Contents. Cash flow Management 4-7

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Contents. Cash flow Management 4-7"

Transcription

1 Business Finance 1

2 Contents Cash flow Management Difference between cash and profit 1.2 Cash inflows and cash outflows 1.3 Cash inflows 1.4 Cash outflows 1.5 The principles of cash flow forecasting 1.6 What to include in your cash flow forecast 1.7 Customer management Profit and loss account Do you need a profit and loss account? 2.2 Keeping accurate records 2.3 Business sales or turnover 2.4 Sales records back-up 2.5 Sales documentation: 2.6 Proof of income relating to the above: 2.7 Business income other 2.8 Recording other income 2.9 Recording business expenditure 2.10 Business expenditure back-up 2.11 Cost of sales 2.12 Business expenses 2.13 Apportioning expenses - self-employment and partnerships 2.14 Equipment Cost 2 Balance sheets Do you need a profit and loss account? 2.2 Keeping accurate records 2.3 Business sales or turnover 2.4 Sales records back-up 2.5 Sales documentation: 2.6 Proof of income relating to the above: 2.7 Business income other 2.8 Recording other income 2.9 Recording business expenditure 2.10 Business expenditure back-up 2.11 Cost of sales 2.12 Business expenses 2.13 Apportioning expenses - self-employment and partnerships 2.14 Equipment Cost

3 Sources of Finance Bank Overdrafts 4.2 Bank Loans 4.3 Equity 4.4 Factoring 4.5 Start-up Loan Scheme 4.6 Private Loan 4.7 Regional Venture Capital 4.8 Enterprise Finance Guarantee Scheme 4.9 Business Angels 4.10 Enterprise Investment Scheme 4.11 Grants VAT How it works 5.2 Compulsory VAT registration 5.3 Voluntary VAT registration 5.4 Changes to implement on Sales and purchases 5.5 VAT returns and payments 5.6 VAT-registered businesses must: The purpose of this document is to give you a basic understanding of business finance. 3

4 1 Cash Flow Management Cash flow is the measure of your ability to pay your bills on a regular basis. It depends on the timing and amounts of money flowing into and out of the business each week and month. To make a profit, most businesses have to produce and deliver goods or services to their customers before being paid. To trade effectively and be able to grow your business, you need to build up cash balances by ensuring that the timing of cash movements puts you in a positive cash flow situation overall. Your cash flow balance should include: unused bank overdrafts and short-term loans foreign currency and deposits that can be quickly converted to your currency coins and notes current accounts and short-term deposits You should not include: long-term deposits long-term borrowing money owed by customers 4 stock Having a lot of cash in your bank does not necessarily make good business sense. If you do not need to use it immediately, put spare cash into an account where it will earn a high rate of interest, Get advice from your bank, accountant or financial adviser.

5 1.1 Difference between cash and profit Profit is the difference between the total amount your business earns and all of its costs, usually assessed over a year or other trading period. You may be able to forecast a good profit for the year, yet still face times when you are strapped for cash. 1.2 Cash inflows and cash outflows Ideally, during the business cycle, you will have more money flowing in than flowing out. This will allow you to build up cash balances which can be used to fill cash flow gaps. You should aim to speed up the inflows and slow down the outflows. 1.3 Cash inflows payment for goods and services from your customers receipt of a bank loan interest on savings and investments shareholder investments increased bank overdrafts or loans 1.4 Cash outflows 5 purchase of stock, raw materials or tools wages, rents and daily operating expenses purchase of fixed assets - computers, machinery, office furniture, etc. loan repayments dividend payments income tax, corporation tax, VAT and other taxes reduced overdraft facilities Many of your regular cash outflows, such as salaries, loan repayments and tax, have to be made on fixed dates. You must always be in a position to meet these payments in order to avoid large fines or a disgruntled workforce. To improve everyday cash flow you can: ask your customers to pay sooner chase debts promptly

6 ask for extended credit terms with suppliers order less stock but more often lease rather than buy equipment improve profitability You can also improve cash flow by increasing borrowing, or putting more money into the business. This is suitable for coping with short-term downturns or to fund growth in line with your business plan, but shouldn't form the basis of your cash strategy. 6

7 1.5 The principles of cash flow forecasting Cash flow forecasting enables you to predict peaks and troughs in your cash balance. It helps you to plan borrowing and tells you how much surplus cash you're likely to have at a given time. Many banks require forecasts before considering a loan. 1.6 What to include in your cash flow forecast The cash flow forecast identifies the sources and amounts of cash coming into your business and the destinations and amounts of cash going out over a given period. There are normally two columns listing forecast and actual amounts respectively. The forecast is usually done for a year or quarter in advance and divided into weeks or months. 1.7 Customer management Clearly outline your standard payment terms. Issue invoices promptly and regularly chase outstanding payments. 7

8 2 Profit and loss account A profit and loss account is a summary of business transactions for a given period - normally 12 months. By deducting total expenditure from total income, it shows the "break-even point" whether your business made a profit or loss at the end of that period. 2.1 Do you need a profit and loss account? By law, if your business is a limited company or a partnership whose members are limited companies, you must produce a profit and loss account for each financial year. Self-employed sole traders and most partnerships don't need to create a formal profit and loss account. 2.2 Keeping accurate records You need to keep self-employment records for five years and limited company or partnership records for six years after the latest date your tax return is due. Accurate record keeping will: help you or your company avoid paying too much tax provide back-up for claims for certain allowances 8 reduce the risk of interest or penalties for late tax payments help you plan and budget for tax payments give you the information you need to manage your business and make it grow enable you to report on your profit or loss easily and quickly when required improve your chances of getting a loan or mortgage make filling in your tax return easier and quicker help reduce fees if you use an accountant - your annual accounts will be far easier to produce The basic records you will need to keep are: a separate list for petty cash expenditure if relevant a list of all your sales and other income a record of goods taken for personal use and payments to the business for these a list of all your expenditure, including day-to-day expenses and equipment

