Management Accounting Tips for your Business

1E: [email protected] | P: 07 3367 1994 | A: 20 Mayneview Street, Milton, Brisbane, Queensland 4064

The Business Owner’s Accountant

Aug ust2013w w w .jud sons.com .auMANAGEMENT ACCOUNTING TIP

MARGINAL CASH FLOW

im p ortant to und erstand th at notevery $ ofrevenue isth e sam e.Ify oum ake a sale to a slow p ay ing custom eror m ake a sale w h ere y ouneed to obtain m ore stock th en it could w ork outth at an ad d itional$ ofsale couldbe h urting y our business.

Case Study

31% or 31cfor every d ollar ofsales.

Understanding Cash Flow

Total Dollars For every $1 sale

Revenue $4,200,000 $1

Direct Costs $2,898,000 69c

Gross Profit $1,302,000 31c

So for every $1 ofsales,69 c isd ed icated tow ard sm eeting y our d irect costs.Th isw illleave th e businessow ner31c to th en cover th eir w orking cap italand overh ead s.

N ow assum e th e sam e businessabove h asth e follow ing balancesin th eir balance sh eet:

Total Dollars For every $1 sale

Debtors $863,014 20.55c

Inventory $1,429,151 34.03c

Creditors ($555,781) (13.23c)

Total Working Capital $1,736,384 41.35c

For every d ollar ofsale,41.35cissp entm aintaining th e business’w orking cap itallevels.

– 41.35c)for every d ollar ofsale! For every ad d itionalsale th e businessm akes,it ish urting th e businessby an extra 10cfor every d ollarw h ich w illneed to be fund ed eith er by th e bank or th e businessow ner.E.g .Ify oum ake a $10,000 sale,th e

A key m etric th at m ustbe m onitored by every businessow ner isw h eth er th eir g rossm arg in % exceed sth eirw orking cap ital% .

NET CASH FLOW

p urp osesofth e calculation,any cash in th e bank isoffset ag ainst any sh ort term borrow ing s.Th e g oalfor any

w h ere p ossible.

d ecisionsneed ing to be taken to cutcostsand red uce w ag es.

MONITORING YOUR CASH FLOW

iscritical.At Jud sop rovid e th ese sortsofrep ortsto enable th e businessow ner to m onitor th ese key m etrics.A sam p le rep ort isattach ed for y our review .

XYZ Furniture

Prepared for XYZ Furniture07 August 2013

Page 1/3© Cash Flow Excellence Pty Ltd

XYZ FurnitureXYZ Furniture

Summary Story

Your Profit Story

- = - =Revenue

$4,200,000

COGS

$2,898,000

Gross Margin

$1,302,000

Overheads

$840,115

EBIT

$461,885

Current Year Change

Revenue $4,200,000 +20.00%

Gross Margin % 31.00 +1.00%

EBIT % 11.00 +0.29%

Net Profit % 4.96 +0.24%

Your Balance Sheet Story

+ = +Net Debt

$1,727,981

Equity

$1,958,402

Working Capital

$1,736,384

Other Capital

$1,949,999

Funding Net Operating Assets

Current Year Change

Debtors Days 75.00 5.00 days

Stock Days 180.00 26.00 days

Creditors Days 70.00 9.98 days

Working Capital Days 185.00 21.02 days

Page 2/3© Cash Flow Excellence Pty Ltd

XYZ FurnitureXYZ Furniture

Your Cash Flow Story

0

431,996

863,991

1,295,986

1,727,981

Bank loans currentBank loans non current

900,000 1,000,000

501,974

Total Debt30-06-2012

727,981

Total Debt30-06-2013

Current Year Change

Marginal Cash Flow -10.34 -3.14%

Operating Cash Flow 27,575.00 +100.00%

Net Cash Flow -326,007.00 +100.00%

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Page 3/3© Cash Flow Excellence Pty Ltd

1

June 2013

www.judsons.com.au MANAGEMENT ACCOUNTING TIP

REPORTING RHYTHMS

The right data at the right time

A question we often get asked is what �nancial data should the business owner be reviewing and

when. It is our suggestion for business owners to set up for themselves a �nancial reporting rhythm

that ensures that they look at their data on a regular basis but not overload them too much so their

focus is lost.

Our suggestion of a �nancial reporting rhythm is as follows:

• Daily reports: Cash balance

• Weekly reports: Cash (ow forecast & sales and productivity report

• Monthly reports: Pro�t and loss, balance sheet and Cash (ow report

Let’s look at these reports in a little more detail:

1. Daily Reports

You’d be surprised as to how many business owners have no clue about how much cash they have in

their business at any given day. This report is a simple report that shows which customers paid

yesterday and overnight. If you have more than 20 customers paying daily, a listing of who paid is

not always practical. However you should report the total deposits for the day and the cash balance.

