FINANCIAL TOOLKIT INTRODUCTION & USER GUIDE. January 1

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1 January 1 FINANCIAL TOOLKIT 2014 A toolkit or Trainers Guide in the form of a series of separate Modules grouped progressively into four levels of training for delivery as workshops. The Guide is flexible to allow combining of Modules of different levels within a face to face workshop & may be adapted to other delivery mediums. INTRODUCTION & USER GUIDE

2 PIPSO S FINANCIAL TRAINING TOOLKIT Providing technical support to NPSO s & to businesses is very important for the development of the private sector for the Forum island countries. This toolkit is a demonstration of our commitment to this task. This Financial Education Toolkit is designed to fill a training gap & supplement other training offerings developed to improve the knowledge & skills of members across a range of industries, markets & countries. This product is a stand alone toolkit; it is intended to benefit entrepreneurs & owners of businesses varying in size from micro to small & even a medium size. WHO CAN BENEFIT FROM THIS TOOLKIT? The Toolkit is structured as a series of Modules. Each Module covers a particular financial issue or topic. Topics are designed to expand on prior topics or branch across the spectrum of new financial topics of relevance & interest to private sector organisations. The Toolkit may be useful to: Individuals, groups of individuals & micro businesses seeking basic information about documentation & financial records that are required & /or will assist them to manage their business Small businesses in need of guidance on business or financial systems to manage their affairs, including record keeping, working capital, cash flow & business forecasting Medium size businesses seeking to expand the use of financial information generated by their accounting systems, but not knowing what information is available, where to find it & how to best use it Any entrepreneur or existing business owner, having undertaken sufficient research & planning, seeking to prepare a Business Plan in an intensive workshop environment with the intention to provide it to investors or banks in order to fund growth in their business, a new product or range of products, a new business or simply to test the viability of a new business endeavour envisaged. Although listed in an order that the Modules might be presented to entrepreneurs & business owners in various stages of development, Modules may be mixed & matched for selected audiences in a workshop environment. They are loosely grouped into three (3) levels which may each be delivered over two (2) to three (3) days. In short, the Toolkit is designed to be sufficiently flexible to allow trainers to facilitate a range of delivery options & timetables. NOTES: 1. It is possible to mix & match Modules up to level 3 for delivery to selected groups with special interests. Modules within these levels would ideally be presented as a series of shorter two (2) or three (3) hour workshops spread over a longer period. In fact, this method of training is preferred to avoid information overload amongst participants & to allow them Toolkit Users Guide Page 2 of 19

3 time to absorb information & possibly complete individual exercises outside of the workshop environment. 2. When Modules are chosen from different levels to be presented in a workshop environment it is essential that participants have the prerequisite knowledge & skills outlined at the beginning of each Level in the following pages. 3. Modules at each level are not designed to take the same length of time to present in a workshop training environment. When mixing & matching Modules it is necessary to be cognisant of the time required for Modules in order to fit prescribed training within the time boundaries available. It is not recommended that Modules be shortened or abridged for fear that the intended context may be lost or misinterpreted. It is better, if in doubt, to allow more, rather than less time for face to face training. 4. For workshop training across the Pacific it is desirable, if possible, that the trainer be conversant with the local vernacular of participants or has the assistance of someone who has a grasp of the subject matter & can speak in the local vernacular & can, therefore translate the information offered to improve participant understanding. Toolkit Users Guide Page 3 of 19

4 Level 1 - micro/small maximum workshop participants 30 seven (7) Modules delivered over a minimum of two (2) days. Participants in Level 1 training require minimal or no particular business skills. The main requirement is a desire to lean more than they currently know & the intention to enter or grow a business. The Modules in Level 1 promote three themes as follows: 1. Separate business & private activities 2. Understand & manage the business cash flow 3. Manage debtor & inventory The Modules below are designed to assist individuals who are: Unemployed or employed but thinking about starting a new business Running an existing micro business keeping minimal or no records of business activity, but wishing to know what advantage there is in keeping business documents & records. Small businesses that keep some records, but want a better understanding of what they may do to better manage their business Module 1.1: Documents for Record Keeping Module 1.2: Assets, Liabilities & Equity Module 1.3: Cash Flow Module 1.4: Working Capital Module 1.5: Cash Books Module 1.6: Cash Flow Forecasting Module 1.7: Taxation & Regulation Toolkit Users Guide Page 4 of 19