9 a record of money taken out for personal use or paid in from personal funds - this applies to limited companies back-up documents for all of the above 2.3 Business sales or turnover Turnover is referred to as total sales of products and/or services, in a trading year. This is the starting point for your profit and loss account. How you record sales will vary according to your business type and size. You may use a simple list or "ledger" in a book, a tailored spreadsheet, or a computer software program. Whichever system you use, you need to ensure that it is accurate and updated regularly. 2.4 Sales records back-up The back-up records for your sales ledger fall into two categories, and will vary according to your business type: 2.5 Sales documentation: copies of sales invoices issued by you rolls of till receipts records of money you pay into the business when taking goods out for personal use Proof of income relating to the above: paying-in slips bank/building society statements and similar If you operate on a "cash only" basis you must keep detailed records of your income in your sales book or ledger and be able to relate these to your expenditure, cash in hand and bank statements. 2.7 Business income other As well as reporting sales income, you need to report income to the business from other sources, for example: interest on business bank accounts sale of equipment you no longer need rental income to the business money you put into a limited company from personal funds

10 2.8 Recording other income Record equipment sales in your sales ledger, or on a separate schedule of assets if you prefer. Keep a record of any rental income, for example if you sub-let part of your office to someone else. By law you must keep paying-in slips and/or bank statements to account for your additional business income. Ideally, you should be able to cross-reference this documentation to the above "other income" records. 10

11 2.9 Recording business expenditure Business expenditure falls into three key areas for the purpose of reporting your profit or loss. You can save yourself, or your accountant, time by grouping your costs accordingly in your purchase list or "ledger". The three key areas are: cost of sales - the base cost of obtaining or creating your product business expenses cost of equipment you have bought or leased for long-term use 2.10 Business expenditure back-up The back-up records for your business expenditure fall into two categories. As with sales records, they will vary according to your business type. 1. Purchase/expenditure documentation copies of supplier invoices/receipts issued to you till receipts for items bought over the counter payroll and National Insurance records if you have employees Proof of expenditure relating to the above cheque book stubs bank statements credit card statements and receipts It is important for you to be able to cross-reference your records to your expenditure figures if asked. If you mislay a receipt for a small item, make sure you enter it in your purchase or petty cash book ledger and make a note that you have lost the receipt.

12 2.11 Cost of sales The cost of sales is the base cost of obtaining or creating your product. This might include: the cost of stock you buy for resale components/raw materials to make your product labour to produce the product machine hire small tools other production costs When you create your profit and loss account, you deduct your cost of sales from your overall sales, or turnover, to arrive at your "gross profit". This is your profit before deduction of expenses. Cost of sales does not usually apply if you supply a service only Business expenses 12 These are all the ongoing expenses associated with running your business that you can deduct from your "gross profit" figure on your profit and loss account to calculate a figure of "profit before taxation". Legitimate business expenses for accounting purposes are: employee costs premises costs repairs general administration motor expenses travel/subsistence advertising/promotion/entertainment interest bad debts

13 legal/professional costs other finance charges depreciation or loss - profit - on sales of equipment any other expenses Note that some elements of these expenses are not allowed for tax purposes and are added back before your taxable profit is calculated Apportioning expenses - self-employment and partnerships Where expenses apply partly to business and partly to non-business or personal use, on your tax return you need to record the whole expense, then separately record the amount that relates to non-business use Equipment Cost Any items of equipment you have bought or leased for long-term use are called "capital items" or "fixed assets". These might include: furniture computer equipment cars or vans necessary for the business 13 machinery premises Capital items cannot be deducted from your taxable profits in the same way that expenses can. But you still need to keep accurate records because you can spread the costs over several accounting years in your profit and loss account. You may also be able to claim allowances against your net profit for a percentage of the cost of the item.

14 3 Balance sheets A balance sheet is a financial statement at a given point in time. It provides a snapshot summary of what a business owns or is owed. It states what assets the business owns and what it owes liabilities, at a particular date. The balance sheet is used to show how the business is being funded and how those funds are being used. The balance sheet is used in three ways: for reporting purposes (limited company's annual accounts) help interested parties assess the worth of your business at a given moment - such as investors, creditors or shareholders helps you analyse and improve the management of your business You must consider who is the best person to produce balance sheets and when. This document shows the different elements to include in a balance sheet and how to use the information from them to assess and manage business performance. 3.1 Who must produce a balance sheet? Limited companies and limited liability partnerships must produce a balance sheet as part of their annual accounts. The balance sheet will then need to be submitted to: 14 Companies House HM Revenue & Customs (HMRC) shareholders - unless agreed otherwise The other annual document you must produce is the profit and loss account. Other parties who may wish to see the accounts are: potential investors or lenders (banks) potential purchasers of the business employees trade unions There are strict deadlines for submitting annual accounts and returns to Companies House and HMRC - penalties will apply if they are received late. Self-employed people, partners and partnerships are not required to submit formal accounts and balance sheets on their tax return. You should still produce a balance sheet so that you are aware of your business activity.

15 3.2 Contents of the balance sheet A balance sheet shows: 1. fixed assets - long-term 2. current assets - short-term 3. current liabilities - what the business owes and must repay in the short term 4. long-term liabilities - including owner's or shareholders' capital The balance sheet is so-called because there is a debit entry and a credit entry for everything, so the total value of the assets is always the same value as the total of the liabilities. 3.3 Fixed assets tangible assets - e.g. buildings, land, machinery, computers, fixtures and fittings. Show them at their resale value. intangible assets - e.g. goodwill, intellectual property rights (such as patents, trademarks and website domain names) and long-term investments 15

16 3.4 Current assets These are short-term assets whose value can fluctuate from day to day. For example: stock work in progress money owed by customers cash in hand or at the bank short-term investments pre-payments - e.g. advance rents 3.5 Current liabilities These are amounts owed to you and due within one year. These include: money owed to suppliers short-term loans, overdrafts or other finance taxes due within the year - VAT, PAYE (Pay As You Earn) and National Insurance 3.6 Long-term liabilities These include: 16 creditors due after one year - the amounts due to be repaid in loans or financing after one year, e.g. bank or directors' loans, finance agreements capital and reserves - share capital and retained profits, after dividends (if your business is a limited company), or proprietors capital invested in business (if you are an unincorporated business) By law the balance sheet must include the elements shown above in bold. However, what each includes will vary from business to business. The firm's external accountant will usually decide how to present the information, although if you have a qualified accountant on staff, they may make this decision.

