Chapter 12 - Financial Management

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Nov 9, 2013 (3 years and 11 months ago)

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Financial Management

Starting Your Own Business

Chapter 12

Learning Objectives


Create a cash budget


Improve your business’s cash flow


Analyze your business's financial
statements


Calculate the level of sales you need to
achieve a profit


Find professionals who can help you


Identify the types of services financial
experts provide


Manage Your Cash Flow


Construct a Cash Budget


Three columns
are used to show the estimated cash flow,
actual cash flow, and the difference
between the two.


Helps you budget your resources
.

Improve Your Cash Flow


Increase Your Cash Receipts


Offer discounts on bills paid right away.


Establish tighter credit policies.


Establish a follow
-
up system for
collecting unpaid accounts receivable.


Hold shipments to customers with large
unpaid bills or demand that bills be
paid in advance.

Improve Your Cash Flow


Increase your capital.


Take out a loan.


Financing your
business with your own
money.


Find investors willing
to invest for a share of
future profits.

Reduce Your Disbursements


Control Inventory and Payroll


Check to make sure you are not carrying too
much inventory.


Reduce the size of your work force.


Slow Bill Payment


Consider taking advantage of longer credit
terms.


Cut Other Expenses


Control variable expenses

Analyze Financial Statements


Analyze Your Sales


Analyze Sales by Product.


Analyze Net Profit on Sales by Calculating
Net Sales


Gross Sales
-

$ amount of all sales including
returns.


Net Sales
-

$ amount of all sales after returns
are subtracted.


Gross Sales


Returns = Net Sales

Analyze Financial Statements


Calculate Net Income After Taxes


Gross Profit


Profit before operating
expenses are deducted.


Gross Profit


operating expenses = Net
income from operations.


Net Profit on Sales Ratio


Net income after taxes / Net sales = Net Profit
on Sales

Perform Break
-
Even Analysis


Break
-
Even Point is the volume of sales
that must be made to cover all of the
expenses of a business.


Below the break
-
even point, your expenses
will exceed your revenues.


Once you reach the break
-
even point, your
sales will reach all of your expenses.


Once you exceed the break
-
even point, you
will begin to earn a profit.

Measure Costs, Sales and Profits


To Calculate Break
-
Even Point, you need
to know Total Fixed Costs, Selling Price
per Unit, Variable Cost per Unit


Total Variable Costs / Number of Units =
Variable Cost per unit



To calculate Break
-
Even Point


Total Fixed Costs / Selling Price per Unit






Variable Cost per Unit

Hiring A Professional


Bankers


Ways to increase profits


Attorneys


Keep you informed of
changes in specific laws


Accountants


Prepare financial
statements


Financial Planners


Help manage
your assets


Investment Brokers


Advice on
investing excess cash

How to Choose a Financial Advisor

1.
Research Financial Management so
that you are familiar with issues you
need to deal with.

2.
Consult other people in your
industry.

3.
Consider choosing a financial
advisor who charges a fee, not a
commission for services.

Services of Financial Experts


Financial Planning


Analyzing financial
statements in order to make decisions
about the future.


Strategic Planning


Involves making
decisions that affect your business in the
long term.


Tax Planning


Filing your income tax
return correctly to avoid paying too much
or too little tax.


Tax Audit


An IRS investigation of a tax
return.