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Monthly Archives: February 2018

Effective Working Capital Management

Create proper cash flow projecting – This process must consider the market cycles, the loss of a valued client, the actions done by your competitors, and the impact of all unanticipated events to your business’ overall performance. Moreover, you must also consider the unexpected demands of your capital.

Craft contingency plans for unexpected events – Regardless of how profitable your business is, you must always ensure that you are well-prepared in case unexpected events arises. You need to hone your skills in efficiently managing any uncertainty by formulating risk management procedures. Remember though to establish these procedures based on the objective and realistic view of your working capital requirements.

Use your working capital in a corporate wide basis – This is regarded as among the most effective capital management strategies because this will help make sure that your business’ cash on hand are utilized in various functions. This can be performed by using such cash from one place to another. Making sure that different aspects are in place is a great way of efficiently implementing this tip. These will include efficient banking channels, excellent linkages between production and billing, effective internal systems, information access, and good treasury practices.

Manage disputes properly – This can free up cash that have been locked in due to certain disputes to clients. Customer service can also be improved with efficient dispute management procedures. Most importantly, your business efficiency is expected to improve since you can begin to minimize operating costs via this tip.

Start a Bookkeeping Business

Another area of expertise may be in the area of risk analysis and internal control. Highly experienced bookkeepers understand the importance of financial controls, segregation of duties and best practices. This also allows the bookkeeper to improve the value provided to the client by identifying risks in the organisation and improving ways to minimise the risk to the business. If you can save the business owner from a fine, penalty or even an audit due to lack of compliance with legislation, you are a valuable asset to the business.

Payroll is often a requirement for a bookkeeper to perform. This however can be expanded beyond the payroll generation and compliance with associated items such as work cover, superannuation,payroll tax and tax. You may have deeper experience in human resources or staff management. Depending on the requirements of the client and the business size, there may be opportunities to offer additional HR type services beyond basic payroll and compliance services.

IT skills and experience could form an additional area of expertise. For example as part of the asset register, depreciation or budgeting process you may have the opportunity to look at the infrastructure or software used by the business. If you have the skills and experience, it may be an opportunity for the client to go cloud based, or online with software or even select more appropriate software for the entity.

Many small enterprises need experience in multiple areas but they may not have the budget for specialist services. This is where you can add more value to your service offerings. I am not suggesting you are suddenly a Jack or Jill of all trades, especially if you have not had exposure to these types of tasks. However looking beyond the traditional bookkeeping services may help you not only increase your revenue but the perceived value of your service.

Budget Made Easy

When the budget is to be prepared, the information from past has to be studied. The trends and flow of goods and services, as well as their cost that affects the business, can be collected and analyzed quickly if the business has opted for an electronic medium of keeping its books. Not only the initial phase, but the projection of the upcoming budget on the functioning of the business is also facilitated. When the board is informed of the developments within the organization, and when this information is ensured to be reflecting a true and fair picture of the business, the decisions taken will be for the best results.

Because its preparation can be a time-consuming issue, because there are other works to be done in the meanwhile, and because employing experts cannot be feasible in all posts of the work, use of application can solve more than one issue. While the management installs the system in place for conducting transactions, it is the apps that the performance is efficient and smooth running.

When information is stored in electronic format, the search and retrieval are swift. This also serves in the cause of making an analysis as the management can construct pictorial representations, from a pie chart to bar diagram and trend lines. Also, any complex calculations can be done thanks to the way the app integrates with other software. Exporting the data means it will be less cumbersome than to copy the same repetitively.

There is also the issue of collaborating when preparing a budget; the managers and personnel of the Board should come together and decide their plans and programs. The paper should be shared during various stages. What the app does is facilitate working in collaboration; this way, time consumption as a number of people go through with it is reduced.

With the help of accounting application, the business can prepare any type, be it static budget where a change in sales volume or revenue does not affect the strategy; or financial budget with its focus on assets, cash flows and income/expense. Also, there may be cash flow budget, operating budget and above all, master budget. The management need not fret about the preparation at whatever time period and for whatever duration the need arises; after all, not all time frames are for a year.

Critical Financial Ratios

A Review of Assets and Liabilities

Balance sheets categorize a company’s assets as either a current asset or a long-term asset. Current assets are expected to provide a benefit to the business within the next year. Long-term assets provide a benefit for more than one year.

An example of a current asset might be a certificate of deposit with a maturity of six months. A long-term asset might be a machine that is expected to operate for many years.

A company typically has several assets aside from cash on its balance sheet. The company can invest its cash in financial instruments like money market accounts, certificates of deposit, or U.S. Treasury notes. Because these investments can be converted into money rapidly, general accounting practices consider these to be cash equivalents. Cash and cash equivalents are considered current assets.

Similarly, a company has current liabilities and long-term liabilities. Current liabilities are those that come due within the next year. Long-term liabilities are those that will be paid off over the course of many years.

Return on Assets

One common measure of a company is Return on Assets (ROA). Return on Assets helps the would-be investor glean insight into how profitably a business is using its assets.

If Company A shows a ROA of 9% while Company B demonstrates a 23% ROA, we see that Company B is getting much more return on its assets. The higher ROA could indicate a competitive advantage that makes Company B an attractive investment. Conversely, if you are the owner of Company A, you may do well to examine how your competition is producing more profit per dollar of assets.

The ROA formula is:

ROA = Net Income / Average Total Assets

Net income can be found readily in a company’s income statement. Average total assets are calculated by adding the value of total assets at the start of the year to the value of total assets at the end of the year. Divide that sum by two.

Debt Ratio

The more debt a business assumes, the more likely the business will be unable to pay that debt. The debt ratio shows the percentage of assets that are financed with liabilities. The debt ratio formula is:

Debt Ratio = Total Liabilities / Total Assets

In spring 2017, Exxon Mobile had a debt ratio of 49% (162,989.00/330,314.00). The other 51% is financed by the stockholders of the company. By comparison, BP has a debt ratio of 64%. If an economic downturn occurs and fewer sales occur, which of these companies is more likely to default on their debts?