17 3.7 Interpreting balance sheet figures A balance sheet shows: how solvent the business is how liquid its assets are - how much is in the form of cash or can be easily converted into cash, ie stocks and shares how the business is financed how much capital is being used A balance sheet is only a snapshot of a business' financial position on one particular day. The individual figures can change dramatically in a short space of time but the total net assets (assets less liabilities) would only change dramatically if the business was making large profits or losses. For example: If you hold large inventories of finished products, a change in market conditions might mean their value is reduced. You may even need to sell at a loss. Customers sometimes have payment problems. If they are unable to pay, you may need to revalue your assets by making allowances for bad debts. 3.8 Current liabilities - money you owe This section might include money owed for goods or services received but not yet paid for Debtors - money owed to you This figure assumes that debtors will pay up on time. Where there are doubts about being paid, a provision can be made to reduce the value of the debts in the business' accounts Intangible assets The value of goodwill, patents and intellectual property can fluctuate with market trends, so the balance sheet value should be updated annually.

18 3.11 Fixed assets These are shown at their depreciated rates. There are two main approaches to calculating depreciation of an asset: Write off the same charge over the calculated life of the asset. For example, you may decide that a computer bought for 2,000 has a useful life of five years and that you will write off 20 per cent of its value each year. Apply a steeper depreciation rate in the first few years of an asset's value. For example, you may decide to offset 30 per cent of the value of the same computer in the first two years, 20 per cent in the third year and 10 per cent in the final two years. This method may allow your business to keep pace with trends in the market value and replacement cost of assets where value falls rapidly at the beginning. Depreciation costs must be realistic and you may wish to approach your accountant for further help. You cannot offset the annual depreciation charge against taxable profits, but you can claim capital allowances, using rates fixed by HM Revenue & Customs. 18

19 3.12 Relationship between balance sheet and profit and loss account The profit and loss (P&L) account summarises a business' trading transactions - income, sales and expenditure - and the resulting profit or loss for a given period. The balance sheet, by comparison, provides a financial snapshot at a given moment. It doesn't show day-to-day transactions or the current profitability of the business. However, many of its figures relate to or are affected by the state of play with P&L transactions on a given date. Any profits not paid out as dividends are shown in the retained profit column on the balance sheet. The amount shown as cash or at the bank under current assets on the balance sheet will be determined in part by the income and expenses recorded in the P&L. For example, if sales income exceeds spending in the quarter preceding publication of the accounts, all other things being equal, current assets will be higher than if expenses had outstripped income over the same period. If the business takes out a short-term loan, this will be shown in the balance sheet under current liabilities, but the loan itself won't appear in the P&L. However, the P&L will include interest payments on that loan in its expenditure column - and these figures will affect the net profitability figure or bottom line Using balance sheet and P&L figures to assess performance 19 Many of the standard measures used to assess the financial health of a business involve comparing figures on the balance sheet with those on the P&L Compare balance sheets to assess business performance There are some simple balance sheet comparisons you can make to assess the strength or performance of your business against earlier periods, or against direct competitors. The figures you study will vary according to the nature of the business. Some comparisons draw on figures from the profit and loss (P&L) account.

20 3.15 Internal comparisons If inventory (stock) levels are rising from one period to the next, but sales in your P&L are not, some of your stock might be out of date. You may also have a cash flow problem developing. If the amount trade debtors owe you is growing faster than sales, it could indicate poor internal credit controls. Find out whether any of your customers are having problems with cash flow, which could pose a threat to your business. A positive relationship with your trade creditors is essential. Key to this is managing your cash flow well, so that payments can be made on time. For example, trade creditors are more likely to be flexible about extending terms of credit if you have built up a good payment record. Making early payments may qualify you for a discount. However, early payment for the sake of it will have a negative impact on your cash flow. Good payment controls will help prevent imbalances in what you owe suppliers and in levels of stock and inventory External comparisons You can also compare the above balance sheet figures with those of direct or successful competitors to see how you measure up. This exercise will highlight weaknesses in your business operation that may need attention. It will also confirm strong business performance Use accounting ratios to assess business performance 20 Ratio analysis is a good way to evaluate the financial results of your business in order to gauge its performance. Ratios allow you to compare your business against different standards using the figures on your balance sheet. Accounting ratios can offer an invaluable insight into a business' performance. Ensure that the information used for comparison is accurate - otherwise the results will be misleading. There are four main methods of ratio analysis - liquidity, solvency, efficiency and profitability.