5 Level 2 - small/medium maximum workshop participants 30 seven (7) Modules delivered over a minimum of two (2) to days. It is necessary that participants at Level 2 understand the lessons provided in Level I Modules in this Toolkit. They must be familiar with the accounting equation introduced in Module 1.3 in order to understand Level 2, Modules 2.2, 2.5 & 2.6 below. The Modules below are designed to assist business owners who are: Operating a small business & considering upgrading their budgeting, financial reporting & control Looking to move from cash accounting to accrual accounting & wanting to understand the difference Considering bringing the basic bookkeeping function into their business using accounting software with, or without, external review by an accountant Looking for ways to use the financial information they generate to compare & contrast their business performance using relatively easy to calculate financial performance measures Module 2.1: Accounting Concepts Module 2.2: Profit Module 2.3: Budgets Module 2.4: Internal Controls Module 2.5: Accrual Reporting Module 2.6: Financial Statements Module 2.7: Petty Cash Toolkit Users Guide Page 5 of 19

6 Level 3 - small/medium maximum workshop participants 30 seven (7) Modules delivered over a minimum of two (2) to days. It is necessary that participants at Level 3 understand cash & accrual accounting practices as provided in Level 2 Modules in this Toolkit. They must have the ability to read & understand the components of an income statement (profit & loss account) & a balance sheet as these are used extensively throughout the Modules at Level 3. The Modules below are designed to assist business owners who prepare detailed financial reports & are looking for opportunities to use this information & the skills they now possess to: Cost & price product Make strategic financial decisions Assess their business opportunities, their business or other businesses Assess the benefits of funding choices available Raise funds from knowledgeable investors or lenders Modules & 2 are designed to assist rural businesses & NGOs in relation to some specific issues faced by these entities that are not in common with other businesses & should not be attended unless a participant is conversant with the concepts in Level 2, Modules 2.2, 2.5 & 2.6. Module 3.1: Business Costs & Pricing Module3.2: Capital Expenditure Decisions Module 3.3: Funding, Debt & Equity Module 3.4: Valuing a Business Module 3.5: Preparing a Business Plan Module 3.6: A Bank s View of Finance Module 3.7: A Choice of: Module 3.7.1: Farm Accounting Module 3.7.2: Accounting for an NGO Toolkit Users Guide Page 6 of 19

7 Level 4 small/medium business ready to prepare a Business Plan in a workshop environment maximum workshop participants 15 for delivery over 3 days It is necessary that participants wishing to complete a Business Plan at Level 4 have completed or understand the business concepts provided at Levels 2 & 3 of this Toolkit. Minor revision of important topics may be possible, but only limited time is available for covering past ground. In addition, participants must have completed or be near completing the market research necessary before expanding the existing business, embarking on the new activity, making the new product or taking on the new business. Module 4.1: Overview Business Plan & Financial Tables Module 4.2: Financial Plan Tables Section 1 Module 4.3: Business Plan Section 1, Structure & Legal Requirements Module 4.4: Business Plan Section 2, Market Research & Analysis Module 4.5: Financial Plan Tables Section 2 Module 4.6: Financial Plan Tables, Section 3 Module 4.7: Business Plan Section 3, Marketing Strategy Module 4.8: Business Plan Section 4, Operations Plan Module 4.9: Financial Plan Tables Section 4 Module 4.10: Financial Plan Tables Section 5 Module 4.11: Business Plan Section 5, Financial Plan Module 4.12: Business Plan, Executive Summary Module 4 is a stand-alone package that builds a Business Plan & Financial Plan Tables to support it & must be delivered as a package, over 3 days, although the preferred method would be to work through the plan during a series of shorter workshops spread over a longer period. If presented this way, several Modules from levels 2 & 3 may be woven into the training, where applicable. Toolkit Users Guide Page 7 of 19

