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SMALL BUSINESS MANAGEMENT

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Title: SMALL BUSINESS MANAGEMENT Subject: The Role of Small Business in Canada Author: Thomas J Hickey Last modified by: clark Created Date: 4/15/1998 2:48:56 PM – PowerPoint PPT presentation

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Title: SMALL BUSINESS MANAGEMENT


1
SMALL BUSINESS MANAGEMENT
  • Chapter 10
  • Financial Management

2
Entrepreneurs To _____ and control To motivate
employees

Investors To _____ performance
Accounting Information
Lenders To evaluate creditworthiness
Government To _____ taxes owed To approve new
stock issues
3
The Accounting Cycle
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
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 11, usually between 11 and 21
  • Acid test/ Quick ratio current
    assets-inventories/ current liabilities
  • 11 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 /
    owners equity

17
Evaluation of Financial Performance
  • Evaluation of Financial Statements
  • Ratio Analysis
  • Debt ratio
  • Total debt to equity Total debt / owners
    equity
  • not greater than 41

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
Sams 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)
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