21 3.18 Liquidity ratios There are three types of liquidity ratio: Current ratio - current assets divided by current liabilities. This assesses whether you have sufficient assets to cover your liabilities. A ratio of two shows you have twice as many current assets as current liabilities. Quick or acid-test ratio - current assets (excluding stock) divided by current liabilities. A ratio of one shows liquidity levels are high - an indication of solid financial health. Defensive interval - liquid assets divided by daily operating expenses. This measures how long your business could survive without cash coming in. This should be between 30 and 90 days Solvency ratios Gearing is a sign of solvency. It is found by dividing loans and bank overdrafts by equity, longterm loans and bank overdrafts. The higher the gearing, the more vulnerable the company is to increasing interest rates. Most lenders will refuse further finance where gearing exceeds 50 per cent Efficiency ratios There are three types of efficiency ratio: Debtors' turnover - average of credit sales divided by the average level of debtors. This shows how long it takes to collect payments. A low ratio may mean payment terms need tightening up. Creditors' turnover - average cost of sales divided by the average amount of credit that is taken from suppliers. This shows how long your business takes to pay suppliers. Suppliers may withdraw credit if you regularly pay late. Stock turnover - average cost of sales divided by the average value of stock. This ratio indicates how long you hold stock before selling. A lower stock turnover may mean lower profits. 21

22 3.21 Profitability ratios Divide net profit before income tax by the total value of capital employed to see how good your return on the capital used in your business is. This can then be compared to what the same amount of money (loans and shares) would have earned on deposit or in the stock market Accounting periods A balance sheet normally reflects a business' position on its Accounting Reference Date (ARD), which is the last day of its accounting reference period. The accounting reference period, also known as the financial year, is usually 12 months. However, it can be longer or shorter in the first year of trading, or if the ARD is subsequently changed for some reason. Companies House automatically sets the first ARD. Thus the end of the first financial year is the first anniversary of the last day of the month in which the company was formed. If you decide to change this, you will need to notify Companies House. You should also notify HM Revenue & Customs (HMRC) if you change your ARD Internal accounts Your business may decide to draw up accounts to help you monitor business performance as frequently as monthly. In this case the figures - often known as management accounts - are for internal use only. You do not need to file them with Companies House or HMRC. 22

23 4 Sources of Finance 4.1 Bank Overdrafts Purpose Temporary measure 1:0 cover short-term cash shortfalls arising from: General working "capital needs during the production cycle. Seasonal fluctuations. Minor acquisitions of fixed assets with short estimated lives. Advantages The system is simple and arrangements can be negotiated and set up very quickly. Amounts may be drawn or repaid within the agreed limits at any time without prior notice. Comparatively cheap. Interest is calculated on the actual balance owing on a daily basis. Once agreed the facility will generally be renewed each year if the company remains creditworthy. Bank does not require participation in the management of the business No loss of control in voting power. Disadvantages 23 Legally repayable on demand though reasonable notice (at least one month) will usually be given. You will be told the period of the facility. Security in the form of a fixed or floating charge on business assets or unlimited personal guarantee may be required. The rate of interest charged rises with increases in the bank's base lending rate. Subject to renewal each year. Bank may want to see annual accounts, details of stock, debtors, creditors levels etc.

24 Costs Interest is charged depending on the bank's assessment of the risk it is taking. The greater the risk, the higher the rate of interest (assume base rate is 10%). Calculated on daily balance, but debited on bank statement quarterly or half yearly. 4.2 Bank Loans Purpose Refinancing of permanent/'hard core' overdrafts. Financing the purchase of assets with estimated lives of between 5 to 10 years. Financing increased working capital requirements. Advantages Not repayable on demand but by a series of instalments over an agreed period. Repayments may be arranged to correspond to the estimated cash flow arising from the asset acquired or the projected cash flow of the business. Flexible repayment commencement dates. As both terms and amounts are fixed, helps cash flow forecasting. No loss of control in voting power. Disadvantages 24 Security in the form of a fixed charge on business assets or unlimited personal guarantee is usually required. If defaults of capital or interest payments occur, the bank is usually entitled to demand full repayment of the whole loan. Business track record is usually required.

25 Costs Interest is charged above bank base rate depending on the bank's assessment of the risk involved. (Assume base rate is 10%) Banks usually also charge an arrangement fee. A settlement penalty will be levied if the loan is repaid before the end of the term. 4.3 Equity The equity capital of a business is the owners' interest in it, consisting of the share capital invested by them plus retained profits. Purpose Ensures that the company is properly capitalised. The debt: equity ratio should not exceed 1:1. Advantages Maintains the capital base upon which more debt financing can be raised. If investors prefer capital growth to regular dividend payments, this reduces cash outgoings. New investors may also have business skills to contribute in the management of the company. Not affected by rises in interest rates. 25 Disadvantages There may be some loss of control; ownership of over 50% of shares gives control over the business in most normal situations; ownership of over 75% of shares gives total control. It is often difficult to find a suitable equity investor. Costs Any annual dividends paid.

26 4.4 Factoring Factoring is a continuing arrangement whereby the factor purchases the trade debts due to a business, as they arise. Usually cash payments of up to 80% of each new sales invoice are made, with the balance, less charges, being paid when the invoice is settled. Purpose Provides short-term finance to resolve cash flow problems arising from: Funds being tied up in trade debtors. The cash demands of rapid expansion. Advantages Provides a quick method of collecting debts. A large element of cash flow becomes predictable. The factor takes care of the maintenance of the trade debtors ledger and the collection of debts. No loss of control. Disadvantages The factor only takes over approved (good) debts. If value of total invoices taken over is high, the service charge could work out expensive. 26 Costs Interest is charged at usually 20/0-3% above bank base rate or finance house base rate. In addition there is a service charge for handling the debtors records, debt collection, etc. usually ranging between 0.75% and 2.0% of invoices purchased.

27 4.5 Start-up Loan Scheme Purpose To help turn your ideas into plans and provide the finance needed to get started. This is a government backed scheme delivered through local partners. Minimum loan 500 Typical loan 2500 Maximum repayment typically 60 months Typical interest rate 6.00% pa Minimum age 18 years old 4.6 Private Loan Purpose These may be used for whatever purpose required as long as the lender does not object. Advantages Probable flexibility of terms. 27 Disadvantages If family or friends are involved, could cause ill feeling in event of default. Costs Flexible -as agreed between parties.

