AO3 Managing Finance

Managing Finance

FORECASTING

Forecasting is setting up a plan about the future of your business and/or its finances. Forecasting is normally based on face-to-face meetings and common sense rather than on concrete and comprehensive data.

Robert Brown is always responsible for predicting what will happen within his department in the future. Robert with the help of his accountant and bank manager will decide on what needs to be achieved by the end of the financial year. After all it is the amount of money that Robert can invest in the department that dictates how successful and efficient the department will be.

Robert Brown will draw up a business plan for his department every 2 years so that he can broadcast and plan for the future. He will need to plan for his:

Staff- wages, training, trips, dental, morale
Suppliers- raw materials, orders, relations
Customers- offers, sales, product prices, advertisements, customer services, corporate image
Government- policies, laws and legislations, taxes
Other Agencies- loans, investments, expansions, sponsorships

Robert Brown will keep records of everything that happens within the company, from the company’s revenue stream to consumer suggestions. Robert Brown will use these previous statements and records to compile a report so he is able to forecast and plan for the future of his company.

Each of the departments within the company are given a target and will be monitored either by the manager of that department or by someone from Robert Brown’s department. Each department’s overall performance, effectiveness and proficiency will be checked and brought up in the monthly meeting of departmental managers. This meeting is to ensure that everything in the company is running smoothly and productively.

The forecasting plans that Robert draws out will effect each person within the company individually as well as keep the company ahead of their competitors and in among the consumers favourites.

CASH FLOW MANAGEMENT

Money is the oxygen that enables a business to survive and prosper and is the primary indicator of business health. While a business can survive for a short time without sales or profits, without money it will die. For this reason the inflow and outflow of money needs careful monitoring and management.

Ideally, during the business cycle, Robert will have more money flowing in than flowing out. This will allow him to build up cash balances with which to plug cashflow gaps, seek expansion and reassure lenders and investors about the health of his business.

Robert Brown knows that income and expenditure cash flows rarely occur together, with inflows often lagging behind. His aim is to speed up the inflows and slow down the outflows.

Cash inflows:

Payment for goods or services from your customers.
Receipt of a bank loan.
Interest on savings and investments.
Shareholder investments.
Increased bank overdrafts or loans.

Cash outflows:

Purchase of stock, raw materials or tools.
Wages, rents and daily operating expenses.
Purchase of fixed assets- PCs, machinery, office furniture, etc.
Loan repayments.
Dividend payments.
Income tax, corporation tax, VAT and other taxes.
Reduced overdraft facilities.

Many of Robert’s regular cash outflows, such as salaries, loan repayments and tax, have to be made on fixed dates. He must always be in a position to meet these ...

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Cash inflows:

Payment for goods or services from your customers.
Receipt of a bank loan.
Interest on savings and investments.
Shareholder investments.
Increased bank overdrafts or loans.

Cash outflows:

Purchase of stock, raw materials or tools.
Wages, rents and daily operating expenses.
Purchase of fixed assets- PCs, machinery, office furniture, etc.
Loan repayments.
Dividend payments.
Income tax, corporation tax, VAT and other taxes.
Reduced overdraft facilities.

Many of Robert’s regular cash outflows, such as salaries, loan repayments and tax, have to be made on fixed dates. He must always be in a position to meet these payments in order to avoid large fines or a disgruntled workforce.

To improve everyday cashflow Robert Brown will ask for extended credit terms with his suppliers or order less stock but more often.

To have an effective financial company Robert Brown must maintain his income and expenditure as it is critical for a business’ survival. In order to achieve this he will consider and sometimes follow through with offering discounts for prompt payments, negotiating profits or staged payments for large contracts and using a third party to by his invoices in exchange for a small percentage of the total.

SETTING AND MONITORING BUDGETS

Good financial management within a business is about keeping track of where the money is coming from and where it has gone. Effective in year budget monitoring reports provides vital information about spending patterns that helps management to make realistic forecasts of year-end under or overspends. Clearly effective monitoring is in part a result of effective budget setting in the first place.

As the enterprising manager of Tayto, Robert Brown is responsible for predicting what will happen in the future of his company. It is a very important role, and unless done properly could result in the business not being prepared for future events.

The owners of the business will set the budgets for Robert Brown to spend yearly. Then Robert Brown in turn will set a budget for the management staff to spend on making their departments to make them more effective and productive. This money would be spent on things such as advertisements to attract customers to their product, new equipment to make their production line faster and more efficient as well as pay raises for certain members of staff to boost their morale and to reward them for their hard work and loyalty.

PROFITS AND BREAK-EVEN ANALYSIS

The aim of most enterprising managers is to make a profit by any means necessary. Profit is a gain in the making of business activity that is a benefit to the owners or managers. Robert Brown’s main objective is to become the country’s number 1, snack and crisp manufacturer; also to product quality products that meet the expectations of their consumers.

The accountants and the directors of Tayto are in charge of the financial decisions and recording their profit analysis for future references and to make improvements in areas that need them. Recording this data would benefit the stakeholders, who have invested a lot of money into the company. It is only fair that Tayto show them how they are doing and if they are successful with their current methods.

The directors of Tayto will meet with Robert to ensure that he is progressing in a direction that is beneficial for the company. They will draw up a break-even graph to show when they are going to be able to use the money on the company e.g. production methods, facilities, equipment etc or on their product and staff members e.g.

