Financial Management 101 Get a Grip on Your Business Numbers

by Mohr, Angie

• ISBN13: 9781551808055
• ISBN10: 1551808056
• Edition: 2nd
• Format: Paperback
• Copyright: 2007-09-01
• Publisher: INDEPENDENT PUB GROUP

Summary

The fastest growing segment of the business world in both Canada and the U.S. is small business. But as Angie Mohr says, "Most entrepreneurs still spend more time researching which car to purchase than they do in planning their businesses!"This is a newly revised and updated edition of Financial Management 101, which is part of the Numbers 101 for Small Business series. This book covers financial planning, from understanding financial statements to budgeting for advertising. Mohr's easy-to-understand approach to small business planning and management ensures that the money coming in is always greater than the money going out!"Even Microsoft and Ford started in someone's basement or garage," says Mohr. "But people all over the world have been given an idealized and unrealistic view of how to operate a business and most discount the importance of the basics."Financial Management 101 is an in-depth but easy-to-read guide to business planning. It's a kick-start course for new entrepreneurs and a wake-up call for struggling small business owners.

Author Biography

Angie Mohr is a chartered accountant and certified management accountant. She is the managing director of Mohr & Company Chartered Accountants and Business Consultants

Table of Contents

Introduction	p. xv
Refresher: Balance Sheet, Income Statement, and Cash Flow Statement	p. 1
The Balance Sheet	p. 2
The Income Statement	p. 4
The Cash Flow Statement	p. 5
Chapter Summary	p. 6
Basic Budgeting	p. 7
The Monthly Budget Report	p. 8
Where Do the Numbers Come From?	p. 8
Revenues	p. 10
Expenses	p. 10
Chapter Summary	p. 11
Variable versus Fixed Costs: Why You Need to Know the Difference	p. 13
Fixed Versus Variable Expenses	p. 14
Variable expenses	p. 14
Fixed expenses	p. 14
Why is Cost Behavior Important to My Business?	p. 15
Break-even point	p. 15
Capacity	p. 16
Chapter Summary	p. 17
Ratio Analysis for Fun and Profit	p. 19
The Basic Ratios and What They Tell You	p. 20
Solvency or liquidity ratios	p. 20
Asset and debt management ratios	p. 22
Profitability ratios	p. 24
Which Ratios Should My Business Track?	p. 26
When Good Ratios Go Bad: What to Do When There's a Problem	p. 26
Chapter Summary	p. 27
Understanding the Operating Cycle	p. 29
The Operating Cycle	p. 30
The operating cycle timeline	p. 32
The Cash Flow Report	p. 32
Revenues	p. 33
Expenses	p. 34
Bringing it all together	p. 34
Chapter Summary	p. 36
Pricing Your Product or Service	p. 37
Cost-Plus Pricing	p. 38
Value Pricing	p. 38
Competitive Pricing	p. 39
Consumer Demand	p. 39
Other Pricing Considerations	p. 40
Pricing services	p. 40
Penetration pricing	p. 41
Pricing below your competition	p. 41
Psychological pricing	p. 41
Discount pricing	p. 41
Chapter Summary	p. 42
Key Performance Indicators: Your Keys to Success	p. 43
How Do I Figure Out What My CSFs Are?	p. 44
How can I measure my CSFs?	p. 44
What Happens When My Key Performance Indicators Start to Slide?	p. 46
Chapter Summary	p. 46
Getting a Grip on Your Inventory	p. 47
Types of Inventory	p. 48
Retailers	p. 48
Manufacturers	p. 48
Service business	p. 49
What's Included in the Inventory Costs?	p. 50
Inventory Management Techniques	p. 51
