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Chapter 10 ppt

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  • 1. SMALL BUSINESS MANAGEMENT Chapter 10 Financial Management
  • 2. Accounting Information
      • Entrepreneurs
        • To _____ and control
        • To motivate employees
      • Investors
        • To _____ performance
      • Lenders
        • To evaluate creditworthiness
      • Government
        • To _____ taxes owed
        • To approve new stock issues
  • 3. 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
    The Accounting Cycle
  • 4. Financial Statements
      • Balance Sheet (Statement of Financial Position)
        • _____ of what a business owns and what it owes
      • Income Statement (Statement of Profit and Loss)
        • _____ of operations over a given period of time
      • Cash Flow Statement (Ch 7)
      • Changes in Financial Position
        • _____ in balance sheet accouts of a set period of time
  • 5. Accounting Systems for Small Business
    • One-Book System
    • One-Write System
    • Multi-journal System
    • Outsourcing Financial Activities
  • 6. Accounting Systems for Small Business
    • Small Business Computer Systems
      • Top 5 Accounting Software For Small Business
        • Simply Accounting Accounting Software
        • MYOB Plus Accounting Software
        • Intuit QuickBooks Accounting Software
        • Peachtree Complete Accounting Software
        • AccountEdge Accounting Software
  • 7. Accounting Systems for Small Business
    • Disadvantages
      • Cost
      • Obsolescence
      • Employee _____
      • Capabilities
      • Setup Time
      • Failure to Compensate for _____ Bookkeeping
  • 8. Management of Financial Information for Planning
    • Short Term Financial Planning
      • Preparing an estimated future financial result ( Proforma or budget )
      • Budget is valuable because
        • Clarification of Objectives
        • Coordination
        • Evaluation and Control
          • Variance analysis
  • 9. Management of Financial Information for Planning
    • Long Term Financial Planning
      • The Capital Investment Decision
        • Baron of _____
      • The Capacity Decision
        • Cottage _____
      • The Expansion Decision
  • 10.
      • The Capital Investment Decision
        • rate of return method (PG 315 )
        • payback method (PG 315 )
        • present value method
          • NPV or IRR ( Get a financial calculator )
  • 11.
      • The Capacity Decision
        • break even point
          • which tells you the sales volume you need to break even, under different price or cost scenarios
  • 12. Management of Financial Information for Planning
      • The Expansion Decision
        • Effect of fixed cost adjustments
        • Effect of variable cost adjustments
          • Use BEP on incremental basis
  • 13. Evaluation of Financial Performance
    • Management of Current Financial Position
      • Making profit but cash poor
        • 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
  • 14. 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
  • 15. 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
  • 16. 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
  • 17. 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
  • 18. Credit and the Small Business
    • Advantages of Credit Use
      • will undoubtedly increase sales
      • necessary to _____ competitive
      • credit customers exhibit more store loyalty
      • credit customers are more concerned with _____ of service vs. price
      • credit records can be _____ for future planning
  • 19. Credit and the Small Business
    • Disadvantages of Credit Use
      • will be some bad debts - depends on credit policy and monitoring
      • slow _____ cause lost interest and capital
      • increases bookkeeping, _____ and collection expenses
  • 20. 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
  • 21. Credit and the Small Business
    • Use of Bank Credit Cards
      • Maybe cheaper and easier than running your own credit program
      • Usually 2%-6% of transaction
  • 22. Sam’s Paint and Drywall Pg 324
      • 6a. From the above balance sheet and income statement of Sam's Paint and Drywall determine the following ratios:
          • 1. Current
          • 2. Inventory turnover
          • 3. Profit to sales
          • 4. Return on investment
          • 5. Total debt to equity
      • 6b. From Dunn & Bradstreet's Key Business Ratios on industry norms, evaluate each of the above ratios.
  • 23. 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.
  • 24. 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?
  • 25. 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?
  • 26. Concept Checks
    • 10. Why is ratio analysis important?
  • 27. Appendices
    • A. Checklist for buying a small business computer
    • B. Use of Financial Ratios for a Small Business (Car Dealer)