Financial Accounting and Control Methods - Report Example

Introduction Planning is considered to be a very important aspect of management. In the lower level of an organization there is much involvement in short term planning (operational) while at the higher level there is predominance of strategic planning. With strategic planning being majorly apportioned to the upper management personnel, once the strategic plan has been decided upon at this level, it will be the task of the lower management to see the implementation of the strategic plans through operational plans. Under strategic planning attempt is made of answering some fundamental question such as where the organization at hand need to be in one, two , three years and so on. Strategic planning makes the organization to project itself in future by developing a vision for itself. Under strategic planning the big picture is looked at in a long range while the operation plans are seen as being specific tactics that are used in effecting a strategic plan year by year. Under strategic planning choices are made by organization with regards to why the organization exist at the first place; the goals that the organization would like to attain; the necessary resources required to accomplish goals set and identification of the customers to the organization. Strategic planning is important for the organization in understanding its current situation which in turn puts the management in a better position of planning for the future. Strategic thinking is very important in the modern world where there are rapid changes and with the escalating rate of change there is equal growth of need of having strategic planning in place. The organizations that are considered as being well managed have a tendency to be continuously involved in strategic planning with some organizations t having intuitive thinkers that seem to have the ability of seeing into the future. Strategic planning is whereby there is simulation of the future situations and then preparing for this future. Financial accounting and control methods Having a financial plan is considered to be a very important aspect of a business plan more so where the business plan is to be used in obtaining a load from a bank. The Cash Flow Forecast is considered as being a vital part of the plan with the other documents being or importance from planning point of view. The three sections that are included in the financial plan are the starting Balance Sheet, Pro-Forma Income Statement and the Cash Flow Forecast. In coming up with a financial plan it is important for one to note that getting things right once is almost impossibility. This is because in a business plan more so for the financial section it would be recommended that different scenarios be tried. This would range from purchasing of used equipment as opposed to a new one; raising or lowering prices and reducing personal draw from business. Through trying a variety of scenarios one can be able to determine the setting that would make the business to attain financial viability. When it comes to business planning, the recommendation is for one to keep trying up to the point where the result is reasonable and which is convincing as being achievable. The Break-even The break-even point of a business is that point at where the revenue generated from sales are equal in amount to the total expenses incurred in the business. At the break- even point neither profit nor loss is being made. It is at the break- even point that one has a clear picture on what amount of sales would need to be achieved for the business just to survive and it is a good indicator of the business viability. The break-even is also a good tool in the evaluation the possibility of expanding the business or committing any other expenses to the business. Here one would be simply be asking the amount of additional revenue needed so as the additional cost are taken care of. The important definitions that are important in the determination of break-even of a business are Fixed Costs (Overhead): This are costs that does not have a direct variation with the amount of sales made including advertising, utilities, salaries, office supplies and telephone costs. These costs are not necessarily constant every month but their payment is done monthly with no respect to the sales made. Variable Costs: This are also referred to as Cost of Goods and are the actual costs involved in making the product or in the delivery of the service and this may include materials, shipping costs and contract labour payment. Break even Formula Fixed costs/Unit price-Unit cost = Break-even in Units This method is referred to as Total Absorption Costing since division of the total cost by the units sold results to absorption of fixed costs. It is important for every business plan-both growth and start up- to have project and business costs before proceeding. The Balance Sheet A balance sheet can be defined as being a snap shot of the business at any point in time. When dealing with a business start up, then it will be a starting balance sheet. A balance sheet consist of three components Assets: Things owned by the a business Liabilities: Debts a business owes Equity: This is the owners’ investment and re-investment into the business. For a business to be free of debt owing what the business owns must be paid for This brings as to the formula Assets = Liabilities + Equity This relationship is found to be very important as it puts the reader of a business plan on the nature of financing of the business which could either be through owner’s money (equity) or through the creditors’ money (liability). For a business start up one needs to interrogate the assets required so as the business can start and then ask the start up is o be financed. If one does not have enough money to invest n the business then it will be require that they