Gunnawarra Homestead Resort - Utility of Cash Flow Management and Record-Keeping to Small Firms - Research Proposal Example

Research Investigation and Proposal Table of Contents Table of Contents 2 Chapter Introduction 4 1 Background of the company 4 2 Research problem 4 1.3 Research question 4 1.4 Research Objectives 5 Chapter 2 Literature review 5 2.1 Key Findings of the Study 5 2.1.1 Control of debtors and creditors of the firm 5 2.1.2 Cash flow and cash allocation 6 2.2. Relevance of the information 8 2.2.1 Limitations of the research study 8 Chapter 3 Primary research proposal 8 3.1 Research methodology 8 3.2 Approach to the problem 9 3.3 Details of the methodology to be used 9 10 References 11 Appendix 13 Chapter 1 Introduction 1.1 Background of the company Gunnawarra Homestead Resort is a tourist spot located in North Queensland and is registered with the National Trust of Australia. It is located near the Herbert Lake which is also a major source of water supply for the resort. The resort is a small tourist facility which provides accommodation for tourist visiting Gunnawarra (Trove, 2013). 1.2 Research problem The small and micro firms based in Australia have a significant impact on the economy. Their contribution to the development of the economy is immense because they provide employment to the half of the work force of Australia. Since, the firm is smaller in size the practice of standardized rules and regulations are absent (Small Biz Connect, 2013). The absence of a standardized cash flow system and inadequate record keeping will lead to shortage of cash supply (A. Linzer and R. Linzer). This research study will emphasize on the importance of the cash flow management in a small and micro firm like Gunnawarra Homestead Resort. Proper cash flow management and record keeping will increase the efficiency of the firm. Inadequate record keeping and improper cash flow management will decrease the effectiveness of the firm. Since, 80 percent of the organizations in Australia are small and micro firms they should focus on improving their financial, cash flow management system and record keeping to ensure their long term viability. 1.3 Research question Based on the research problem and objectives of the study the following questions were formulated. Each of these research questions will be addressed accordingly. 1. What is utility of effective cash flow management in a small and micro firm? 2. What are the impacts of improper cash flow and cash allocation in small and micro firm? 3. Have the small and micro firms of Australia been able te manage cash allocation and internal cash flow? 1.4 Research Objectives The objectives of the research study are as follows: To understand the importance of the cash flow management and record keeping The utility of cash flow management and record keeping to small and micro firms especially Gunnawarra Homestead Resort Chapter 2 Literature review Revenue generation is of paramount importance to a firm, but it must know how to procure and manage its funds effectively. The survival of a firm depends upon proper customer service, adequate cash conversion and real profits. It is to be noted that profits are not acceptable means of measuring revenue, cash inflow and out flow needs to be constantly monitored because lack of a proper cash flow management can lead to the insolvency of the company. 2.1 Key Findings of the Study 2.1.1 Control of debtors and creditors of the firm Creditor days reflect to what extent the firm uses suppliers to finance its business. The higher the number of creditor days the better it is for the company as it helps to conserve cash. However, if the small and micro firm take a longer period to make credit payment then the firm is facing difficulty in generating revenue or trying to finance its supplier funds. The number of debtor days signifies the firm’s efficiency in collecting cash payments. Lower the number of debtor days the better it is for the firm. High number of days would signify higher amount of bad debts, dubious sales amount etc. Therefore, we can say that the average amount taken to collect cash and make payments affects the cash flow of the firm (Coles, 1997). 2.1.2 Cash flow and cash allocation One of the most important issues for a small and micro firm is the decisions related to allocation of cash flow. Effective cash flow management means to invest the idle funds into short term or long term investments and generate profit (Accounting for non students, 2001). It also means that the management of the firm should accelerate the cash collection process from the debtors and use the cash effectively in short term investments. The process of cash collections can be accelerated by offering cash discounts, lockboxes, electronic fund transfer etc (Plewa, 1995). This not only increases the cash receipt amount but also helps the management use the funds effectively and timely (Small Business Australia, 2013). 