounts To overcome supplier inefficiencies To sell bulk stock on special prices To use certain stocks as loss-leaders
a type of pricing strategy where an item is sold below cost in an effort to stimulate other, profitable sales. It is a kind of sales promotion.
Total relevant costsTotal relevant costs Re-order level Minimum inventory required to
operate effectively
Understanding of company costs
Understanding of company costs
In session 8 we discussed the calculation of break-even point in a business.
The main features were the distinction between variable and fixed costs.
The variable costs changed in direct proportion to sales and / or production, that means that every unit sold or produced had a cost of acquisition attached to it.
E.G. If a unit is sold for $10 and the cost of E.G. If a unit is sold for $10 and the cost of purchase of that unit is $4 there is a contribution purchase of that unit is $4 there is a contribution margin of $6 for every unit sold. Therefore a margin of $6 for every unit sold. Therefore a change in units sold will affect the profit by; change in units sold will affect the profit by; (variance in units * $6)(variance in units * $6)
In session 8 we discussed the calculation of break-even point in a business.
The main features were the distinction between variable and fixed costs.
The variable costs changed in direct proportion to sales and / or production, that means that every unit sold or produced had a cost of acquisition attached to it.
E.G. If a unit is sold for $10 and the cost of E.G. If a unit is sold for $10 and the cost of purchase of that unit is $4 there is a contribution purchase of that unit is $4 there is a contribution margin of $6 for every unit sold. Therefore a margin of $6 for every unit sold. Therefore a change in units sold will affect the profit by; change in units sold will affect the profit by; (variance in units * $6)(variance in units * $6)
Understanding of company costs 2
Understanding of company costs 2
On the other hand if a company has little or no variable costs (all fixed costs) the effect on the bottom line profit will be the full amount of the sale price.
That is the contribution margin is virtually the same as the sale price.
E.G. A cinema ticket has little or no E.G. A cinema ticket has little or no variable costs attached to it. If the ticket variable costs attached to it. If the ticket costs $13 then a change in the number of costs $13 then a change in the number of tickets sold will effect the profit by; tickets sold will effect the profit by; (variance in units * $13)(variance in units * $13)
On the other hand if a company has little or no variable costs (all fixed costs) the effect on the bottom line profit will be the full amount of the sale price.
That is the contribution margin is virtually the same as the sale price.
E.G. A cinema ticket has little or no E.G. A cinema ticket has little or no variable costs attached to it. If the ticket variable costs attached to it. If the ticket costs $13 then a change in the number of costs $13 then a change in the number of tickets sold will effect the profit by; tickets sold will effect the profit by; (variance in units * $13)(variance in units * $13)
Understanding of company costs 3
Understanding of company costs 3
Another example would be the school. Once a course is introduced and the minimum number of students required have registered, the costs would be virtually FIXED and one additional student would have an effect on bottom line profit to the full effect of the fees.
An analysis of all expenses will help identify which are essential and which may be reduced or controlled.
A reduction in expenses will have an equal increase in bottom line profit.
Another example would be the school. Once a course is introduced and the minimum number of students required have registered, the costs would be virtually FIXED and one additional student would have an effect on bottom line profit to the full effect of the fees.
An analysis of all expenses will help identify which are essential and which may be reduced or controlled.
A reduction in expenses will have an equal increase in bottom line profit.
Effective Financial Management
Effective Financial Management
Management must be fully aware of the nature of expenses and their effect on operational performance.
They must also be aware of their statutory responsibilities with regards to certain obligations such as:
Superannuation contributions, Workers compensation insurance, Business activity statements and the payment of GST, Public liability insurance, Statutory employee entitlements.
A clear understanding of their obligations will contribute towards effective financial management
Management must be fully aware of the nature of expenses and their effect on operational performance.
They must also be aware of their statutory responsibilities with regards to certain obligations such as:
Superannuation contributions, Workers compensation insurance, Business activity statements and the payment of GST, Public liability insurance, Statutory employee entitlements.