The report should be easy to email and read on a PDA or smart phone without needing to open an

attachment.

Daily Cash Report 12 June 2013

Bob’s auto repair $2,000

XYZ Engineering $1,500

Fred Smith $750

Total Deposits $4,250

Cash Balance $23,462.71

Customer payments:

2

June 2013

www.judsons.com.au MANAGEMENT ACCOUNTING TIP

2. Weekly Reports

Create a rhythm by sticking to whatever day of the week works for you to review your weekly

reports. You should look at two reports every week: cash (ow forecast and sales and production.

The purpose of the cash (ow forecast is to make sure you have money in the bank when your bills

are due. It shows a two-week projection of your expected sources of in(ows and out(ows. Break

your payables up into 5 key categories:

• General Bills

• Wages and Salaries

• Superannuation (and payroll tax if applicable)

• Rent and Utilities

• Payment of debt

As for the sales and Production report, the key is to identify trends in your sales and cost of goods

sold �gures on a rolling basis. If your billing cycles are monthly then this report would need to be

done on a monthly basis rather than weekly.

3. Monthly Reports Pick a day of the month to review your monthly reports. A pro�t and loss report shows if your

business made or lost money during the reporting period. You have to keep in mind that sometimes

a month is an extremely inaccurate period of time for some businesses. You may need to look at a

minimum of six months data to see what the ups and downs were.

We would suggest simplifying the print out of your pro�t and loss statement. Too many times we

have seen business owners get distracted on areas of overhead that may constitute .5% of the

business e.g. printing & stationery yet it is the only thing that they can concentrate on. One way to

do this is to choose a Level 1 or 2 report in MYOB or a similar report from other accounting systems

where the overheads are grouped.

The balance sheet should be reviewed to ensure that the pro�t and loss makes sense. Remember, in

the end the pro�t and loss statement merely shows the movement in the balance sheet position of

a business from one period to the next.

Attached to the pro�t and loss and balance sheet is a cash (ow report that shows where the cash

has gone in the business. Very few accounting systems can produce this report at the push of a

button. We have designed a report (next page) that shows you the typical makeup of this sort of

report.

Ap ril2013w w w .jud sons.com .auMANAGEMENT ACCOUNTING TIP

G iven th e nature ofour business, w e are in continualcom m unication w ith businessow nersasto th e state ofth eir businessesand th e econom y in g eneral. It w ould be ofno surp rise to m ostofy outo h ear th at th e

d istributionsand a return to th e ow ners.Th isisd ifferent to a w a g e an ow ner p ay sth em selvesoutofth ebusiness. Iam stillofth e strong view th at ow nerssh ould p ay th em selvesa m arket based salary asm uch as

into account.At p resent w e h ave a num ber ofbusinessesstrug g ling to m ake even th issort ofreturn.Ioftenh ear ofour contracting clientstaking on w orkatlow m arg insjust to retain th eir key staffand keep th eirp eop le busy .Invariably som e ofth ese contractorsh ave sh ed som e ofth eir subcontractorsp erm anently just tosurvive in th e currentenvironm ent.

Unfortunately , m any ow nersfeelth e solution liesw ith th e bankin p rovid ing m ore d ebt to g et th roug h th is

incorp orate a salesand m arketing p lan th at focusesth e businessow ner on d ifferent op tions.Th ism ay involvech ang ing y our p rod uct m ix ofg ood sor servicesor attend ing to d ifferent m arketsor d itch ing custom ersth at

incorp orate a salesand m arketing p lan th at focusesth e businessow ner on d ifferent op tions.Th ism ay involvech ang ing y our p rod uct m ix ofg ood sor servicesor attend ing to d ifferent m arketsor d itch ing custom ersth at

tax p urp osesincom e istaxed exactly th e sam e reg ard lessofsource.H ow ever for m anag em ent accountingp urp oses, not every d ollar ofrevenue iseq ualout w h ere th ey are m aking m oney and w h ere th ey are not.Only arm ed w ith th isinform ation, can th e ow nerstruly m ake better d ecisionsin d ealing w ith th e currentenvironm ent.

feelfree to contact usto org anise a consultation to d iscuss y our situation and h elp y ouw ith y our salesand-14.

5E: [email protected] | P: 07 3367 1994 | A: 20 Mayneview Street, Milton, Brisbane, Queensland 4064

Judsons Financial Management Services Pty Ltd.ABN 49 135 685 148

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