2.1.3 Record keeping Efficient record keeping is vital for the success of a small and micro firm. Efficient record keeping includes keeping accurate and up to date accounting transactions. Record keeping helps in meeting the financial commitments of the business and helps in making effective management decisions (Queensland Government, 2013). Record keeping not only helps in the preparation of financial statements but also provides information related to cash control of the firm (Chartered Institute of Bankers, 2000). The traditional form of record keeping is by maintaining records in a book. Recently the managers of the firms have been maintaining the records in computers for accurate calculations. This has not been a welcoming change for the managers of small and micro firms in Australia, UK and other countries. The main reasons of not accepting the change is lack of computer skills and resistance to change. Managers of small and micro firms should be adopting computerized accounting methods to increase the accuracy and efficiency and save time and cost of the firm. 2.1.4 Impact of GST and BAS The impact of GST and BAS (Goods and service tax & Business activity statement) is huge on the small and micro firms of Australia. The GST was introduced in the year 2000 and is a tax which is levied on the supply of goods and services in Australia. Once a firm is registered, the GST will be payable on most of the goods and services that the firm supplies and sells (Australian Government, 2013b). The BAS is a statement which includes details of payment of Fringe Benefit Tax, Wine Equalization Tax, and Luxury Car Tax. These are also known as Pay As You Go Withholding Tax (PAYGW) (Australian Government, 2013a). It is mandatory for all the business enterprises in Australia to make payment towards these taxes and the detail of these taxes are given in the form. The compliance cost for most of the small and micro firms operating in Australia account for 3 percent of their annual turnover (Breen et al., 2002,). This reveals that the small and micro firms need to be aware of the impact of the tax reforms on their business. 2.1.5 Downturn in Business The major cause for a failure in a small and micro business would be the lack of efficient record keeping, cash management, excessive idle cash, lack of proper management of inventory, inaccurate reporting of cash balances. These are some of the general reasons for the downfall of a business enterprise however, failure can also be due to resistance, inaccurate cash reporting, fraud accounting etc. These factors have to be given due consideration for the smooth operation of the firm. A small and micro firm has limited human resources which makes it difficult for the managers to smoothly operate the firm hence, they should be extremely cautious while managing the operations of the firm (Harford and HausHalter, 1998). 2.1.6 Bank overdraft Bank overdraft is a major credit facility that is available to the small and micro firms of Australia. Bank overdraft and short term loans are a major source of finance for the small and micro firms of Australia. These are favoured instruments because 1) they can be easily rolled over 2) they attract market interest rates 3) they are fully collateralized. Recently, the small and micro firms in Australia are facing difficulty in procuring cash through bank overdraft facility and short term loans (Christopher, 2010). 2.2. Relevance of the information We can observe that key findings in this research study have key relevance in addressing to the research problem. We can state that cash flow management is highly affected due to debtors, creditors, cash allocation, record keeping, tax reforms, bank overdraft facility etc. The relevance of the gathered information is immense as these key findings give us a fair understanding of the effects of cash flow management in a small and micro firm. Tax policies like GST and BAS play a key role in decisions related to cash allocation and cash flow for a small and micro firm in Australia. 2.2.1 Limitations of the research study 24.2 percent of the firms in Australia are micro firms (Australian Government, 2013c) hence it was difficult to gather information from all of these firms. This can lead to inaccuracy in results. The tax rates of LCT (Luxury Car Tax) and WET (Wine Equalization Tax) varies from state to state in Australia and the impact of these tax policies is also different. Collection of relevant information from various small and micro firms of different states was not possible. Chapter 3 Primary research proposal 3.1 Research methodology In a research study data needs to be collected for supporting the proposition of the researcher and the collected data needs to be analyzed to derive solutions. There are three types of research methodology which can be utilized to analyze data which are quantitative, qualitative and hybrid methodology (Patton and Cochran, 2002). The quantitative methodology covers the numerical and statistical aspect of the research study. Researcher collects data in terms of statistical and numerical figure in order to ease the process of data collection because this analysis depends upon the numbers and statistics. On the other hand qualitative methodology is descriptive in nature and solves problems which are complex in nature. The third type of research methodology is known as Hybrid methodology which is a mixture of quantitative and qualitative methodology. 3.2 Approach to the problem The research methodology chosen for this research study would be Hybrid methodology. Qualitative methodology helps the researcher in evaluating factors like culture, opinion, beliefs, capability and efficiency etc (Grady, 1998). Annual reports, journals etc will give us a generalized view of the profit and loss of the company however, intricate details like the mode of payment, source of cash, loans, method of recording accounting transactions etc can be known from interviews and questionnaire. Various causes of the downfall of a business can be known only through a questionnaire that will be handed out to the managers of the small and micro firms of Australia. The researcher will first analyze the numerical aspects of the study by analyzing the annual reports and journals of the firm. After the researcher completes evaluation of annual reports and journal, the researcher would conduct personal interview and hand out questionnaire to the managers and owners of the firm. 3.3 Details of the methodology to be used Qualitative methodology is descriptive, holistic and subjective in nature (Hancock, 1998) and considers the psychological and behavioural aspect of the data collected. Qualitative methodology will help in evaluating the intangible aspects of the research study and finding suitable solutions (Woods, 2006). Quantitative methodology would be used to analyze the numerical and quantitative aspects of the research study. 