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Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence Center Financial Management & Controlling Institute of Business Managemnet (IFU-FHS)
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Page 1: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Controlling for Small and Medium-sized

Enterprises

Prof. Dr. Wilfried Lux Prague, April 25, 2014

Competence Center Financial Management & Controlling

Institute of Business Managemnet (IFU-FHS)

Page 2: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Agenda

1. Introduction to Controlling in Small and Medium Sized Enterprises

2. Financial aspects: Profit and Cash Flow

3. Non-financial Aspects in Controlling

4. Setting the right Selling Price

1. Product Calculation

2. Target Costing

Page 3: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Usage of Strategic Controlling Instruments in SMEs

Source: KMU Barometer Controller Services 2006

Page 4: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Relevance of Strategic Controlling Instruments in SMEs

Source: KMU Barometer Controller Services 2006

Page 5: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Usage of Cost Accounting Instruments in SMEs

Source: KMU Barometer Controller Services 2006

Page 6: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Relevance of Cost Accounting Instruments in SMEs

Source: KMU Barometer Controller Services 2006

Page 7: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Controlling Instruments in SME

Source: Ebner/Becker/Mayer/Ulrich 2013

Contribution

margin

accounting

Cash flow

accounting

Key Performance

Indicators /

Systems

Page 8: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

2. Financial Aspects: Profit and Cash Flow

Page 9: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Income Statement (yearly, monthly) - Example

Small Swiss plumbing and tiling company

Page 10: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

16

Profitability and Liquidity

Nourishment for the company

= Profitability

(long-term goal)

Oxygen for the company

= Liquidity

(short-term goal)

Page 11: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Liquidity Planning and Control

…Excel

Source:

www.heenemann.de

Page 12: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

The view ahead – Order entry

…Excel

Source:

http://www.controller

spielwiese.de/index.h

tm?Inhalte/Toolbox/b

erichte.htm

Page 13: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Financial Key Performance Indicators

Profitability

Liquidity

Safety/

Risk

Efficiency Growth

Page 14: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

How important are KPIs?

• «My wife took part in an accounting course; since then we calculate

some financial figures.»

• «I rather accept an additional order than spending time on

calculating figures.»

Page 15: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Most frequently used financial KPIs

• Sales Growth – dependent on industry and economic conditions

• Return on Sales (ROS): Industry: 4-8%; Trade: 2-3%; Min. 0,1%;

Median 8%; Max. 43%

• Return on Investment (ROI): good is 25-50% above interest rate for

long-term debt; Min. 8%; Median 14%; Max. 30%

• Equity Ratio: Industry: above 40% good; Trade: above 30% good; Min.

8%; Median 39%; Max. 100%

• Collection Period: 50% longer than due date (45 days); Min. 6 days;

Median 43 days; Max. 120 days

• Quick Ratio: above 100% is good; Min. 2%; Median 107%; Max. 285%

If Cashflow Statement is established:

• Free Cashflow: should be positive

• Cashflow-Margin: Min. 2%; Median 10%; Max. 67%

Source: Performance Barometer

St. Gallen 2008

Page 16: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Frequently used non-financial KPIs

• Customer Satisfaction: Min. 71%; Median 84%; Max. 96%

• Complaint Rate: Min. 0%; Median 1%; Max. 2%

• On-time delivery (outbound): Min. 71%; Median 95%; Max. 100%

• Scrap rate: Min. 0%; Median 2,5%; Max. 17%

• Employee satisfaction: Min. 3%; Median 8%; Max. 80%

• Fluctuation rate: Min. 3%; Median 7%; Max. 17%

• Absenteeism rate: Min. 3%; Median 4%; Max. 19%

• Value creation per employee (in Euro): Min. 82’000; Median 143’000;

Max. 795’000

Source: Performance Barometer St. Gallen 2008

Page 17: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Why do I have to pay for my filet mignon in

Germany Euro 20,- and in Switzerland CHF 45,-?

+ +

= € 20,- ≠ CHF 45,-

Page 18: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Example: Calculation in a small furniture firm

Page 19: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Calculation for a restaurant (fictive)

Meat CHF 10,-

Other ingredients CHF 5,-

Labor costs CHF 20,-

= Direct Costs CHF 35,-

+ Overhead surcharge (20%) CHF 7,-

= Cost of Goods CHF 42,-

+ Net Gain CHF 3,-

= Selling price CHF 45,-

Page 20: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

What if the market only allows CHF 40,-?

Selling price CHF 40,-

- Net Gain (reduced) CHF 1,60

= Target Costs CHF 38,40

Meat (Negotiating with butcher) CHF 8,-

Other ingredients (leave away the topping) CHF 4,-

Labor Costs CHF 20,-

= Direct Costs CHF 32,-

+ Overhead Surcharge (20%) CHF 6,40

Page 21: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Which levers do I have?

• Cost-side

• Negotiating with suppliers

• Purchasing cooperatives

• Cut wages and salaries

• Make fixed to variable costs (e.g. freelancer instead of fixed

employees)

• Cut the portfolio(maybe quality reduction)

• Accept smaller gains

• Sales-side

• Increase quality in order to justify the higher price

Page 22: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Questions & Discussion

Page 23: Controlling for Small and Medium-sized Enterprises · 2014. 4. 29. · Controlling for Small and Medium-sized Enterprises Prof. Dr. Wilfried Lux Prague, April 25, 2014 Competence

Contact

Prof. Dr. Wilfried Lux

Competence Center Financial Management and Controlling

Institute of Business Management (IFU-FHS)

FHS St.Gallen – University of Applied Sciences

Rosenbergstrasse 59

9000 St.Gallen

Tel.: + 41 71 226 13 84

Fax: + 41 71 226 13 81

Email: [email protected]


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