Financial Management for Entrepreneurs ~ Simplified


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A brief look at Financial Management

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Financial Management for Entrepreneurs ~ Simplified

  1. 1. Financial Management for Entrepreneurs<br />
  2. 2. Our AGENDA<br />Accounting & Finance <br />Budgeting<br />Collecting Account Receivable <br />Risk Management<br />
  3. 3. Financial Management<br />Let’s Find Out More…<br />
  4. 4.
  5. 5. Operating a Business<br />Financial Management<br />Legal Management<br />Business Management<br />Marketing<br />Office Management<br />Production<br />
  6. 6. Financial Management Defined<br /><ul><li>the process of managing the financial resources, including </li></ul>Accounting & Financial Reporting<br />Budgeting<br />Collecting Accounts Receivable <br />Risk Management<br />
  7. 7. Financial Management Defined<br />For small business<br />How you raise your capital<br />How you manage your money<br />
  8. 8. Accounting & Financial Reporting<br /><ul><li>Financial Reporting
  9. 9. Accounting vs. Bookkeeping
  10. 10. Hiring a CPA</li></li></ul><li>Financial Reporting<br />your first decision <br />self-manage your financial records yourself <br />have someone else do it for you. <br />
  11. 11. Financial Reporting<br />alternative ways you can handle this. <br />Manage everything yourself<br />Hire an employee who manages it for you<br />Keep your records in-house, but have an accountant prepare specialized reporting such as tax returns; <br />Have an external bookkeeping service that manages financial transactions and an accountant that handles formal reporting functions. <br />Use soft wares<br />
  12. 12. Accounting vs. Bookkeeping <br />Accounting System <br />income, expenses, assets, liabilities <br />an organized system for keeping track of <br />how the money flows through your business<br />where it is supposed to go<br />Bookkeeping system <br />keeps track of the nuts and bolts -- the actual transactions that take place. <br />provides the numbers for the accounting system.<br />Both accounting and bookkeeping can be contracted out to external firms<br />
  13. 13. Accounting<br />Accounting is the big picture<br />the system that keeps track of <br />data (including people)<br />records your transaction history, gives you reports <br />It also encompasses <br />payroll <br />tax status<br />
  14. 14. Bookkeeping<br />Bookkeeping is the tedious part <br />the systematic recording of <br />amounts, dates, and sources of every revenue and expense generated. <br />
  15. 15. Accounting + Bookkeeping<br />Accounting = giant sifter <br />Bookkeeping = the process of pouring stuff into it. <br />Accounting + Bookkeeping = information needed to run your business<br />
  16. 16. Outsourcing Accounting<br />Still need <br />some type of Recordkeeping System to manage the day-to-day operations of your business <br />Financial plan and budget to make certain you have thought through where you are headed in your business finances. <br />
  17. 17. Hiring Certified Public Accountant<br />Set up accounting system<br />Consulting and tax preparation<br />Helps generate reports & financial statements<br />Updates with tax laws and reduce tax liabilities<br />Compile financial statements<br />Review statements<br />Perform an annual audit<br />
  18. 18. Software vs. Shoebox<br />A system to monitor your business<br />Collections<br />Products / services<br />Invoices<br />Better BOOKKEEPING ~ avoid double entries<br />
  19. 19. More on Accounting<br />It’s not just about numbers<br />Database ~ essential for future planning<br />Customers <br />Vendors<br />Employees<br />Establish a sound accounting system<br />Input of data<br />Record transactions = bookkeeping<br />Regularly done<br />
  20. 20. Budgeting<br /><ul><li>Bottom Line
  21. 21. Operating budget
  22. 22. Cash budget</li></li></ul><li>Budgeting<br />Bottom Line<br />Budgeting is an easy but essential process that business owners use to forecast (and then match) current and future revenue to expenses. <br />The goal is to make sure that enough money is available to keep the business up and running, to grow the business, to compete, and to ensure a solid emergency fund. <br />
  23. 23. Budgeting<br />Estimating and matching expenses to revenue (real or anticipated) <br />Important for decision making<br />fund operations, expand the business and generate income <br />Without a budget or a plan, a business runs the RISKof spending more money than it is taking in or, conversely, not spending enough money to grow the business and compete. <br />