8 COMPONENTS OF THE TOOLKIT Level 1 SMALL BUSINESS FINANCE WORKSHOP LEVEL 1 FOR MICRO & SMALL BUSINESS What you need to do in order to maximise the benefit from this workshop Prospective participants may be currently operating a micro or small business or intending to do so in the immediate or near future. A willingness to learn, an open mind & a calculator with basic functions are all that is needed for participation in this workshop. Participants will be asked to undertake learning activities & provided with hard copy activities & exercises to do, either in a group environment, individually or both. The output of these may be retained by participants. At the conclusion of the workshop, all participants will be provided with a copy of the PowerPoint presentation used during the workshop, either by or download to a USB device if provided by the participant. Don t forget, participants in the workshop are requested to bring a basic calculator. Module 1.1: Documents for Record Keeping Attributes of good record keeping Basic guidelines for record keeping Source documents Matching & recognising documents (Activities & 1.1.2) Other useful records Module 1.2: Assets, Liabilities & Equity What do I need to know? Assets Liabilities Equity (net assets) Accounting equation Balance sheet Practical exercises (Activities & 1.2.2) Module 1.3: Cash Flow What is cash flow? Cash flow versus profit (Activity 1.3.1) Preparing a cash flow plan Remember the supply chain Cash flow activity (Activity 1.3.2) Working capital (Activity 1.3.3) Toolkit Users Guide Page 8 of 19

9 Module 1.4: Working Capital Debtor control & records (Activity 1.4.1) Creditor control Inventory (stock) records Reporting Inventories (Activity 1.4.2) Cash conversion cycle (Activity 1.4.3) Module 1.5: Cash Books Why a cash book? Preparing a cash book (Activity 1.5.1) Cash receipts Cash payments Bank reconciliation (Activity 1.5.2) Module 1.6: Cash Flow Forecasting Cash forecasting Cash budget Cash management Tips to improve cash flow cycle Planning - Prepare a cash flow plan (Activity 1.6.1) Module 1.7: Taxation & Regulation Business taxation Required documentation Business inflows & outflows Taxation Value added tax/goods & services tax (Activity 1.7.1) Other compliance Doing business Toolkit Users Guide Page 9 of 19

10 Level 2 FINANCE WORKSHOP LEVEL 2 FOR SMALL BUSINESS What you need to do in order to maximise the benefit from this workshop Prospective participants may be currently operating a micro or small business that is growing, employing or about to employ staff. A desire to learn more about financial reporting & what your accountant does for you, how to control your business without doing everything yourself & a calculator with basic functions are all that is needed for participation in this workshop. This workshop builds on the knowledge gained at the Level 1 Workshop & assumes a basic understanding of business source documents, assets, liabilities & equity, the management of cash flow, debtors, creditors & inventory & the use of a cash books. The Modules in this workshop expand the accounting concepts to cover budgeting & financial reporting through to the financial statements. The knowledge gained in this workshop prepares participants for Level 3 Modules on the use of financial information for business costing, capital expenditure decisions, funding decisions, business valuation & planning. Participants will be asked to undertake learning activities & provided with hard copy activities & exercises to do, either in a group environment, individually or both. The output of these may be retained by participants. At the conclusion of the workshop, all participants will be provided with a copy of the PowerPoint presentation used during the workshop, either by or download to a USB device if provided by the participant. As stated above, participants in the workshop are requested to bring a basic calculator. Module 2.1: Accounting Concepts Purpose of accounting & accounting principles Recording transactions (Activity 2.1.1) Chart of accounts Accounting equation (Activity 2.1.2) Rules of double entry Module 2.2: Profit What is profit? (Activity 2.2.1) Preparing financial statements Profit & cash flow Profit matters (Activity 2.2.2) Taxation Toolkit Users Guide Page 10 of 19