Manual tracking	p. 51
The ABC management system	p. 52
Economic order quantity (EOQ) model	p. 53
Chapter Summary	p. 55
Accounts Receivable: The Money Coming In	p. 57
The Sales Cycle Revisited	p. 58
Setting Up Your Credit Policy	p. 58
Terms of sale	p. 59
Credit decisions	p. 60
Collection policies	p. 61
Factoring Receivables	p. 62
Should I Hire a Collection Agency?	p. 63
Monitoring Your Receivables	p. 64
Chapter Summary	p. 65
Accounts Payable: The Money Going Out	p. 67
Supplier Financing	p. 67
Tracking Due Dates	p. 69
What Happens If I Fall Behind?	p. 69
Chapter Summary	p. 70
Buying New Things: Are They Going to Pay for Themselves?	p. 71
Projected Benefits	p. 72
Discounted Cash Flows	p. 73
Payback	p. 76
Benchmarking	p. 77
The Scarcity of Resources (or "There's Only So Much Cash")	p. 77
Chapter Summary	p. 78
What's Not Showing on Your Financial Statements	p. 79
The Six Big Risks	p. 80
Operating lease obligations	p. 80
Lack of adequate insurance	p. 80
Personal guarantees	p. 81
Economic dependence	p. 82
Foreign exchange exposure	p. 82
Interest rate exposure	p. 83
Risk Management for Entrepreneurs	p. 84
Chapter Summary	p. 84
Investor and Manager: The Split Personality of the Small Business Owner	p. 87
The Small Business Manager	p. 88
The Small Business Investor	p. 89
Chapter Summary	p. 91
Growing Your Business	p. 93
The Three Methods of Business Growth	p. 94
Leverage	p. 95
Attract New Customers	p. 95
Sell Them More	p. 97
Sell to Them More Often	p. 97
Tracking Your Business Growth	p. 97
Chapter Summary	p. 98
Facing the Scary, Two-Headed Banker Monster	p. 99
Lending Money 101	p. 100
Getting to Know and Love Your Banker	p. 101
The Lending Proposal	p. 101
The Care and Feeding of Your Banker	p. 102
Other Dance Partners	p. 102
Your Credit Score	p. 103
Chapter Summary	p. 104
Managing Debt	p. 105
Understanding Debt Service	p. 106
Debt service ratio	p. 107
Payback	p. 108
How Do I Calculate My Cost of Borrowing?	p. 108
Bank loans	p. 108
Lines of credit	p. 109
Credit Cards	p. 109
Capital leases	p. 110
Suppliers	p. 110
The government	p. 110
The Danger of Leverage	p. 111
The Debt Diet Plan	p. 112
Analyze	p. 112
Project	p. 113
Act	p. 113
Chapter Summary	p. 114
Compensating Employees	p. 115
What Are Your Employees Worth to You?	p. 116
Office Assistant	p. 116
What Are Your Employees Worth to Someone Else?	p. 117
Benefits	p. 117
Sick Days	p. 118
Performance-Based Compensation: Paying for Value	p. 118
The Performance Evaluation Process	p. 119
Keeping Tabs on Employee Performance	p. 120
Chapter Summary	p. 120
Pulling It All Together: The Planning Cycle	p. 127
The Planning Cycle	p. 128
Planning	p. 129
Control	p. 130
The flash report	p. 130
The monthly management operating plan	p. 130
Growth	p. 131
Fine Tuning	p. 131
Planning	p. 132
Chapter Summary	p. 132
The Monthly Management Operating Plan	p. 133
Present Value of $1	p. 145
Resources for the Growing Business	p. 147
Glossary	p. 151
Samples
Typical Balance Sheet	p. 3
Income Statement	p. 4
Cash Flow Statement	p. 5
Monthly Budget Report	p. 9
Cash Flow Projection	p. 35
Inventory Tracking Sheet	p. 52
Aged Accounts Receivables Report	p. 64
Quarterly Performance Review	p. 121
Diagrams
The Operating Cycle	p. 31
ABC Tracking Method	p. 53
EOQ Model of Inventory Management	p. 54
Tables
A Quick Reference to Ratios	p. 28
Worksheets
Business Risk Profile	p. 85
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