  24. 24. Budgeting<br />Operating Budget<br />to provide a blueprint for how the business is going to operate in the coming year.<br />information from functional areas such as design, production, marketing, distribution, and customer service. <br />the end result is a budgeted income statement that shows how much profit the business expects to make at the end of the year. <br />
  25. 25. Budgeting<br />Cash Budget<br />strictly financial<br />a vital purpose: to ensure that the business has enough cash to fund its activities throughout the current period. <br />the goal of the cash budget is to ensure that you don't run out of cash. <br />
  26. 26. Other purposes of Budgeting<br />Check industry standard<br />Make a spreadsheet<br />Factor in some miscellaneous<br />Look for ways to cut costs<br />Review periodically<br />Look around for services / suppliers<br />
  27. 27. Collecting Accounts Receivable<br /><ul><li>Terms</li></li></ul><li>Collecting Accounts Receivable <br />Reveals patterns of delinquency and shows where you need to focus your collection efforts.<br />The longer accounts receivable (AR) languish, the more likely funds are to become uncollectible.<br />Accounts receivable are sums due from customers from the time of sale until the receipt of payment.<br />
  28. 28. Collecting Accounts Receivable <br />The time period and the terms of every receivable should be specified clearly. Terms can be stated in various ways, such as:<br />Net 30 days from invoice<br />Net 15 days from shipment<br />1% 10 days, net 45 days from invoice<br />Other options <br />deposit upon confirmation, balance upon delivery<br />
  29. 29. Collecting Accounts Receivable <br />One simple method of assessing the quality of your receivables is to compare the actual collection period, known as days receivable, to the stated payment terms. <br />If the days receivable are significantly more than the sales terms, consider developing a receivables aging schedule to monitor who owes you money, when the debt was incurred and how long it has been unpaid.<br />
  30. 30. Collecting Accounts Receivable <br />Most receivables aging schedules are broken into 30-, 60- and 90-plus-day increments. <br />Under each of these categories, total the amount due from each of your customers. <br />This allows you to identify the problem customers and focus your collection efforts accordingly.<br />An aging schedule also enables you to manage your credit policies according to the standards of your particular industry. <br />Many software programs provide aging receivables templates and/or formulas that are handy for small and mid-size enterprises.<br />
  31. 31. Collecting TIPS <br />Be Prompt: If a payment was due in 30 days, follow up with the customer on day 31.<br />Be Consistent: Send regular statements to customers who are behind in their payments.<br />Offer Incentives: Consider offering a bonus or cash price discount for early payment.<br />
  32. 32. Collecting TIPS <br />Be Specific: Spell out any late-payment fees and penalties prior to granting terms.<br />Follow Up: Be aware of your customers’ payments and debts. Send acknowledgments when accounts are paid.<br />Be Realistic: In the final analysis, an AR aging schedule may indicate that it’s time to sever your relationship with a customer or resort to some other type of collection method.<br />
  33. 33. Risk Management<br />
  34. 34. Risk management<br />Any good system should minimize the risks in your business. <br />INSURANCE needs to be considered not only for your property, office, equipment, and employees, but also for loss of critical employees. Even in businesses that have a well set up system, cash flow can be a problem. <br />Others ~ cash flow problems, debt obligations<br />
  35. 35. Risk management<br /> The three elements of risk assessment are: <br />Risk Identification <br />Determining what is at risk and from what sources. <br />Risk Measurement<br />Determining the consequences of the risk (and to a lesser extent, the likelihood of its occurrence). <br />Risk Prioritization<br />Determining the appropriate resources to manage the risk. <br />
  36. 36. Risk Management<br />Risk assessment is a decision-making tool that helps managers sort through a number of possibilities and then chose those with the greatest payoff. <br />
  37. 37. Good Luck!<br />Thank You<br />Merapi Indah<br />