28 4.7 Regional Venture Capital These regionally based companies provide equity and loan finance from 50,000 up to 500,000. Some have specifically targeted funds to provide investments of between 5,000 and 150,000. The normal deal is about 100,000. Purpose To provide expansion finance for the business, marketing or research and development costs. Advantages To provide expansion finance for the business, marketing or research and development costs. As equity finance. Disadvantages Investors want a high return on their investment. Need to generate sufficient cash in the long term to make the agreed payments of capital in the long term and interest and dividends in the short term. Specifically legally binding contracts and covenants. The imposition of a non-executive director on the board. Regular information and consultation on the performance of the business to the Venture Capital firm. Agriculture, retailing and sole property development is normally excluded. 28 Costs Need to show a viable business proposition. Time in agreeing the deal.

29 4.8 Enterprise Finance Guarantee Scheme The maximum loan provided under this scheme is 1 million. Purpose To improve access to debt finance for viable businesses which are unable to gain conventional finance because of a lack of collateral or trading record, or a combination of both. Advantages Established firms can obtain guarantees of up to 75% and are charged a premium of 2%. The maximum loan period is for 10 years. Disadvantages Cost of finance and funding the higher interest charges and ultimate repayment. Costs Time and effort in obtaining the finance. Restrictive covenants. 29

30 4.9 Business Angels Purpose High net worth individuals invest in unquoted companies and businesses that are willing to risk their capital in return for a return on their investment. Advantages Raising funds in the form of equity finance strengthens the balance sheet. Assistance from the business angel in the development of the business. It is surprisingly difficult to raise between 10,000 and 250,000 and business angels supply equity funds to fill this gap. Most investments are between 10,000 and 50,000. Disadvantages Interference from the business angel in your business. Business angels may be seeking a high return on their investment (20% - 30%). Loss of management freedom, dilution / loss of control, pressures to change the management team, lack of knowledge of external financiers. Costs 30 The need to develop a personal relationship with the business angel and the costs associated with preparing and presenting the business proposition to the business angel network. Finding a compatible business angel.

31 4.10 Enterprise Investment Scheme Permits individual investors to subscribe for new ordinary shares in unquoted trading companies and receive personal tax relief at the lower rate and on the gain made in the business. Purpose As this is another form of equity funding its main purpose is to ensure that the company is properly capitalised. The debt: equity ratio should not be greater than 1:1. Advantages As for equity. Amount raised may exceed value of shares because of the tax relief available to the investor. Business angels use it. Disadvantages As for equity. Equity together with his/her immediate family and business partners may not own more than 50% of the shares in the company. Scheme is only open to UK residents. Maximum investment in the any company is 150,000 and 25,000 in anyone year. 31 Costs Professional fees for obtaining Inland Revenue approval for personal tax relief, which the company may have to bear.

32 4.11 Grants Purpose Grants try to promote public policy objectives. Examples of grants are those which pay for training, innovation and technology transfer and development, assist regional development, employment, redeployment, research or expansion or exporting. Advantages Grants are a useful subsidy and aid cash flow. Disadvantages Experts find it difficult to keep track of grants available. Not available in all areas and sectors. Usually only available for specified projects and business would be expected to contribute. Grants may impose restrictions. Costs Time spent finding appropriate grant, satisfying criteria and completing paperwork. 32

33 5 VAT Value Added Tax is a tax that applies to most business transactions that involve the transfer of goods or services. Once your business turnover reaches a certain level, you will have to register for VAT. Therefore, whenever you buy or sell anything in the course of your business, you will have to charge VAT on your sales, keep proper VAT records on your incoming and outgoing transactions and pay VAT to HM Revenue & Customs (HMRC). Even if your turnover is below the registration threshold you could consider registering voluntarily for VAT. 5.1 How it works A business will pay VAT on their purchase which is called input tax, and charge VAT on its sales, which is called output tax. If a VAT-registered business charges more output tax on sales than it pays in input tax on purchases, it must pay the difference to HM Revenue & Customs (HMRC). If more input tax has been paid than output tax charged, HMRC will refund the difference. 5.2 Compulsory VAT registration You must register your business for VAT if you supplied taxable goods and services with a total value of more than 79,000 in the 12-month tax year ( ). You must also register if you anticipate supplying taxable goods and services valued at more than 79,000 in the next 30-day period alone. 33 Certain types of goods and services are not taxable and are therefore exempt from VAT, eg insurance, loans, or some types of education or training. If you find it hard keeping on top of VAT it may be worth you looking at using an agent (accountant, employee bookkeeper or tax adviser). They would register on your behalf, by using the VAT Online Registration Service. You remain legally responsible for the application.

34 5.3 Voluntary VAT registration Businesses with a turnover below the registration threshold can register voluntarily. If you are considering voluntary registration you can get further information from the HM Revenue & Customs (HMRC) National Advice Service Enquiry Line on Tel Benefits Ability to reclaim some of your input tax. If your supplies are to other VAT-registered businesses then they can reclaim the VAT charged. Increased credibility for your business - some businesses prefer dealing with suppliers that are VAT-registered. Disadvantages If your supplies are to the public or to non-vat registered businesses then they cannot reclaim the VAT charged. Paperwork- You will need to start keeping VAT records and fill in a regular VAT return with details of your sales and purchases. Different Rates of VAT You must know how much VAT you should charge on a sale!. 34 There are three rates of VAT: a standard rate, 20 per cent a reduced rate, 5 per cent a zero rate, 0 per cent The crucial difference between goods and services that are zero-rated and those that are exempt is that if your business supplies only goods and services that are exempt, then you can't register and claim the VAT back on your purchases.