A clear understanding of their obligations will contribute towards effective financial management
Application of recognized accounting practices
Application of recognized accounting practices
1. Proper analysis and authorisation of source documents.
2. Use of computerised accounting package toimprove business performance reporting.
3. Design a quality system for processing of data.
4. Apply accrual accounting to match income to expenditure.
5. Regularly review aged debtors report to identify overdue accounts.
6. Make sure sufficient cash is available to meet payments made and direct bank debits.
7. Review banking procedures, and encourage daily banking of cheques.
1. Proper analysis and authorisation of source documents.
2. Use of computerised accounting package toimprove business performance reporting.
3. Design a quality system for processing of data.
4. Apply accrual accounting to match income to expenditure.
5. Regularly review aged debtors report to identify overdue accounts.
6. Make sure sufficient cash is available to meet payments made and direct bank debits.
7. Review banking procedures, and encourage daily banking of cheques.
Application of recognized accounting practices 2
Application of recognized accounting practices 2
8. Design financial reports to meet the specific business and management requirements.
9. Make sure that all financial reports and statements are accurate, valid and concise.
10. Make sure that all reporting conform to the accounting standards requirements
8. Design financial reports to meet the specific business and management requirements.
9. Make sure that all financial reports and statements are accurate, valid and concise.
10. Make sure that all reporting conform to the accounting standards requirements
11. Establish procedures and regularity for account reconciliations
11. Establish procedures and regularity for account reconciliations
Bank reconciliation statement Debtors subsidiary ledger to Debtors
control account Creditors subsidiary ledger to Creditors
control account Value of stock count to general ledger
inventory account Asset register to fixed assets accounts. Asset register depreciation charge to
accumulated depreciation Cash flow statement to cash at bank a/c
Bank reconciliation statement Debtors subsidiary ledger to Debtors
control account Creditors subsidiary ledger to Creditors
control account Value of stock count to general ledger
inventory account Asset register to fixed assets accounts. Asset register depreciation charge to
accumulated depreciation Cash flow statement to cash at bank a/c
Management ReportsManagement Reports
Required reports for management consideration and financial management.
Monthly Income Statement - Statement of financial performance = Profit & Loss for current month and for year to date.
Monthly Balance Sheet - Statement of financial position as at end of reporting period.
Cash Flow Statement - to analyse application of funds
Required reports for management consideration and financial management.
Monthly Income Statement - Statement of financial performance = Profit & Loss for current month and for year to date.
Monthly Balance Sheet - Statement of financial position as at end of reporting period.
Cash Flow Statement - to analyse application of funds
Hold monthly management meeting
Hold monthly management meeting
To discuss performance and to keep managers informed of current trends.
To discuss cash flow and confirm ability to proceed with capital expenditure.
To communicate any new company policies and objectives.
To discuss performance and to keep managers informed of current trends.
To discuss cash flow and confirm ability to proceed with capital expenditure.
To communicate any new company policies and objectives.
Inform Staff of any changes in policy
Inform Staff of any changes in policy
either by: memo on staff notice board, memo attached to pay advice, e-mail to individual persons, staff gathering, or individual contact.
either by: memo on staff notice board, memo attached to pay advice, e-mail to individual persons, staff gathering, or individual contact.
Conduct internal audits to confirm compliance
Conduct internal audits to confirm compliance
Confirm compliance with procedures and systems
make adjustments to systems to reflect industry practices and new technology and
update to current statutory and internal control requirements
Confirm compliance with procedures and systems
make adjustments to systems to reflect industry practices and new technology and
update to current statutory and internal control requirements
Some of this may be useful!Some of this may be useful!
PROJECTPROJECTCASE STUDYCASE STUDY See appendix ASee appendix A
PROJECTPROJECTCASE STUDYCASE STUDY See appendix ASee appendix A
