Business Performance Management - Assignment Example

Business Performance Management Name Registration No: Institution: Professor’s name: Due date: Assessment Activity 1 1. Spend a dollar to make a dollar. Comment on this saying in relation to using specialist financial services Incurring expenses while seeking the services of a financial advisor can be important in ensuring the right advice is obtained regarding the manner in which a business should be conducted so that high profits are achieved. Consequently, while cost will be incurred while getting the services of a financial advisor, more income will be generated to replace the funds spent. 2. What steps might you take when sourcing and engaging a financial advisor for a business? i. I will determine my scope of work and also investigate the fees required by the specialist ii. I will investigate the competence of the specialist to assist me in the business by investigating whether he has been involved in a similar advisory activity before iii. I will establish whether I will be charged during initial discussion and also determine whether there is an obligation to continue seeking his services in the future iv. I will also determine whether I will be charged on hourly basis or based on the level to which services have been sought. Assessment Activity 2 1. If an invoice is for $ 109.89 including GST but the GST amount is not shown how much GST was included? Let GST value be x GST=10% of the cost price Therefore, 109.89 = 110% Price before adding GST = 100*10.89/110 Hence invoice price before adding GST = $ 9.90 Hence, GST = 10.89 – 9.90 = $ 0.99 2. If you intend to sell a product for $ 75.50 (before GST) how much GST should you collect? Sales percentage before GST = 100%, Corresponding amount = 7.50 GST percentage = 10% GST value = 10*75.50/100 = $ 7.55 3. What is the difference between profit and cash flow? Profit is the revenue as a result of sales of products and services such as payment in the form of cash that is not yet received minus expenditures that have been paid in cash, expenses that should be paid in cash and expenses that are expressed in other ways. Cash flow is the difference between the actual cash received and cash spent in activities of a business. Assessment Activity 3 What are the steps you might take to investigate and secure capital for a business? i. Make personal saving which can be used to buy business requirements ii. Seek the assistance of friends through contribution iii. Seek financial assistance from banks and other financial institutions Assessment activity 4 1. Suggest two strategies that small businesses use to ensure that they have sufficient funds to pay their tax obligations i. They maintain working capital at a certain level based on the tax obligation so that they are able to pay their tax obligations. ii. Some businesses structure their activities with tax cut in mind so that a particular amount of petty cash is set aside for tax payments 2. Explain the difficulties that businesses might face in meeting tax obligations if they use accrual accounting The problem involved when accrued accounting method is used is that it leaves the business owner in the dark as to what cash reserves exist that can be used to meet tax obligations. This can result into serious cash flow problems (Eckerson 2011). For example, the income ledger may show that there is a large amounts of funds in sales, while the bank account may not contain any cash as a result of lack of payments. Assessment Activity 5 1. Explain why it might be necessary for a company to extend credit to their customers Extending credit to customers ensures they are attracted to the company because they will see the company as being concerned about their welfare (Hope and Player 2012). Thus, they will be able to maintain a positive relationship with the business and they can continue to seek products and services of the business. In some cases, there are products which are slow moving and when they are given to customers on credit, their sales can be improved. 2. Explain why it is important to regularly monitor debts. Monitoring debts ensures the business determines whether it is recovering funds owed by debtors so that its activities cannot be affected by debts owed by creditors (Luecke, Hall and Harvard University 2006). In addition, it is a method of ensuring bad debtors are determined so that the business does not provide them with products or services on credit in future. 3. What are the key components of a credit policy for a small business? I. Trading terms: the specific period of time in which the customer is required to pay II. Credit Limits: the maximum amount of credit that the customer might have III. Payment options: the ways in which the accounts can be paid. For instance, by cheque IV. Credit checks/ references: Whether credit references or checks are required and the nature of them. For instance, the need to have a triple a credit rating. V. Debt collection: the ways in which debts will be recovered in case they are not paid in time. For instance, the right to repossess goods and interests. Assessment Activity 6 What factors should a business operator consider when setting their financial KPIs? i. Set a target that can be achieved such as jumping from the business’ current position to a higher level. ii. Targets set should be easily measurable and should be within a distinct time frame that is related to it iii. Business data should be used as much as possible