Financial Management PPT - Gozips.uakron.edu

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FINANCIAL
MANAGEMENT

FINANCIAL REPORT


Compiled by calendar month, reporting
period, predetermined


Serves as a check on the financial control of
the entire operation


Affords basis of comparison for preceding
and future periods


Provides statistical source for compilation of
annual reports


Gives information for preparation of budget


Provides means of comparison with like
operations

FINANCIAL REPORTS


Provide information


Enough money to pay bills


Too much money tied up in inventory


Food cost higher or lower than expected

ESSENTIALS OF
ACCOUNTING


Recording


Classifying


Summarizing and reporting


Analyzing

INCOME STATEMENT


Shows business’ operating results


revenue,
expenses, and income


Financial status over period of time (month,
quarter)


profit and loss indicated


Revenue


sales, income, money generated


Cost of goods sold


COGS


cost of meals
served, food cost, money spent for goods


Gross margin/profit


money left after paying
for COGS


Operating expenses


rent, utilities,
depreciation (12
-
18%) of total

BALANCE SHEET


Shows relationship between a business’ debts and
the items it owns


Balance sheet equations:


Liabilities + Owners equity = Assets


Assets


Liabilities = Owners equity


Assets


Current


converted to cash within one year


Fixed


long term, used to operate business


Liabilities


Current


paid within one year


Fixed


long
-
term, due beyond one year


Equity


capital and stocks

FINANCIAL DATA SHOWS


Need to implement better controls


Reduce costs


Improve budgeting process


Increase profit and the return of owners
investment


Help prevent theft and fraud


point to
areas for controls


Allows you to plan and control the
business

FINANCIAL ANALYSIS


Break even point


sales are equivalent
to fixed costs plus variable costs


Fixed costs


stable regardless of sales
(rent, depreciation)


Variable costs


vary due to sales
amount and volume (food cost)


Other costs


indirect (utilities) or direct
(paper goods)

INFORMATION INCLUDED

NUMBER OF MEALS
SERVED


Patient census


count, NPO


Nourishments


Supplements


Snacks


Cafeteria meals


Special meals to groups


Tube feedings

MEAL COUNT


Inflate meal count


cost per meal too
low


Meal count too low


inflates meal cost


$0.05/meal off X 400,000 meals =


$20,000

CALCULATE RAW FOOD
COST

BEGINNING INVENTORY


+

PURCHASES (FOR REPORTING

PERIOD)
__________________________

TOTAL WORKING INVENTORY

-
CLOSING INVENTORY

COST OF RAW FOOD USED

30
-
40% OF DOLLAR SALES

FOOD COST


Food is the most expensive and/or
variable cost


Unexplained increase in food cost
should first evaluate possible theft

LABOR COSTS


Payroll


salaries and wages


vacation, holiday, personal day


Social security taxes


Workmen’s compensation


Health and life insurance


Other fringe benefits:


retirement plans


dental/eye plans


day care


free meals


profit sharing plans, etc., etc.

FULL
-
TIME EQUIVALENTS


FTEs


1 FTE = 40 hour work week


1 FTE relief can cover 2.5 FTEs


Compute FTEs:


Add
ALL

man
-
hours for period of time (week,
day, month)


Include part
-
time and full
-
time


Divide total hours by 40 to get FTE

Each full
-
time employee = 16
hours / week off

2 X 16 = 32

40
-

32 = 8 or ½ employee

therefore each relief = 2.5 FTE

TURNOVER


Employees lost + replacement


total staff

So: if total staff = 50

Terminate = 4

Replacement = 2

4 + 2 = 6

6/50 = 0.12 (12% turnover rate)

LAWS WITH A FINANCIAL
IMPACT

MINIMUM WAGE


Bureau of Labor Statistics


current
information on federal minimum
wage


Fair Labor Standards Act of 1938
-



sets minimum wage
annual gross income of <$500,000
exempt from paying min. wage


can pay teens a temporary training
wage



IMPACT


For every 10% increase in minimum
wage = 1.2
-
1.6% increase in hamburger
or chicken

