Financial Management Overview


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Basic overview of financial management

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  • Financial Management Overview

    1. 1. <ul><li>when you spend money, it’s a number </li></ul><ul><li>when you quote, it’s a number </li></ul><ul><li>your client’s budget is a number </li></ul><ul><li>your new design proposal requires some numbers </li></ul><ul><li>It’s in your best interest to understand the numbers. </li></ul>Why do you have to know the numbers?
    2. 2. But I will be working in cubeville! <ul><li>regardless of where you end up, having financial knowledge will help you </li></ul><ul><li>people you work with or report to have to deal with numbers </li></ul><ul><ul><li>budgets </li></ul></ul><ul><ul><li>income projection statements </li></ul></ul><ul><ul><li>balance sheets </li></ul></ul><ul><ul><li>cash flow </li></ul></ul>
    3. 3. <ul><li>prepared when you are actually ready to open for business </li></ul><ul><li>reflects your priorities in terms of how you spend your money, the expenses you will incur and how you will meet those expenses (income) </li></ul><ul><li>should include money to cover the first three to six months of operation </li></ul>Operating Budget
    4. 4. Balance Sheet <ul><li>&quot;snapshot&quot; of the company's financial condition on a given date </li></ul><ul><li>it is the theoretical value of your company if you were to liquidate the assets, shut the doors and sell the company </li></ul><ul><li>main thing people look at is level of debt and how the debt is financed </li></ul>
    5. 5. <ul><li>valuable as both a planning tool and a key management tool to help control business operations </li></ul><ul><li>can preview income generated each month and for the business year, based on reasonable predictions of monthly levels of sales, costs and expenses </li></ul><ul><li>completed income statement allows you to compare actual figures with projections and to take steps to correct any problems </li></ul>P&L | P/L | Profit and Loss | Income Projections
    6. 6. Cost of Sales <ul><li>do not overlook any costs that you have incurred </li></ul><ul><li>calculate cost of sales of all services used to determine total net sales </li></ul><ul><li>do not overlook transportation or travel costs if you’re working remotely </li></ul><ul><li>include all direct labor </li></ul>
    7. 7. Controllable or Variable Expenses <ul><li>salary expenses - base pay plus overtime </li></ul><ul><li>payroll expenses - include paid vacations, sick leave, health insurance, employment </li></ul><ul><li>insurance (EI) and pension (CPP) </li></ul><ul><li>outside services - include costs of subcontracts, overflow work and special or one – time services </li></ul><ul><li>supplies - services and items purchased for use in the business </li></ul><ul><li>repair and maintenance </li></ul><ul><li>advertising expenses </li></ul><ul><li>car delivery and travel - include charges if personal car is used in business, including parking, tools, buying trips, etc. </li></ul><ul><li>accounting and legal - outside professional services </li></ul>
    8. 8. Fixed Expenses <ul><li>rent - list only real estate used in business </li></ul><ul><li>depreciation - amortization of capital assets like computers </li></ul><ul><li>utilities - water, heat, light, etc </li></ul><ul><li>insurance - fire or liability on property or products </li></ul><ul><li>loan repayments - interest on outstanding loans </li></ul><ul><li>miscellaneous - unspecified; small expenditures without separate accounts </li></ul>
    9. 9. Go with the flow… <ul><li>how much cash do you need to run your business? </li></ul><ul><li>how much cash is locked-up in other current assets? </li></ul><ul><li>how long does it take to collect your cash from customers? </li></ul><ul><li>how much cash should you hold? </li></ul><ul><li>how do you cover cash deficits? </li></ul><ul><li>how do you identify problems with cash flow? </li></ul>
    10. 10. <ul><li>cash is the most liquid of assets and it represents the lifeblood for growth and investment </li></ul><ul><li>in order to generate cash, we must efficiently and effectively manage the activities that provide cash </li></ul><ul><li>these activities include billing customers as quickly as possible, disbursing payments only when they come due, collecting cash on overdue accounts, and investing idle cash </li></ul><ul><li>managing cash flow involves several objectives: </li></ul><ul><ul><li>accelerating cash inflows wherever possible (receipts) </li></ul></ul><ul><ul><li>delaying cash outflows until they come due (disbursements) </li></ul></ul><ul><ul><li>investing surplus cash to earn a rate of return </li></ul></ul><ul><ul><li>borrowing cash at the best possible terms </li></ul></ul><ul><ul><li>maintaining an optimal level of cash that is neither excessive nor deficient </li></ul></ul>Managing Cash Flow
    11. 11. <ul><li>overall objective is to delay making payments until they are due </li></ul><ul><li>You can better manage cash flows by controlling float times: </li></ul><ul><li>By increasing the float times within disbursements, you have the use of cash for several more days. </li></ul>Disbursements – paying for stuff <ul><ul><li>Mail Float : Time spent in the mail. Mail cheques from locations not close to customers. </li></ul></ul><ul><ul><li>Clearance Float : Time spent trying to clear the bank. Disburse cheques from a remote bank. </li></ul></ul><ul><ul><li>Processing Float : Time required to process cash flow transactions. Pay by credit card. </li></ul></ul>
    12. 12. Receipts - getting paid for stuff <ul><li>You can shorten the receipt time by: </li></ul><ul><li>invoicing customers as quickly as possible. </li></ul><ul><li>taking immediate action when a customer is late </li></ul><ul><li>rewarding customers for making early payment by offering a discount </li></ul><ul><li>imposing a finance charge on customers that are seriously late </li></ul><ul><li>evaluating the financial soundness of customers before extending credit </li></ul><ul><li>accepting credit cards for payment </li></ul><ul><li>issuing monthly statements to remind customers of amounts owed </li></ul><ul><li>placing collection centers near customers and/or having banks control deposits </li></ul>overall objective is to shorten the time it takes to get paid