11 Module 2.3: Budgets Types, process & limitations Sales & production (Activity 2.3.1) Purchases & cost of goods sold Operating expenses (Activity 2.3.2) Budget control Variance analysis (Activity 2.3.3) Capital expenditure (Activity 2.3.4) Module 2.4: Internal Controls Definition of internal control Purpose of internal controls Types of internal controls (Activity 2.4.1) Limitations of internal controls Benefits of internal controls Case studies Activity (2.4.2) Module 2.5: Accrual Reporting Accounting principles Accrual accounting, including examples (Activity 2.5.1) Non-current assets & depreciation Disposal of non-current assets (Activity 2.5.2) Module 2.6: Financial Statements Recording process Financial statements form & timing (Activity 2.6.1) Purpose of financial statements Performance measurement (KPIs) Profitability Liquidity Efficiency Financial structure Using performance measures (Activity 2.6.2) Module 2.7: Petty Cash Why a petty cash fund? Setting up petty cash The petty cash book (Activity 2.7.1) Toolkit Users Guide Page 11 of 19

12 Level 3 FINANCE WORKSHOP LEVEL 3 FOR SMALL TO MEDIUM SIZE BUSINESS What you need to do in order to maximise the benefit from this workshop Prospective participants may be currently operating a small to medium size business. A working knowledge of accounting concepts & financial reporting, how to control your business without doing everything yourself, a desire to put the financial information your business generates to good use & a calculator with basic functions are all that is needed for participation in this workshop. This workshop uses the prior knowledge acquired of accounting concepts, budgeting & financial reporting through to the financial statements covered in Level 2 training. It looks at a number of uses of financial information by management when making business decisions on costing, pricing, valuation & planning. The techniques employed are not particularly complex & usable by owners or managers of small to medium enterprises to improve their knowledge of their own business. The knowledge gained in this workshop prepares participants for the use of the information for management accounting purposes & planning for the future. Participants will be asked to undertake learning activities & provided with hard copy activities & exercises to do, either in a group environment, individually or both. The output of these may be retained by participants. At the conclusion of the workshop, all participants will be provided with a copy of the PowerPoint presentation used during the workshop, either by or download to a USB device if provided by the participant. As stated above, participants in the workshop are requested to bring a basic calculator. Module 3.1: Understanding Business Costs Business Cost s & Pricing Break-even analysis Uses of break-even analysis (Activity 3.1.1) Product costing Mark-up & margin Methods of pricing Using product cost in the marketplace (Activity 3.1.2) Module3.2: Capital Expenditure Decisions Assessing the value of a new investment Assessment techniques Cost-benefit analysis Accounting rate of return Payback period Net present value Internal rate of return Comparing results (Activity 3.2.1) Toolkit Users Guide Page 12 of 19

13 Module 3.3: Funding, Debt & Equity Funding decisions debt versus equity Equity funding Debt funding Cost of funds Cost of equity Cost of debt Comparing the cost of debt & equity (Activity 3.3.1) Impact of gearing (Activity 3.3.2) Advantages & disadvantages of each Module 3.4: Valuing a Business Why value a business Valuation methods Asset valuation method Capitalised earnings method Discounted future earnings method Other methods Case study (Activity 3.4.1) Module 3.5: Preparing a Business Plan Outline of the business plan Structure & legal requirements Market research & analysis (Activity 3.5.1) Marketing & pricing (Activity 3.5.2) Operational plan Financial plan Action plan Financial plan tables Executive summary Module 3.6: A Bank s View of Finance Bank earnings What a bank wants from a borrower Business purpose Capacity to repay (Activity 3.6.1) Protection Participant activity (Activity 3.6.2) Loan application Toolkit Users Guide Page 13 of 19

