Title: SMALL BUSINESS MANAGEMENT
1SMALL BUSINESS MANAGEMENT
- Chapter 10
- Financial Management
2Entrepreneurs To _____ and control To motivate
employees
Investors To _____ performance
Accounting Information
Lenders To evaluate creditworthiness
Government To _____ taxes owed To approve new
stock issues
3The 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
4Financial 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
5Accounting Systems for Small Business
- One-Book System
- One-Write System
- Multi-journal System
- Outsourcing Financial Activities
6Accounting 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
7Accounting Systems for Small Business
- Disadvantages
- Cost
- Obsolescence
- Employee _____
- Capabilities
- Setup Time
- Failure to Compensate for _____ Bookkeeping
8Management 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
9Management 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
12Management of Financial Information for Planning
- The Expansion Decision
- Effect of fixed cost adjustments
- Effect of variable cost adjustments
- Use BEP on incremental basis
13Evaluation 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
14Evaluation 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
15Evaluation 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
16Evaluation 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
17Evaluation of Financial Performance
- Evaluation of Financial Statements
- Ratio Analysis
- Debt ratio
- Total debt to equity Total debt / owners
equity - not greater than 41
18Credit 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
19Credit 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
20Credit 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
21Credit and the Small Business
- Use of Bank Credit Cards
- Maybe cheaper and easier than running your own
credit program - Usually 2-6 of transaction
22Sams 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.
23Concept 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.
24Concept 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?
25Concept 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?
26Concept Checks
- 10. Why is ratio analysis important?
27Appendices
- A. Checklist for buying a small business computer
- B. Use of Financial Ratios for a Small Business
(Car Dealer)