11/11/15

 

 

What financial measurements should be prepared to measure company performance?

A financial plan to measure financial performance is an important management tool and is very important information for potential investors in a business. There are three methods for measuring financial performance:

• Measuring sales value: View performance in terms of sales. Use the percentage of increased sales or new business. This should be used when increased sales equals to higher profits.
• Measuring profits: View performance in terms of profits. Defined as the difference between revenues and expenses.
• Measuring cash generated: It is important to project cash flow. Companies should have adequate cash so they will not be forced into bankruptcy.

 

What are the categories and steps in preparing a financial budget?

A standard budget is divided into 11 major categories. A financial budget presents a projection of revenues and expenses used for projecting other financial statements.

1. Sales: Includes sales by product line and by customer, geographical region, and goals for each sales representative.
2. Cost of Goods Sold: Include both materials and shipping costs.
3. Gross Profit: Includes the gross profit. Sales less those costs directly incurred to achieve the sale.
4. Operating Expenses:
5. Operating Profit/Loss: Operating expenses identified by sales categories. An operating profit/loss for each sales category should be calculated.
6. Other Income and Expenses: Includes detailed interest expense and other income and expenses not related to the normal operations of the business.
7. Pretax Income: Income before taxes is calculated.
8. Income Taxes: The management’s estimate of the taxes that will be owed on the earnings. Federal and state taxes.
9. Net Income: The amount available for dividends or reinvestment in the company.
10. EBIT: Net income before interest expense, interest income, and income taxes. Measures profitability of a company without the impact of debt or investments.
11. EBITDA: Earnings before interest expense, interest income, income taxes, depreciation, and amortization. Measures the profitability of a company without the impact of debt, investments, and long-term assets.

 

The steps in preparing a financial document are:

1. Consider Cash Flow Revenues: Find a realistic basis for estimating sales each month.
2. Consider Cash Flow Disbursements: Project each of the various expense categories. Begins with a summary for each month of the cash payments to suppliers, wages, rent, and equipment.
3. Reconcile the Revenues and Disbursements: Begins by showing the balance carried over from the previous month’s operations.

 

Describe the breakeven technique in the decision making model to determine profit and loss.

The breakeven technique is a model that helps determine whether a certain volume of output will result in a profit or loss. Breaking even occurs when the volume of output at which total revenue is equal to the total cost. To use this technique you only need to know:

• The fixed costs of operation
• The variable costs of production
• The price per unit

 

Why is building a corporate culture to match a company’s mission important?

The ability to lead a business on a mission where everyone is involved every day in moving towards clearly defined goals makes the difference between success and failure. The leaders of a business need to get a good team and know how to keep them happy and motivated. Not all employees are motivated by the same things, some are motivate by intrinsic things, like knowing they are doing good to the community or matching donations, and others by extrinsic things like money. Company culture is very important because the employees are more likely to go the extra mile if they believe in the company and enjoys working there. When dealing with a small business having employees that make the customers feel comfortable can create loyal customers.

 

Select six leadership attributes that you feel are the most important when building a strong culture. Why?

1. Honest: You have to trust the people that work for you and know they will have the best interest of the company.
2. Flexible: Must be able to work with new rules and goals.
3. Communicative: A leader must know how to communicate with others in order to have the business functioning at its peak.
4. Innovative: A leader must be able to see a problem and try to solve it in the best way. They can see a point of pain and bring up new ways to resolve the conflict.
5. Respectful: Must be able to treat others with respect especially in difficult situations.
6. Supportive: They encourage new ideas and approaches. Employees must feel comfortable going to their leader.

 

Name three important factors that you must take into account when hiring key people.

• Values: Look for people where their personal values match the company’s culture. For example, for my Daycare I hire people who love children and want to give them the best childhood we can by teaching them while keeping them safe and entertained.
• Personal relationships: Be careful when bringing friends into the company. Judgment can be clouded. If that person doesn’t work out and has to be fired it will be much harder and things done wrong by that person might be overlooked to avoid conflict.
• Professional help: You may want to use a professional recruiter for key positions. It is pricey but in most cases it is worth having a non-biased professional evaluate the skills needed for a position.