(advertisements, wages, raw materials) etc. This break-even analysis will be able to predict when the company can make a profit and when they make a loss. This will help Robert Brown to make a predicted profit; what he should aim for and what he should achieve. This will aid him on the process of making his company the main product for the customers.

Although the accountants and directors decide on the financial planning of the company, Robert Brown gets to advise and share his opinion on the matter as he does work with the employees and he knows what would be best suited for the customers.

CAPITAL INVESTMENT

This is the money paid to purchase a capital asset or fixed asset.

Robert Brown has to give advice on what the capital of the company should be used for. It will be invested by the directors and owners into the sections that they see fit. Robert’s suggestions will also affect the director’s decisions as he is known more by the public and the employees. They trust him to make the right choice on what to invest in.

Robert Brown has set objectives for each department to work towards. These objectives will be achieved faster and more efficiently if each department had a bit of investment into their methods, equipment and technology. The department managers will tell Robert at their monthly meetings what they need and he will take it into consideration and offer up other solutions.

Robert Brown made investments into training his staff with extra courses for the use of new equipment or induction training for new employees which is done by Robert himself, to give his employees a little assurance. Robert Brown also invests in advertisements and the company’s product range.

Before he can invest or give advice on anything he has to run it by the directors, research all alternatives, weigh up the costs and predict the return on any investments made. He has to be able to provide all the necessary information to his superiors before they can invest or consider investing into anything.

The directors with their options can now choose to purchase many different applications that can help the company grow and succeed. They could by more land to expand their company’s facilities and production factories or in machinery to make the production line more efficient and faster.

LIAISING WITH OUTSIDE AGENCIES

As the enterprising manager of Tayto, Robert Brown has to communicate with all the stakeholders in the business both internally and externally. Here are some examples of outside agencies that Robert would communicate with: banks, suppliers (farmers), accountants, distributors, customers, recruitment agencies, Invest NI, market analysts. It is necessary for Robert to communicate with these outside agencies as they bring advice and expertise that can help with the methods and smooth running of Tayto.

Bank- The bank is one of the most important agencies for Robert as they will keep his company running as they cash cheques and keep their money in a safe and secure location.

Suppliers- The suppliers of Tayto are mostly farmers as they produce the raw materials and products that Tayto need to produce their final product. It is important for Tayto to liaise with their suppliers as they will get the maximum return from them. The supplier will be able to estimate how much of their product they will need to last them the whole year. Tayto would also get a discount for buying in bulk (economies of scale). It is essential that Robert Brown has a good reliable supplier and by liaising with them it will increase their reliability.

Accountants- The accountants of Tayto will be able to keep their cashflow managed and recorded so that Tayto can make necessary changes that will benefit the company.

Distributors- The distributors will take Tayto’s products and get them the best stores to sell their product and the best place in the store as well. They will aid with the selling and marketing of the product.

Customer- Tayto’s customers are also important liaise with as they are the ones buying and eating the product that Tayto manufacture. It is necessary to have their advice and complements about the quality, price, advertising, taste and packaging of the product.

Recruitment Agencies- If Tayto are liaising with the recruitment agencies they will go to Tayto first if they get people who fit the criteria of Tayto’s vacancies. Tayto will get the best people first before their competitors. They provide them with employees.

Market Analysts- These people are very important for competing with the other companies. They can give Robert Brown information on their competitors, the customers’ demands and what section of the market is the most interested in Tayto’s crisps; this is so Tayto know how to advertise and market their product.

Managing Other Resources

MANAGING INFORMATION SYSTEMS

Robert Brown needs to manage and maintain his information systems and other technology within Tayto well as they are an intricate part of the daily running of our business allowing them to run the company more efficiently and to build databases.

This is one of the key factors to be an entrepreneurial manager; the ability to run and maintain other resources than just people. Machinery and IT equipment are very expensive, so to get the most time possible out of it the equipment must be treated right; this will also ensure that Robert Brown gets his money’s worth.

There is a couple of ways of doing this. Robert Brown could hire a maintenance crew who would check up on the equipment daily, weekly or monthly depending on the type of equipment. He could also train his employees on-the-job to make more comfortable when using the new machinery. This type of training is usually used to train older members of staff on the new technology.

The new technology and the use of ICT in Tayto have helped them to react with their customers’ needs quicker and more efficiently. Being able to this will help to sell their product and give them a good corporate image and public image.

ICT has also helped the company to communicate easier, which would get tasks and shipping orders done quicker. Robert Brown can also organise his workforce and daily routines easier. He’ll be able to give each individual department a separate job at the same time.

MAINTENANCE AND RENEWAL OF ASSETS

As the enterprising manager of Tayto, Robert Brown has to maintain, update and replace all the machinery that he chose for certain jobs within the Tayto factory and administration department. Having a productive and updated equipment line will benefit the company either in the eyes of the employees, customers or the owners. The employees will get safer, more efficient, faster and reliable machinery to work with. The customer will get their demands met faster and high quality products to purchase. The owners will make more profit from the constant sales of their products and their company will get a good corporate image.

Robert Brown is responsible for maintaining all of Tayto’s assets, which include the factory, computerised machinery, transportation vehicles, office equipment e.g. computers, printers, faxes etc, forklifts and company cars for management. It is also essential that Robert maintains the safety equipment in case of a fire or a machine malfunction.

The Tayto factory is run on a continuous maintenance schedule from upkeep of the building to the maintenance of machinery and office equipment. The engineering department of Tayto is usually responsible for maintaining the assets of the company along with outside contractors.