35 If you are VAT registered and some of your purchases are used to make exempt supplies then you are classed as partly exempt. This means that you cannot normally reclaim all the VAT on your purchases. If you are partly exempt, you must operate a "partial exemption method" to calculate how much VAT you can recover. Some larger businesses operate tailor-made special methods, which must be approved by HMRC. If you operate a special method for partial exemption, you must declare that "to the best of your knowledge and belief" it is fair and reasonable. 5.4 Changes to implement on Sales and purchases Registering for VAT means that you must make some changes in the day-to-day running of your business. Sales: VAT invoices: Starting from your date of VAT registration you will need to issue VAT invoices. Keep a record of the amount of VAT you charge in your records - output Purchases: Keep any VAT invoices for all your purchases to be able to reclaim any VAT paid Keep a record of the amount of VAT you have paid. Tip: record this in a separate column in your records - input tax VAT returns and payments It is common for business to account for VAT on a quarterly basis. When you register you will be assigned a tax period and HM Revenue & Customs (HMRC). Ordinarily you would submit your return via the HMRC website and arrange for an electronic payment. *** All information correct for tax year ***

36 5.6 VAT-registered businesses must: charge VAT on their goods or services reclaim any VAT they ve paid on business-related goods or services If you re a VAT-registered business you must report to HM Revenue & Customs (HMRC) the amount of VAT you ve charged and the amount of VAT you ve paid. This is done through your VAT Return which is usually due every 3 months. You must account for VAT on the full value of what you sell, even if you: receive goods or services instead of money (eg if you take something in part-exchange) not charge any VAT to the customer - whatever price you charge is treated as including VAT If you ve charged more VAT than you ve paid, you have to pay the difference to HMRC. If you ve paid more VAT than you ve charged, you can reclaim the difference from HMRC. 36

Cashflow Management. What is cashflow

Cashflow Management. What is cashflow Cashflow Management This Fact File Information Sheet looks at the key elements of cashflow, and how effective cashflow management will help protect the financial security of a business. It outlines the

More information

A guide to business cash flow management

A guide to business cash flow management A guide to business cash flow management Contents 01. Cash flow management 01 02. Practical steps to managing cash flow 04 03. Improving everyday cash flow 06 04. How to manage cash flow surpluses and

More information

tutor2u Cash Management How and Why Businesses Need to Manage their Cash AS & A2 Business Studies PowerPoint Presentations 2005

tutor2u Cash Management How and Why Businesses Need to Manage their Cash AS & A2 Business Studies PowerPoint Presentations 2005 Cash Management How and Why Businesses Need to Manage their Cash AS & A2 Business Studies PowerPoint Presentations 2005 Importance of Cash (1) A business can exist for a while without making profits but

More information

IGCSE Business Studies revision notes Finance Neil.elrick@tes.tp.edu.tw

IGCSE Business Studies revision notes Finance Neil.elrick@tes.tp.edu.tw IGCSE FINANCE REVISION NOTES Table of contents Table of contents... 2 SOURCES OF FINANCE... 3 CASH FLOW... 5 HOW TO CALCULATE THE CASH BALANCE... 5 HOW TO WORK OUT THE CASH AVAILABLE TO THE BUSINESS...

More information

how to finance the business

how to finance the business A DV I C E B O O K L E T how to finance the business HOW TO FINANCE THE BUSINESS Getting enough of the right funding is one of the more difficult tasks that you will face as a new entrepreneur. Typically,

More information

Introduction to Accounts

Introduction to Accounts Introduction to Accounts Copyright statement Sage (UK) Limited, 2012. All rights reserved We have written this guide to help you to use the software it relates to. We hope it will be read by and helpful

More information

Financial Statements

Financial Statements Financial Statements The financial information forms the basis of financial planning, analysis & decision making for an organization or an individual. Financial information is needed to predict, compare

More information

Coimisiún na Scrúduithe Stáit State Examinations Commission. Leaving Certificate 2014. Marking Scheme. Accounting. Higher Level

Coimisiún na Scrúduithe Stáit State Examinations Commission. Leaving Certificate 2014. Marking Scheme. Accounting. Higher Level Coimisiún na Scrúduithe Stáit State Examinations Commission Leaving Certificate 2014 Marking Scheme Accounting Higher Level Note to teachers and students on the use of published marking schemes Marking

More information

Dealing With Your Banker &

Dealing With Your Banker & Dealing With Your Banker & Other Lenders Your financing The success or failure of your business will depend on whether or not you have enough capital to: buy the equipment and inventory you need; pay overhead

More information

KEY GUIDE. Setting up a new business

KEY GUIDE. Setting up a new business KEY GUIDE Setting up a new business The business idea You have a business idea, but can you turn it into a viable enterprise? Is there a market for the goods you will produce or the services you will supply?

More information

Guide to cash flow management

Guide to cash flow management Guide to cash flow management Cash flow management What is cash flow management? For a business to be successful, good cash flow management is crucial. Cash flow is the primary indicator of a business

More information

Simple Financial Records for a Small Business

Simple Financial Records for a Small Business Simple Financial Records for a Small Business December 2014 March 2015 A GUIDE TO SIMPLE FINANCIAL RECORDS FOR A SMALL BUSINESS CAVEAT This guide aims to help you set up simple financial records for your

More information

5.2 BUDGETING; CASH FLOW FORECASTS. Introduction To Budgets And Cash Flow Forecasts. Cash Flow Forecasts. Budget And Cash Flow Exercises

5.2 BUDGETING; CASH FLOW FORECASTS. Introduction To Budgets And Cash Flow Forecasts. Cash Flow Forecasts. Budget And Cash Flow Exercises 52 FUNDING 5 BUDGETING; CASH FLOW FORECASTS Introduction To Budgets And Cash Flow Forecasts Cash Flow Forecasts Budget And Cash Flow Exercises Cash Flow Exercises P 168 INTRODUCTION TO BUDGETS AND CASH

More information

Buying and selling an unincorporated business

Buying and selling an unincorporated business Introduction This section covers the main tax issues that arise when buying or selling a business owned by a sole trader, a partnership or a company. The tax consequences differ, depending on whether the

More information

Selecting sources of finance for business

Selecting sources of finance for business Selecting sources of finance for business by Steve Jay 08 Sep 2003 This article considers the practical issues facing a business when selecting appropriate sources of finance. It does not consider the

More information

CIMA F3 Course Notes. Chapter 3. Short term finance

CIMA F3 Course Notes. Chapter 3. Short term finance CIMA F3 Course Notes c Chapter 3 Short term finance Personal use only - not licensed for use on courses 31 1. Conservative, Aggressive and Matching strategies There are three over-riding approaches to

More information

KEY GUIDE. Setting up a new business

KEY GUIDE. Setting up a new business KEY GUIDE Setting up a new business The business idea Some of the decisions and actions that you take when starting a business can have significant effects for some time. The foundations you put in place

More information

Accounts Payable are the total amounts your business owes its suppliers for goods and services purchased.