borrow the deficit. Strength of business plans Generally the Sedibeg plan can be seen as being able to give concept and opportunity where a business concept that makes sense with a clear plan that can lead to success. In the Sedibeng Brewery plan the product has been described clearly as being a high quality traditional bear that will be much affordable. The summary also Sedibeng brewery also addresses the market issue where target market has been given as constituting of the corporate and working class who would appreciate the Sidebeng products. Other market targets are the working class ranging from miners and administrative personnel. The plan has also addressed issues of finance in the summary which is commendable. Market analysis has well been covered in the Sedibeng brewery plan. In the plan it is noted that there is a rapid growth in the economy one of the contributing factor being relaxation in foreign exchange and also macro economic policies that are favourable to foreign investors in the country (Botswana). It is noted that the business is backed up by the fact that Government is encouraging diversification of the industrial base of the country so as to have something different from what is presented by the mineral sector. In the plan it is noted that the emerging trend is that people are growing towards people recognizing quality drinks from those of poor quality and this is noted as being in favor of the business. It is also noted that high quality traditional brews are being appreciated in urban areas. In the plan the rate of market growth has been noted which was quoted at standing at 7% at the time. The plan also takes note of the statistics in the beer and wines industry in terms of imports and exports. The business plan also makes recognition of market need which is very important for any business plan. Here emphasis is placed on Sedibeng Breweries aiming at providing products of good quality that will be able to instill a jovial environment. Industry analysis is another important component of a business plan which has been well addressed. Competition and buying patterns is one of the issues that have been discussed under industry analysis. Here distribution network has been noted as being the most factor in the business set up. The good distribution network work of the current dominant player is taken note of. It is noted that in terms of competition the market can be described as being monopolistic as one brewer is currently dominating the market is thus considered as being less intense. Home brewers are other competitors who have been taken note of as they occupy the intended market of the business. Weakness in Sedibeng Brewery plan The lack of description of the type of equipment required in the brewery is one of the weakness in the business plan. For a good business plan it is important to have full description of the equipment that is already in place and then give the significant equipment that need to be acquired with the cost being quoted. Also the equipment need to go beyond manufacturing equipment and include vehicles, computers and office equipment. Further, there is need to give the increase of production that is to be achieved through the new equipment. Labour issue is also a very important in a business plan in for the Sedibeng plan some shortcomings can be noted. There is need for labour to be broken down into part-time/full time , give the function of the employees, the number of hours of work and the hourly payment need to be noted and this has not been incorporated in the plan. There is need for criteria that is to be used in hiring quality employee and the skills needed are to be part of the plan. Also in terms of payment the salaries of staff in management, production, distribution sales as well as administration are to be included in the plan and this has been missed out. Purchasing process, inventory and policies is another area of inadequacy in the brewery plan. There has been failure of outlining key suppliers, the purchasing process and the unique purchasing requirement. The details of where finished goods are stored, space costing and inventory tracking are also important information that has been omitted. Eye surgery equipment maker business plan Research information citation One of the strength of this business plan is adequacy in citation of data either obtain by the drafters undertaking their research or the data being obtained from independent sources such as print media. This comes in handy as a convincing tool of the would be investors that the plan is a product of thorough research undertaking. Having a successful business in technical fields such as medicine, there is need for having a thorough knowledge of the products which should be sourced from experienced professionals in that field. In the business plan this has been successfully been portrayed through continuous acknowledgement of the experienced principals at NovOculi. The main competitive advantage of NovOcoli is also cited at the onset, this being a revolutionary technology that is owned and patented by the company. Adequate explanation in the market analysis and competition sections In this plan the reader is given sufficient information regarding the market this being from primary and secondary research materials. From the information given in the business plan there is enough support of the conviction of the plan writers there is a big gap in market demand and supply with regard to NovOculi product. Presenting a simplified data is a very important aspect in making the argument concrete with regards to the market for the product. LASIK technology is profiled in the section addressing matters competition as being the major competitor in the industry. The huge investment by institutions in buying the LASIK technology equipment have been cited. Through identification of the strength