WORKMEN’S
COMPENSATION ACT


1908 & 1911


Provide medical costs for those injured on job


Encourage employer interest in safety


Reduce court delays


OCCUPATIONAL SAFETY AND
HEALTH ACT


(1970)


Enforced by Occupational Safety and Health
Administration (OSHA)


Assure safe and healthful working conditions


Meet standards through training


Keep records of incidents



SOCIAL SECURITY ACT


1935


Federal Insurance Contribution Act
(FICA)


Compulsory


Many expansions


Medicare 1965

OTHER EXPENSES


Paper goods


PRODUCTIVITY


Defined by Spears: ratio of output to
input or the ratio of goals to resources
of food service system


MEASURE PRODUCTIVITY

QUANTITY


Quantity


focuses on amount of a product
produced or service rendered


Meals per patient day


Meals per labor hour


Minutes per meal


Labor cost per day


Food cost per patient per day


ETC


see Spears

QUALITY


Focuses on accuracy and quality of the
product produced


Food temperature


Sensory characteristics


Safety and sanitation of work area


Seven principles of HACCP

OUTCOMES


Measures whether product met the
proposed outcome


did we accomplish
what we set out to do


Satisfaction surveys


Plate waste


Service parameters such as time,
accuracy and lack of crisis management

PRODUCTIVITY
INDICATORS


Acute care facilities


3.5 meals/labor hour


Extended care facilities

5.0 meals/labor hour


School foodservice

13.0
-
15.0 meals/labor
hour


Cafeteria

5.5 meals/labor hour


Healthcare institutions with 3 meals + snacks 7
days/ week

14 minutes/meal can be used

BUDGETS

DEFINED


A plan for operating a business
expressed in financial terms


A plan to control expenses and profit in
relation to sales


Provides an organized procedure for
planning and for development of
standards of performance in numerical
terms

BUDGET TYPES

OPERATING


Forecasts level of service to be
provided


Projects costs necessary to support this
level of service


Formulate plan for making management
decisions


Control department activities

IMPORTANT TO FOOD
SERVICE


Standard for comparing actual with
forecasts = FEEDBACK


Financial plan for allocation of
resources


Organizational plan for meeting
departmental objectives


Represents forecast for coming year

CAPITAL BUDGET


Finances major purchases or
improvements


Multiple years


up to 5 years


Item not consumable


Cost level and usable time period is
defined


PREPARATION


Main objective is to formulate a carefully
delineated plan for making management
decisions and controlling department’s
activities


Timetable


Objectives


Financial feasibility


REVIEW OF DATA


Incremental budgeting


based on
previous year and % of increase (food,
labor, etc), % of decrease


Flexible budgeting


prepares for level
of service at both higher and lower end
of original estimate


Zero based budgeting


justification for
each item, expenditure

COST CONTROLS

DEFINED


Planned goals and objectives are
accomplished with most efficient and
effective use of resources


Closely linked to planning


COMPONENTS


Strategic plans


ultimate results are
provision of goods and services to
satisfy client needs and wants with
increased revenue and decreased
expense


Policies and Procedures


written
statement of goals and objectives with
written procedure of how to reach them

EFFECTIVE CONTROL
CHARACTERISTICS


Extension of planning process


Provide accurate up
-
to
-
date information
about plans and standards


predetermined targets against which
future performance will be measured


Should be flexible to deal with changing
environment


within and outside
organization

FEEDBACK

DEFINED


Any process that compares the
operation’s actual performance, as
documented in output reports, with
standards of performance, established
in control documents

FUNCTION


Evaluates financial performance


Evaluates operational performance


Identifies potential problems


Identifies potential opportunities


Should be:
objective
based on fair observations of actual
data, activities and conditions

FEEDBACK PROCESSES

FINANCIAL STATEMENT
ANALYSIS


Trend analysis
compare financial/nonfinancial results from
several accounting periods


Ratio analysis
mathematical relationship between any 2
items


Common size analysis
report each line item as a %


Variance analysis
difference between actual and projected

FINANCIAL INDICATORS


Based on volume planning


What level of revenue necessary to
make desired profit


SENSITIVITY ANALYSIS


Electronic spreadsheets


Impact of 5% increase in cafeteria
revenue on net income (example)