14 Module 3.7: A Choice of one of the following 3.7.1: Farm Accounting Purpose of farm accounts Required accounts Livestock classification Livestock accounts Crop accounts Profit determination 3.7.2: Bookkeeping for NGO Chart of accounts Accounting for grants Accountable Acquittal Training & workshops Module in red is a work in progress Toolkit Users Guide Page 14 of 19

15 Level 4 FINANCE WORKSHOP LEVEL 4 FOR SMALL TO MEDUIM BUSINESSES PREPARING A BUSINESS PLAN What you need to do in order to maximise the benefit from this workshop The following pre-workshop planning by a participant is necessary: 1. Clear separation of personal & business cash flows, 2. An identified business opportunity, 3. Sufficient research into the business to prepare their Business Plan, 4. Completion of Level 3 financial training offered by PIPSO. All research done by participants prior to the workshop should be brought with them as source material for their preparation of their Plan. The following pre-workshop knowledge is highly desirable: 1. Current bank lending rates, 2. Local business tax rates & rules, &/or 3. If 1. & 2. Above are not known, where to find this information. During the workshop each participant will build a personal Business Plan based on their idea & research. While information may be shared between participants at a general level, the final product of each participant will be specific to the business opportunity identified by them. The quality of the Plan will depend as much on the pre-planning done by each as the work done during the workshop. Shortcomings in the pre-planning of participants will prevent completion of a business plan & materially affect the quality of it. Any parts of the Plan not completed during the workshop may be finished afterwards following additional personal research & using the resources provided. Building this plan will clarify whether this opportunity will commercially support the funding required & make acceptable profit for the owner &, so long as it will, provides a Business Plan to raise funds from a commercial lender, but no guarantee or warranty is offered or implied. On registration for the workshop, all participants will be provided with a Business Plan in Microsoft 2010 Word format, a set of Financial Plan Tables in Microsoft 2010 Excel workbook format (together these documents comprise the Plan ) & a copy of the 2010 PowerPoint presentation used during the workshop as a guide to completing the Plan. If a participant is using an earlier version of Microsoft Word &/or Excel, they must advise what version they are using 24 hours before the workshop so the Plan can be reformatted to match. At a minimum the participant must have the following skills: a. An ability to prepare & edit the Word document provided, & b. The ability to input numbers, as instructed, to the Excel workbook no additional Excel operating skills are required. Participants must bring with them to the workshop a laptop or other device which, using the files provided, is able to perform the functions required by a. & b. above. Module 4.1: Overview Business Plan & Financial Tables A Business Plan template comprised of a Microsoft Word document containing an Executive Summary plus 6 sections with subsection headings to act as prompts for the information that might be contained within. Toolkit Users Guide Page 15 of 19

16 A Financial Plan Tables temple comprised of a Microsoft Excel workbook containing worksheets divided into 5 sections with from 1 to 3 tables (worksheets) in each section. The workbook begin with worksheet Instructions & is protected to minimise the risk of corruption by users. Worksheets are linked to produce a 3 year set of financial reports comprising annual profit & loss statements & end-of-year balance sheets. Module 4.2: Financial Plan Tables Section 1 Table 1.1 Personal budget forecast for 12 months The template calculates a personal budget during the first year of the business plan & identifies any requirement for personal drawings from the business. This table links to the Financial Table 4, Business Cash forecast for 12 months. Table 1.2 Personal net wealth as at start of 12 months The template details the personal balance sheet of the proprietor(s) at the date of commencement of the Business Plan. Module 4.3: Business Plan Section 1, Structure & Legal Requirements The Business Plan section 1 covers the following topics: Legal & administration requirements Trading name Legal structure of business Business premises Module 4.4: Business Plan Section 2, Market Research & Analysis The Business Plan Section 2 covers the following topics: Market research Current state of the industry Market size & trends Competitor swot analysis Customers Competition & competitive advantage Ongoing collection of information Module 4.5: Financial Plan Tables Section 2 Financial Plan Section 2 comprises two (2) tables. Financial Table 2.1 calculates the unit costs of product, or range of similar or generic products, & determines the unit selling price. Financial Table 2.2 estimates sales volumes by products listed in Table 2.1 & splits sales into cash & credit portions Toolkit Users Guide Page 16 of 19