during the process of setting targets. This can be achieved by using financial records from the previous periods. iv. The KPIs should be evaluated every month to ensure the business activities are targeted towards its goals. Assessment activity 7 1. List the financial procedures that you might record for a business i. Payments to creditors ii. Receipts from debtors iii. Discounts on purchases iv. Non cash payments into bank v. Non cash receipts vi. Purchases of goods vii. Sales of goods viii. Tax payment activities 2. How can a business’s financial procedures be communicated to the relevant people? i. Creation of reports that are communicated to the relevant people ii. Creation of financial statements such as balance sheets’ profit and loss accounts and trial balance that are provided to the relevant people iii. Provision of documents as evidence of occurrence of these financial procedures. For instance by providing documented evidence of receipts and payments. iv. Use of certificates that act as evidence of a particular accomplishments in financial procedure Assessment activity 8 1. Give 3 reasons why a business owner would want to monitor and report on financial performance data? i. To determine whether the performance is in accordance with the set targets ii. To determine whether the there are more losses than gains iii. To determine the performance of revenue generating activities in the organization. 2. Why is it poor practice to use only 1 to 2 financial measures to assess the financial performance of a business? This is because the use of only 1 or 2 financial measures to measure the performance of a business provides only specific measures and do not measure other characteristics of financial performance that are critical to a business. Furthermore, the process of understanding the performance of a business requires the use of financial ratios that can enable a business owner to get a better understanding of the business position. If a business uses only 1 to 2 ratios, there is a possibility that other ratios cab ne ignored thus, inhibiting understanding of business position. 3. What are the benefits of setting financial targets/ performance indicators? Why is it important to regularly compare the financial performance of the business to what was done and how this can be done? i. Setting financial targets inspires employees to work towards achieving those targets ii. It ensures the business sets a reasonable target that can be beneficial in terms of increased profit which also improves the welfare of employees. iii. The process of setting performance indicators enables the business assesses their ability to work towards a particular goal so that the goals are achieved. When a business has set a particular level of performance indicator, it determines area that efforts need to be put so that high performance is achieved. iv. The process of setting performance indicators also acts as a measure of activities that are not contributing to profitability of a business. If a section of a business is not contributing effectively towards its profitability, such a section can be known. 4. Deciding who to borrow money from or secure finance from, is one of the biggest business decisions you will have to make. What should you do before making this decision? i. Determine the repayment period ii. Determine the amount of interest charged on the loan iii. Determine the ability of the company to repay the loan within the rate stated. iv. Describe the business by illustrating the assets, liabilities, stakeholders and products and services provided by the business for a startup business. v. Determine sales and profits projections in the period in which loan are provided. For instance, for the case of a continuing business, include cash flow for the previous 12 months with the exclusion of loan repayments 5. What is a budget? Why should budgets be compared to actual performance? A budget is a financial statement which shows the manner in which funds have been used during a particular event (Cokins, 2009). A budget is an estimate of income and expenditure for a particular period. Budgets should be compared to actual performance so that the business owner can know whether the business is using funds in a manner that was intended. 6. What is : A balance sheet: it is a statement that shows the financial position of a business at a particular time A profit and loss statement: It is statement that shows a summary of revenues, expenditures and costs incurred during a particular period that is usually an accounting period. A stock record It is a record that shows the stock available in store, stock received and stock issued Assessment activity 9 1. Marketing and operational plans must both be effective. Explain Marketing plans must be aimed at reaching the highest number of customers so that the business is able to get enough customers to purchase its products and services. Operational plans must be effective in terms of providing competent products and services that are satisfying to customers so that they can be retained as regular customers by the business. 