of competitors, the drafters of NovOcoli plan are presented as being highly knowledgeable of the market making them to be able to identify what strength the brand will have against the competitor. Clear flow in the plan Having a document with a coherent flow is very important for easy understanding by the readers. The NovOcoli scores highly on this aspect with smooth flow being seen from one section to the next. From the start, it is easy for one to understand the product that is to be offered by the company; the competitive advantage over the competitors, what the goal of the company is and the strategy that is to be used. As Debelak (2005) puts it; making a business plan simple and easily understandable is very important. Eye surgery equipment maker business plan weakness One of the weaknesses in the business plan is with the regards to financial projections. Close look at the financial projections indicate that losses will be incurred by NovOcoli in the first four years of operation. After the losses the company will then make a huge profit of $30 million in the fifth year, a phenomenon that has no clear backing from the document. No clear explanation is given to show the rising of sales to almost $60 million from $10 million previously in year four of business. Having a financial projections that stands out as being realistic is very important in convincing readers of the plan that thorough paper work was done by drafters and that finance aspects of the business is well understood too (Bygrave, W.D. and Zacharakis, A. (2011). In the plan it is indicated that the sales team will have grown to 44 members by the fifth year. This brings about curiosity to the would be investor analyzing the plan and it opens window for the expert making the analysis to want to dig out the factors that inform the certainty in future human resource needs with the business not being yet operational and this may prove a difficult task the presenter. This echoes with observation by Barringer (2009) that long-term plans are to be left open-ended where the drafter of a plan is not entirely sure with them. Use of technical terms with no clear explanation can be cited as another weakness. This includes ‘440m wavelength laser’ and ‘iontophoresis’. This terms with no clear definition are likely to act as a barrier to effective communication who maybe potential investors but not well conversant ophthalmology as professional field. This is in contravention of Debelak, (2005) that business plans should try as much to simplify information for effective communication. challenges Preparing a business plan can be very involving considering the amount of information to be included in each section of the document. This information may not be readily involved in books or from online sources. To get industry specific information, one has to pay physical visits to the premises of the people in the industry which may be difficult at times due to some respondents being economical with information. The process is also time-consuming (Brinckmann, Grichnik, & Kapsa, 2010) and to overcome this, Brinckmann et al (2010) recommend collecting of information from consulting firms as a viable option since it saves time and resources in sourcing for accurate information. Financial projections section is usually a tricky area of a business plan. This is the section that most readers look at especially in business plans intended to be used as financing tools. Understanding the financial statements and projections is a difficult task in itself and it requires one to have some background financial accounting knowledge to interpret the figures. One can refer to accounting books to understand the financial projections. Lessons learnt Some of the lessons learnt that are worth noting are: Identifying the primary goal is very important and this used to inform the strategy that is being adopted by the management in reaching the goal Adopting a simple business plan is recommended as this is beneficial to reader When it comes to financial projections it is recommended to take a conservative stand and sales forecasted should portray the drafter as being realistic and in resonance with research from the ground Demonstrated competencies Thorough understanding of planning issues relating to strategy formulation in businesses is one of areas where I have shown my competencies. This was of great importance when it came to the analysis of the point at which the companies were positioned in the market and also in the analysis marketing strategy proposed in the plans. Conclusion In conclusion a business plan can be seen as a vital document in guiding a new business, help the business in sourcing for funds to move the business to next level and refocusing the business to desired goal. In the writing of a business plan it has been seen that being conversant with how to research and how to use research data are vital. Presentation of ideas and arguments is also an important consideration in preparation of a business plan. factors when embarking on business plan writing. The NovOculi business plan has succeeded in offering adequate information and communicating the strategy of the businesses while the Sedibeng brewery business plan didn’t quite achieve this. References Barringer, B.R. (2009). Preparing Effective Business Plans: An Entrepreneurial Approach, Upper Saddle River, NJ: Pearson/Prentice Hall. Debelak, (2005). Perfect Phrases for Business Proposals and Business PlansMcGraw-Hill: ISBN: 978-0071459945 Brinckmann, J., Grichnik, D., & Kapsa, D. (2010). Should entrepreneurs plan or just storm the castle?:A meta‐analysis on contextual factors impacting the business planning‐performance relationship in small firms. Journal of Business Venturing, 24(1), 24–40. Bygrave, W.D. and Zacharakis, A. (2011) Entrepreneurship (second edition) Hoboken, NJ: John Wiley &Sons. Read More