17 Module 4.6: Financial Plan Tables, Section 3 Financial Plan Section 3 comprises two (2) tables. Financial Table 3.1 lists identified start-up costs using three (3) categories as below & determines any requirement for borrowed funds Fixed Assets Current assets Expenses Financial Tables 3.2 calculates the cost of borrowed funds, if required using a maximum of two (2) sources of funds. These Tables are linked to later tables in Sections 4 & 5 to provide necessary financial information. Module 4.7: Business Plan Section 3, Marketing Strategy The Business Plan section 3 covers the following topics: The product(s) or service(s) Overall marketing strategy Pricing strategy Location Sale & distribution Advertising & promotion Customer relations Marketing action plan Module 4.8: Business Plan Section 4, Operations Plan The Business Plan section 4 covers the following topics: Plant & equipment Production process Staffing & organisation Occupational health & safety Risk management Module 4.9: Financial Plan Tables Section 4 Financial Plan Tables Section 4 comprises one (1) table only. It is partially prepopulated from prior tables. Financial Table 4 Business cash forecast for 12 months provides a template in which all business expenses are to be listed. Only business expenses are to be included, nothing that is personal. There is a provision to insert quarterly VAT tax payments, if relevant. Toolkit Users Guide Page 17 of 19

18 Module 4.10: Financial Plan Tables Section 5 Financial Plan Tables Section 5 comprises three (3) tables. Financial Table 5.1 offers an annual Profit & loss budget for year one (1) of the Business Plan. It is largely prepopulated, but requires completion of depreciation calculations. In addition estimates of variable costs are required together with the determination of the appropriate taxation rate for the business. Financial Table 5.2 generates a three (3) year profit & loss forecast based on an expected growth rate. It also calculates a variety of financial ratios, which may be used to demonstrate the financial potential of the opportunity described in the Business Plan. Financial Table 5.3 generates a three (3) year projected balance sheet with some user assistance. Module 4.11: Business Plan Section 5, Financial Plan The Business Plan section 5 covers the following topics: Personal finances Cost of sales & sales Start-up costs & funding Cash flow forecast Projected financial forecasts This section details the nature of all material items in each of the above sections of the Financial Plan Tables. It is used to highlight positive aspects of the financial forecasts & explain how any negative issues will be overcome. Module 4.12: Business Plan, Executive Summary On completion of all other sections of the Business Plan & the Financial Plan Tables, this section provides the opportunity to summarise the best aspects of the Plan. It may cover all, of relevant parts of the following information: Description of the Business Motives for Business The Opportunity & Strategy Business Goals & Objectives The Target Market Financial Assistance Required Financial Projections Financial Summary It is highly desirable to keep the dialogue punchy & contain this section to a maximum of 2 pages. Toolkit Users Guide Page 18 of 19

19 NOTE: Section 6 of Business Plan, Action Plan is for completion by participants after the workshop. There is also a list of Attachments that may be appropriate to provide further information, including: Personal resumes of business entrepreneurs & staff Business documents, e.g. approvals of authorities, research undertaken, property leases, insurances contracts, supply agreements etc. On completion Level 4, Modules 1 to 12, a participant will have completed, or be able to complete the following: BUSINESS PLAN Executive summary Structure & legal requirements of business Market research & analysis Marketing Operations plan Financial plan FINANCIAL PLAN TABLES 1.1 Schedule of personal outlays 1.2 Personal net worth 2.1 Unit cost of goods sold & sales calculators 2.2 Sales mix 3.1 Start-up costs 3.2 Source of funds 4. Twelve months cash flow forecast 5.1 Profit & loss budget 5.2 Three year profit & loss forecast 5.3 Projected balance sheet 6. Action Plan (to follow) Attachments (as required) Toolkit Users Guide Page 19 of 19