2. What are some of the things that might be considered when monitoring the effects of a marketing or operational strategy on the financial plan? i. Increase in number of customers who obtain goods and services from the company ii. Increase in customer satisfaction iii. Increase in sales of the products and services of the organization iv. Increased profitability v. Reduction in stock inventory period Assessment activity 10 1. ‘Seaview swimwear’ had annual sales of $750000, with an average retail inventory of $275000. Calculate their stock return rates. Return in stock= $(750000-275000) = $ 475000 Dividing by starting value = 475000/275000 = 1.722 2. During 2007 ‘Seaview swimwear’ had invested $1500 on a new computer system for the shop and $500 on staff training in order to be able to use it. They calculate that they have $ 2000 in stock shrinkage and a faster processing of sale has resulted in an additional $ 5000 of sales. Calculate ROI of a new computer system. Total investments = $(1500 + 500 + 2000) = $ 4000 Income from investments = $ 5000 Returns from investments = 5000 – 4000 = $ 1000 ROI = 1000/4000*100% = 25% 3. ‘Seaview swimwear’ has realized that it has a significant number of customers who have not paid their bills. In the financial year they have made $ 750000 sales, but the debtors are $ 4600. Calculate the number of debtor’s days accrued. Average sales per day = 2054.80 Number of debtor’s days accrued = 4600/2054.80 = 2.24 days. This implies that it took 2.24 days for the business to collect debts from customers. Assessment activity 11 1. How frequently should businesses review their financial plan? Explain your reasoning Financial plans of a business should be viewed every month. This ensures the business is able to know whether they are able to conduct their activities according to the plan and also ensures any changes from the plan are adjusted before the business can deviate further from the financial plan. 2. Describe the actions that a small business owner could take if they found that many of the businesses financial KPIs had been met or exceeded in the allocated time period Maintain their current strategies of conducting the business so that such KPIs can still be met in future Enhance training of employees to achieve these KPIs in future Come up with other performance indicators which improve the position of the business 3. How should any adjustments that are made to financial plans be recorded? By writing down the changes in a note book where they act as a reminder when performing a particular financial activity. This ensures the change is accounted for during financial activity that requires to be changed. Summary The booklet explains a number of book keeping activities such as how money received are kept and the accounting procedures to be followed when keeping petty cash. It also explains methods to be followed during application for loan such as description of business history, repayment procedures to be followed and how financial statements will be managed. The booklet also explains the impacts of taxes on the price of a product sold such as the impact of GST on prices of products sold in Australia. There are also particular steps required to be taken when securing capital for a business. These steps are explained in the booklet. Another consideration that the booklet emphasizes is the need to set aside enough funds which enables a business to meet its tax obligations despite the possibility of not operating at a profit. The booklet also explains that extending credit to customers can be beneficial in creating a better image for a company while monitoring debtors should also not be neglected since it ensures they are able to pay what they owe the business. The booklet also explains Key performance indicators (KPIs) that a business should determine and the importance of having KPIs during business activities. There are also a number of financial procedures that a business should be aware of. These procedures are explained and how they can be communicated to the relevant people is also illustrated. The article also shows that the use of 1 or two financial measures to assess the financial position of a business is not an accurate measure. It recommends the use of a number of financial measures that are used in accounting so that the business owner can know the right financial position of the business. The process of setting financial targets is also explained in the booklet and the benefits associated with it. The booklet also explains processes that should be followed when securing loans such as the method of payment to be used and the payment period. This ensures the business is able to pay back the funds borrowed. Furthermore, the booklet explains the manner in which the services of a financial specialist should be sought by establishing how much cost will be incurred and the ability of the expert to provide relevant advice. Finally, the booklet explains the manner in which marketing and operational plans need to be carried out so that customers are attracted to products and services of the business and it is able to achieve its financial goals. References Cokins, G. 2009. Performance management: Integrating strategy execution, methodologies, risk, and analytics. Hoboken, N.J: John Wiley & Sons. Eckerson, W. W. 2011. Performance dashboards: Measuring, monitoring, and managing your business. Hoboken, N.J: Wiley. Hope, J., & Player, S. 2012. Beyond performance management: Why, when, and how to use 40 tools and best practices for superior business performance. Luecke, R., Hall, B. J., & Harvard University. 2006. Performance management: Measure and improve the effectiveness of your employees. Boston, Mass: Harvard Business School Press. Pulakos, E. D. 2009. Performance Management: A New Approach for Driving Business Results. Chichester: John Wiley & Sons. Read More