1 / 22

SMALL BUSINESS MANAGEMENT

SMALL BUSINESS MANAGEMENT. Financial Management and Financial Statements. The Need for Financial Records. Uses of Accounting Information Entrepreneurs To plan and control To motivate employees Investors To evaluate performance Lenders To evaluate creditworthiness Government

neorah
Download Presentation

SMALL BUSINESS MANAGEMENT

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. SMALL BUSINESS MANAGEMENT Financial Management and Financial Statements

  2. The Need for Financial Records • Uses of Accounting Information • Entrepreneurs • To plan and control • To motivate employees • Investors • To evaluate performance • Lenders • To evaluate creditworthiness • Government • To verify taxes owed • To approve new stock issues

  3. The Accounting Cycle • Recording Transactions • Classifying Transaction Totals • Summarizing Data • Balance Sheet (Statement of Financial Position) • Income Statement (Statement of Profit and Loss) • Cash Flow Statement and/or Changes in Financial Position

  4. Accounting Systems for Small Business • One-Book System • One-Write System • Multi-journal System • Outsourcing Financial Activities

  5. Accounting Systems for Small Business • Small Business Computer Systems • Disadvantages • Cost • Obsolescence • Employee Resistance • Capabilities • Setup Time • Failure to Compensate for Poor Bookkeeping

  6. Management of Financial Information for Planning • Short Term Financial Planning • Clarification of Objectives • Coordination • Evaluation and Control

  7. Management of Financial Information for Planning • Long Term Financial Planning • The Capital Investment Decision • rate of return method • present value method • payback method • The Capacity Decision • break even point

  8. Management of Financial Information for Planning • Long Term Financial Planning (cont.) • The Expansion Decision • Effect of fixed cost adjustments • Effect of variable cost adjustments

  9. Evaluation of Financial Performance • Management of Current Financial Position • length of time for payments • three essential components • time taken to pay accounts payable • time taken to sell inventory • time taken to receive payment for inventory

  10. Evaluation of Financial Performance • Evaluation of Financial Statements • Ratio Analysis • Liquidity ratios • current ratio = current assets / current liabilities • over 1:1, usually between 1:1 and 2:1 • Acid test/ Quick ratio = current assets-inventories/ current liabilities • 1:1 is considered healthy

  11. Evaluation of Financial Performance • Evaluation of Financial Statements • Ratio Analysis • Productivity ratios • Inventory turnover = COGS / Average inventory at average cost • Inventory turnover = Sales / Average inventory at retail price • Collection period = Accounts receivable / Daily credit sales

  12. Evaluation of Financial Performance • Evaluation of Financial Statements • Ratio Analysis • Profitability ratios • Gross margin = sales - COGS • Profit on sales = net profit before tax / sales • Expense ratio = Expense item / Sales • Return on Investment = Net profit before tax / owner’s equity

  13. Evaluation of Financial Performance • Evaluation of Financial Statements • Ratio Analysis • Debt ratio • Total debt to equity = Total debt / owner’s equity • not greater than 4:1

  14. Credit and the Small Business • Advantages of Credit Use • will undoubtedly increase sales • necessary to remain competitive • credit customers exhibit more store loyalty • credit customers are more concerned with quality of service vs. price • credit records can be used for future planning

  15. Credit and the Small Business • Disadvantages of Credit Use • will be some bad debts - depends on credit policy and monitoring • slow payers cause lost interest and capital • increases bookkeeping, mailing and collection expenses

  16. Credit and the Small Business • Management of a Credit Program • Determine Administrative Policies • Set Criteria for Granting Credit • Set up a System to Monitor Accounts • Establish a Procedure for Collection

  17. Credit and the Small Business • Use of Bank Credit Cards

  18. Concept Checks • 1. Describe the three steps in the accounting cycle. • 2. What are the three financial statements , as discussed in the text, that are valuable to a small business owner? • 3. List the bookkeeping systems used by a small business.

  19. Concept Checks • 4. What are some of the capabilities of computers which can benefit small business? • 5. What are some possible disadvantages of computer ownership? • 6. In the short term, why is budgeting a valuable tool?

  20. Concept Checks • 7. What are the three types of long-term financial planning decisions that could affect the business? • 8. What measure can be used to evaluate the results which are found in the financial statements? • 9. What is the business cycle of a small business? Why is it important?

  21. Concept Checks • 10. Why is ratio analysis important?

  22. Appendices • A. Checklist for buying a small business computer • B. Use of Financial Ratios for a Small Business (Car Dealer)

More Related