3.3.1 Research technique As mentioned earlier, annual reports and journals of the firm will help in obtaining the information like profit/ loss, debtor days, creditor days, cash inflow, cash outflow of the company. While data collection instruments like questionnaire and interviews will help us in understanding the factors responsible for the failure and success of the small and micro business firms especially situated in Australia 3.3.2 Population and Sample The sample size is chosen based on the nature of the research study and the affected respondents (Kuada, 2012). In this case at least 20 firms will be surveyed. There would be two types of respondents which wil include the managers and the owners of the firm. The questionnaires would be handed out to 20 owners and 60 employees. The total sample size would be 80. 3.3.3 Suggested Topics The researcher should be able to cover topics like cash flow requirements, net cash flow of the firm, impact of cash management, inventory management of the firm etc. These topics will help the researcher to give an estimate about the present financial position of the firm. The future cash flow of the firm can be predicted by analyzing the liquidity and cash management ability of the firm. References Accounting for non students, 2001. Cash flow statements [pdf] Available at: < http://people.bath.ac.uk/mnsipc/man069/Ans-store/Chapter8.pdf > [Accessed 16 April 2013]. Australian Government, 2013a. Activity statements - home [online] Available at: < http://www.ato.gov.au/businesses/pathway.aspx?sid=42&pc=001/003/099&mfp=001&mnu=42557#001_003_099> [Accessed 16 April 2013]. Australian Government, 2013b. What is Goods and Services Tax (GST)? [online] Available at: < http://help.abr.gov.au/BC/Other_registrations/Register_for_GST__Policy_and_Legislation/What_is_Goods_and_Services_Tax_(GST)_/> [Accessed 16 April 2013]. Australian Government, 2013c. Key statistics Australian small business [online] Available at: < http://www.innovation.gov.au/SmallBusiness/KeyFacts/Documents/SmallBusinessPublication.pdf> [Accessed 16 April 2013]. Breen, J., Seers, S.B. Roberts, I., and Sims, R., 2002. The impact of the introduction of the GST on small business in Australia [pdf] Available at: < http://vuir.vu.edu.au/1286/1/ARA_02_GST_and_SB.pdf> [Accessed 20 April 2009]. Chartered Institute of Bankers, 2000. Cash flow control. Chicago: FitzRoy Dearborn. Christopher, I.F., 2010. Impact of Microfinance on Small and Medium-Sized Enterprises in Nigeria. [pdf] Available at: < http://www.pucsp.br/icim/ingles/downloads/papers_2010/part_9/7_Impact%20of%20Microfinance%20on%20Small%20and%20Medium-Sized%20Enterprises%20in.pdf > [Accessed 16 April 2013]. Coles, M., 1997. Financial management for higher awards. London: Heinemann. Grady, M.P., 1998. Qualitative and action research: A practitioner handbook. Indiana: Phi Delta Kappa International. Hancock, B., 1998. An introduction to qualitative research [pdf] Available at: < http://faculty.cbu.ca/pmacintyre/course_pages/MBA603/MBA603_files/IntroQualitativeResearch.pdf> [Accessed 16 April 2013]. Harford, J., and HausHalter, G.D. 1998. The allocation of free cash flow: Evidence from the Persian Gulf crisis [pdf] Available at: < http://pages.uoregon.edu/finance/allocfcf.pdf> [Accessed 16 April 2013]. Kuada, J., 2012. Research methodology: A project guide for university students. Portland: Samfundslitteratur. Linzer, A.O., Linzer, R.S. 2008. Cash flow strategies: Innovation in nonprofit financial management. New Jersey: John Wiley & Sons. Patton, M.Q. and Cochran, M., 2002. A guide to using qualitative research methodology [pdf] Available at: Accessed 16 April 2013]. Plewa, F. J., 1995. Understanding cash flow. New Jersey: John Wiley & Sons. Queensland Government, 2013. The importance of record keeping [pdf] Available at: < http://www.ajml.com.au/downloads/resource-centre/references/operational-management/The%20importance%20of%20record%20keeping.pdf> [Accessed 16 April 2013]. Small Biz Connect, 2013. Introduction to micro-business [online] Available at: < http://toolkit.smallbiz.nsw.gov.au/part/20/99/451> [Accessed 16 April 2013]. Small Business Australia, 2013. Cash flow statements [online] Available at: < http://www.cosboa.org.au/Page/COSBOA-Policy > [Accessed 16 April 2013]. Trove, 2013. Gunnawara and the hot springs [online] Available at: < http://trove.nla.gov.au/ndp/del/article/21639206> [Accessed 16 April 2013]. Woods, P., 2006. Qualitative research. [online] Available at: [Accessed 25 March 2013]. Appendix Appendix 1 S.no Question Yes No To a certain extent 1 Does cash flow affect your business? 2 Do you use computerized accounting in your firm? 3 Has the Tax policy like GST and BAS negatively affected your cash flow? 4 Do you update your accounting records regularly? 5 Do you believe that true and fair accounting can improve your business? 6 Do you pay your employees of the firm through cash payment? 7 Are you happy with rate of interest of GST and BAS? 8 Have you had any instance of fraud accounting in your firm? 9 Does your annual report or journal contain adequate information about the firm? 10 Do you rely on overdraft facility for cash sources? If any other mode used please state. Read More