Benefits of Financial Management

2. Benefits of Financial Management • Financial planning • Financial control • Informed decision-making • Effective cost control • Enhanced cash flow position • Increased profitability • Enhanced liquidity and solvency • Improved financial performance

3. Overview of Financial Management Measuring Financial Performance How well are you doing Cash Flow Management How can you do better Budgeting Planning for the future Raising Finance Bookkeeping and Tax Planning Managing your finances Online Banking

4. Summary Profit & Loss Account Sales £50,000 Less cost of sales £15,000 GROSS PROFIT £35,000 Less overheads (including drawings) £30,000 NET PROFIT/LOSS £5,000

5. Balance Sheet Fixed Assets Cost Depreciation Net value Equipment £5,000 £1,250 £3,750 Computer £1,000 £250 £750 Total fixed assets £6,000 £1,500 £4,500 Current Assets Cash at bank £5,894 Debtors £1,000 Stock £1,200 £8,094 Less Current Liabilities Creditors £1,500 Loan £3,344 £4,844 Total current assets £3,250 TOTAL NET ASSETS £7,750 Financed by Grants £750 Own Investment £2,000 Profit £14,600 Less drawings £9,600 TOTAL FINANCING £7,750

6. Ratios - Gross & Net Profit Margins Gross Profit Sales Gross Profit Margin = X 100 Net Profit Sales Net ProfitMargin = X 100

7. Ratios – ROCE Profit before tax & Interest Total Assets (or Capital Employed) 100 X ROCE =

8. Ratios – Current and Quick Ratio Current Ratio Current Assets Current Liabilities = Quick Ratio Current Assets -stock Current Liabilities =

9. Ratios – Debtors and Creditors Ratio Debtors Sales Debtors Collection Period 365 Days = X Credit Payment Period 365 Days Creditors Sales = X

10. Ratios – Gearing & Interest Cover Gearing Borrowing Net assets = Interest Cover Profit before Interest Interest =

11. The Four Five Rule Areas of Financial Performance • Level of sales • Average price of sales • Cost of sales • Level of overheads Application of the ‘Four Five’ Rule Increase by 5% Increase by 5% Decrease by 5% Decrease by 5%

12. Break – even Point Sales Total costs Direct costs Fixed costs Break-even

13. The Cash Flow Cycle Cash Out flows Cash Inflows

14. Cash Flow Difficulties Inflows • Inadequate funding • Poor credit control • Slow debtor payments • Poor profit margins Outflows • High overheads • Over expenditure • Stock holding • Over trading

15. Sale Order fulfillment Invoice Payment & deposit Sale to Cash Conversion Period Average debtor period Time

16. Improving the Sale to Cash Conversion • Invoice promptly • Set suitable terms of credit • Agree credit terms with the customer • Send statements • Conduct credit checks • Offer discounts for prompt payments • Be proactive about customer relations • Follow up sales • Implement an after sales care policy • Have sale agreements in writing • Request a deposit • Review debtors list • Implement a credit control policy

17. Managing Your Payables • Delay payments where possible • Negotiate extended credit terms • Place surplus cash in a business reserve account • Do not incur late payment fees or interest • Keep your credit history intact

18. Reducing Costs • Review and reduce costs habitually • Minimise overheads • Reduce stock holding • Request discount • Look for deals and special offers • Shop around • Evaluate all purchases to ensure they are an absolute requirement

19. Importance of Budgeting • Identifies objectives and targets • Identifies future requirements • Facilitates cost control • Assists with informed decision making • Contributes to the financial planning process • Sets a framework for monitoring and control

20. Types of Budgets • Sales budget • Materials/direct costs budget • Overheads budget • Capital expenditure budget

21. Budgeting Financial Tools • Cash flow forecast • Profit & loss forecast • Balance sheet forecast • Sales forecast

22. Budgeting - Monitoring & Control Budgeted sales Variance Sales Actual sales Time

23. Funding Sources • Loans • Overdrafts • ENI Loan Fund • Princes Trust • Hire purchase • Leasing • Factoring & invoice discounting • Investors • Own/family investment • Credit cards • Grants

24. Elements of a Loan/Funding Proposal • Summary • Business description and history • Personal profile • Financial statements/accounts • Financial projections • Purpose of the loan • Amount required • Repayment plan

25. Preparing to Meet the Funder • Have documentation prepared • Fully understand your facts and figures • Know what collateral you can offer, if appropriate • Be professional • Sell yourself • Be prepared to answer questions • Ask relevant questions

26. Importance of Efficient Bookkeeping • Monitoring financial performance • Informed decision making • Obtaining finance • Budgeting • Preparing your tax return • Cost control • Credit control • Financial monitoring and control

27. Computerised Bookkeeping Packages • Excel • Microsoft Money Financial Suite • MYOB • Quick Books • Quicken • Sage • Simply Books • Tas

28. Tax planning • Prepare tax returns on time • Utilise the services of an accountant • Keep a record of all business expenses, and household running costs, if appropriate • Set aside adequate money to pay the tax bill • Implement a tax avoidance strategy

29. Benefits of Tax Software Packages • Efficient • Some are user friendly • Calculates tax owed/due • Assists with tax planning • Does not require knowledge of tax bands and allowances • Ability to conduct online returns • Favoured by the Inland Revenue • Free downloads and trials available

30. Services of Online Banking • Transfer funds • View account • Check balance • View transactions • Pay bills • Communicate with the bank via e-mail

31. Buying Goods and Services Online • Know your merchant • Check contact details • Use a secure transaction • Always use an Internet-friendly credit card • Never give out your bank details