SMALL BUSINESS MANAGEMENT - PowerPoint PPT Presentation

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SMALL BUSINESS MANAGEMENT

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A. Checklist for buying a small business computer. B. Use of Financial Ratios for a Small Business (Car Dealer) 21. Concept Checks ... – PowerPoint PPT presentation

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Title: SMALL BUSINESS MANAGEMENT


1
SMALL BUSINESS MANAGEMENT
  • Chapter Ten
  • Financial Management

2
The Need for Financial Records
  • Uses of Accounting Information
  • Entrepreneurs
  • To plan and control
  • To motivate employees
  • Investors
  • To evaluate performance
  • Lenders
  • To evaluate creditworthiness
  • Government
  • To verify taxes owed
  • To approve new stock issues

3
The Accounting Cycle
  • Recording transactions
  • Classifying transaction tools
  • Summarizing data
  • Balance Sheet(Statement of Financial Position)
  • Income Statement (Statement of Profit and Loss)
  • Cash Flow Statement and/or Changes in Financial
    Position

4
Accounting Systems for Small Business
  • One-Book System
  • One-Write System
  • Multi Journal System
  • Outsourcing Financial Activities

5
Accounting Systems for Small Business
  • Small Business Computer Systems
  • Applications
  • Accounts payable, Accounts receivable, Business
    modeling, General ledger, Inventory control,
    Order entry, Payroll, Word processing, The
    Internet.
  • Benefits
  • Reduce labor expense, Shorten billing cycle,
    Carry less inventory, Increase sales, Control
    costs, manage cash, Plan-control growth.

6
Accounting Systems for Small Business
  • Small Business Computer Systems
  • Functions
  • word processing
  • general ledger
  • database files
  • payroll
  • financial planning
  • capital investment decisions

7
Accounting Systems for Small Business
  • Small Business Computer Systems
  • Disadvantages
  • Cost
  • Obsolescence
  • Employee resistance
  • Capabilities
  • Setup time
  • Failure to compensate for poor bookkeeping

8
Management of Financial Information for Planning
  • Short Term Financial Planning
  • Clarification of Objectives
  • Coordination
  • Evaluation and Control

9
Management of Financial Information for Planning
  • Long Term Financial Planning
  • The Capital Investment Decision
  • rate of return method
  • present value method
  • payback method
  • The Capacity Decision
  • break even point

10
Management of Financial Information for Planning
  • Long Term Financial Planning
  • The Expansion Decision
  • Effect of fixed cost adjustments
  • Effect of variable cost adjustments

11
Evaluation of Financial Performance
  • Management of Current Financial Position
  • 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

12
Evaluation of Financial Performance
  • Evaluation of Financial Statements
  • Ratio Analysis
  • Liquidity ratios
  • current ratio current assets / current
    liabilities
  • over 11, usually between 11 and 21
  • Acid test/ Quick ratio current
    assets-inventories/ current liabilities
  • 11 is considered healthy

13
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

14
Evaluation of Financial Performance
  • Evaluation of Financial Statements
  • Ratio Analysis
  • Profitability ratios (4)
  • gross margin sales - COGS
  • Profit on sales net profit before tax / sales
  • Expense ratio Expense item / Sales
  • Return on Investment Net profit before tax /
    owners equity

15
Evaluation of Financial Performance
  • Evaluation of Financial Statements
  • Ratio Analysis
  • Debt ratio
  • Total debt to equity Total debt / owners
    equity
  • not greater than 41

16
Credit and the Small Business
  • Advantages of Credit Use
  • will undoubtedly increase sales
  • necessary to remain competitive
  • credit customers exhibit more store loyalty
  • credit customers are more concerned with quality
    of service vs price
  • credit records can be used for future planning

17
Credit and the Small Business
  • Disadvantages of Credit Use
  • will be some bad debts - depends on credit policy
    and monitoring
  • slow payers cause lost interest and principal
  • increases bookkeeping, mailing and collection
    expenses

18
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

19
Credit and the Small Business
  • Use of Bank Credit Cards

20
Appendices
  • A. Checklist for buying a small business computer
  • B. Use of Financial Ratios for a Small Business
    (Car Dealer)

21
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 accounting systems used by a small
    business.

22
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?

23
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?

24
Concept Checks
  • 10. Why is ratio analysis important?
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