Accounts Payable are the total amounts your business owes its suppliers for goods and services purchased. Accounts Payable are the total amounts your business owes its suppliers for goods and services purchased. Accounts Receivable are the total amounts customers owe your business for goods or services sold

More information

CHAPTER 10 Financial Statements NOTE

CHAPTER 10 Financial Statements NOTE NOTE In practice, accruals accounts and prepayments accounts are implied rather than drawn up. It is common for expense accounts to show simply a balance c/d and a balance b/d. The accrual or prepayment

More information

Business Studies - Financial Planning and Management Study Notes. Financial Planning and Management Study Notes:

Business Studies - Financial Planning and Management Study Notes. Financial Planning and Management Study Notes: Business Studies - Financial Planning and Management Study Notes Financial Planning and Management Study Notes: The Role of Financial Planning: The strategic role of financial management: Organisational

More information

Charity Finance Directors Group

Charity Finance Directors Group Charity Finance Directors Group Northern Conference Palace Hotel Manchester 24 June 2009 Cash flow management Mark Hilton Director of Finance & Resources Museums Sheffield Cash is king! The importance

More information

Guidelines for Self-Employed Persons

Guidelines for Self-Employed Persons INLAND REVENUE DEPARTMENT Saint Lucia Guidelines for Self-Employed Persons Our Mission The Inland Revenue Department stands committed in its impartial treatment of its customers. We aim to provide efficient,

More information

If you are VAT registered you must charge VAT on the products or services you sell.

If you are VAT registered you must charge VAT on the products or services you sell. An Introduction to VAT VAT (value added tax) is a tax levied on sales of goods and services. If you are VAT registered you must charge VAT on the products or services you sell. Upon submission of each

More information

How to Prepare a Cash Flow Forecast

How to Prepare a Cash Flow Forecast The Orangeville & Area Small Business Enterprise Centre (SBEC) 87 Broadway, Orangeville ON L9W 1K1 519-941-0440 Ext. 2286 or 2291 sbec@orangeville.ca www.orangevillebusiness.ca Supported by its Partners:

More information

Ratios and interpretation

Ratios and interpretation Unit Ratios and interpretation As we learnt in our earlier studies, accounting information is used to answer two key questions about a business: Is it making a profit? Are its assets sufficient to meet

More information

SOLE TRADER FINAL ACCOUNTS

SOLE TRADER FINAL ACCOUNTS 6 SOLE TRADER FINAL ACCOUNTS CASE STUDY Starting out in business Olivia Boulton used to work as a buyer of kitchen and cookware goods for a large department store in central London. She was good at her

More information

6.3 PROFIT AND LOSS AND BALANCE SHEETS. Simple Financial Calculations. Analysing Performance - The Balance Sheet. Analysing Performance

6.3 PROFIT AND LOSS AND BALANCE SHEETS. Simple Financial Calculations. Analysing Performance - The Balance Sheet. Analysing Performance 63 COSTS AND COSTING 6 PROFIT AND LOSS AND BALANCE SHEETS Simple Financial Calculations Analysing Performance - The Balance Sheet Analysing Performance Analysing Financial Performance Profit And Loss Forecast

More information

Jones Sample Accounts Limited. Company Registration Number: 04544332 (England and Wales) Report of the Directors and Unaudited Financial Statements

Jones Sample Accounts Limited. Company Registration Number: 04544332 (England and Wales) Report of the Directors and Unaudited Financial Statements Company Registration Number: 04544332 (England and Wales) Report of the Directors and Unaudited Financial Statements Period of accounts Start date: 1st June 2008 End date: 31st May 2009 Contents of the

More information

NOTES TO ASSIST COMPLETION OF BUSINESS QUESTIONNAIRE

NOTES TO ASSIST COMPLETION OF BUSINESS QUESTIONNAIRE NOTES TO ASSIST COMPLETION OF BUSINESS QUESTIONNAIRE Never change company shareholding without conferring with us because there are tax implications. Please note the following comments 1. Cars If you sell

More information

Jones Sample Accounts Limited. Company Registration Number: 04544332 (England and Wales) Report of the Directors and Unaudited Financial Statements

Jones Sample Accounts Limited. Company Registration Number: 04544332 (England and Wales) Report of the Directors and Unaudited Financial Statements Company Registration Number: 04544332 (England and Wales) Report of the Directors and Unaudited Financial Statements Period of accounts Start date: 1st June 2009 End date: 31st May 2010 Contents of the

More information

INTERNATIONAL ACCOUNTING STANDARDS. CIE Guidance for teachers of. 7110 Principles of Accounts and. 0452 Accounting

INTERNATIONAL ACCOUNTING STANDARDS. CIE Guidance for teachers of. 7110 Principles of Accounts and. 0452 Accounting www.xtremepapers.com INTERNATIONAL ACCOUNTING STANDARDS CIE Guidance for teachers of 7110 Principles of Accounts and 0452 Accounting 1 CONTENTS Introduction...3 Use of this document... 3 Users of financial

More information

Starting in Business. Get your business up and running with RDP Newmans. clear thinking. positive solutions. www.rdpnewmans.com

Starting in Business. Get your business up and running with RDP Newmans. clear thinking. positive solutions. www.rdpnewmans.com Starting in Business Get your business up and running with RDP Newmans clear thinking. positive solutions www.rdpnewmans.com Contents The First Steps 01 Welcome 01 Business Foundations 01 Finances 02 Overview

More information

Incisive Business Guide to Factoring

Incisive Business Guide to Factoring Incisive Guide to Factoring Factoring Guide Summary This guide from Incisive outlines the features and benefits for your business from using factoring and invoice discounting services. Factoring is commonly

More information

STATEMENT OF CASH FLOWS AND WORKING CAPITAL ANALYSIS

STATEMENT OF CASH FLOWS AND WORKING CAPITAL ANALYSIS C H A P T E R 1 0 STATEMENT OF CASH FLOWS AND WORKING CAPITAL ANALYSIS I N T R O D U C T I O N Historically, profit-oriented businesses have used the accrual basis of accounting in which the income statement,

More information

A general guide to keeping records for your tax return

A general guide to keeping records for your tax return A general guide to keeping records for your tax return RK BK1 Contents Introduction 3 Why good record keeping helps you 3 Records you should keep 3 What happens if you don t keep adequate records 4 How

More information

Sole Trader Guide. A complete accountancy service for the small business across the United Kingdom

Sole Trader Guide. A complete accountancy service for the small business across the United Kingdom Sole Trader Guide A complete accountancy service for the small business across the United Kingdom What is a sole trader A sole trader business (being self-employed) is the most simple business type and

More information

UNDERSTANDING WHERE YOU STAND. A Simple Guide to Your Company s Financial Statements

UNDERSTANDING WHERE YOU STAND. A Simple Guide to Your Company s Financial Statements UNDERSTANDING WHERE YOU STAND A Simple Guide to Your Company s Financial Statements Contents INTRODUCTION One statement cannot diagnose your company s financial health. Put several statements together

More information

Sri Lanka Accounting Standard-LKAS 7. Statement of Cash Flows

Sri Lanka Accounting Standard-LKAS 7. Statement of Cash Flows Sri Lanka Accounting Standard-LKAS 7 Statement of Cash Flows CONTENTS SRI LANKA ACCOUNTING STANDARD-LKAS 7 STATEMENT OF CASH FLOWS paragraphs OBJECTIVE SCOPE 1 3 BENEFITS OF CASH FLOW INFORMATION 4 5 DEFINITIONS

More information

CASH FLOW STATEMENT. MODULE - 6A Analysis of Financial Statements. Cash Flow Statement. Notes

CASH FLOW STATEMENT. MODULE - 6A Analysis of Financial Statements. Cash Flow Statement. Notes MODULE - 6A Cash Flow Statement 30 CASH FLOW STATEMENT In the previous lesson, you have learnt various types of analysis of financial statements and its tools such as comparative statements, common size

More information

How to calculate your taxable profits

How to calculate your taxable profits Helpsheet 222 Tax year 6 April 2013 to 5 April 2014 How to calculate your taxable profits A Contacts Please phone: the number printed on page TR 1 of your tax return the SA Helpline on 0300 200 3310 the

More information

Grade 10 Accounting Notes SET 2: Basics Cash Retail Business Cash Transactions. Name: JCansfield Page 1 of 27

Grade 10 Accounting Notes SET 2: Basics Cash Retail Business Cash Transactions. Name: JCansfield Page 1 of 27 Grade 10 Accounting Notes SET 2: Basics Cash Retail Business Cash Transactions Name: JCansfield Page 1 of 27 Accounting Cycle The Accounting cycle takes place over 12 months. We refer to this as the Financial

More information

For our curriculum in Grade 12 we are going to use ratios to analyse the information available in the Income statement and the Balance sheet.

For our curriculum in Grade 12 we are going to use ratios to analyse the information available in the Income statement and the Balance sheet. SUBJECT: ACCOUNTING GRADE 12 CHAPTER: COMPANIES LESSON: ANALYSIS AND INTERPRETATION-RATIOS LESSON OVERVIEW (KNOWLEDGE AREAS) LESSON 1. Introduction 2. Analysing of financial statements and its purpose

More information

You have learnt about the financial statements

You have learnt about the financial statements Analysis of Financial Statements 4 You have learnt about the financial statements (Income Statement and Balance Sheet) of companies. Basically, these are summarised financial reports which provide the

More information

How to Assess Your Financial Planning and Loan Proposals By BizMove Management Training Institute

How to Assess Your Financial Planning and Loan Proposals By BizMove Management Training Institute How to Assess Your Financial Planning and Loan Proposals By BizMove Management Training Institute Other free books by BizMove that may interest you: Free starting a business books Free management skills

More information

Indian Accounting Standard (Ind AS) 7 Statement of Cash Flows

Indian Accounting Standard (Ind AS) 7 Statement of Cash Flows Contents Indian Accounting Standard (Ind AS) 7 Statement of Cash Flows Paragraphs OBJECTIVE SCOPE 1 3 BENEFITS OF CASH FLOW INFORMATION 4 5 DEFINITIONS 6 9 Cash and cash equivalents 7 9 PRESENTATION OF

More information

Ipx!up!hfu!uif Dsfeju!zpv!Eftfswf

Ipx!up!hfu!uif Dsfeju!zpv!Eftfswf Ipx!up!hfu!uif Dsfeju!zpv!Eftfswf Credit is the lifeblood of South Louisiana business, especially for the smaller firm. It helps the small business owner get started, obtain equipment, build inventory,

More information

1.3 What is the cash accounting scheme?

1.3 What is the cash accounting scheme? Foreword This notice cancels and replaces Notice 731 (August 2008). Details of any changes to the previous version can be found in paragraph 1.2 of this notice. The legal basis for the cash accounting

More information

Self-Employment. Guidance Note GN4

Self-Employment. Guidance Note GN4 Self-Employment Guidance Note GN4 Issued by the Income Tax Division 23 April 2012 PLEASE NOTE: This guidance has no binding force and does not affect your right of appeal on points concerning your liability

More information

COMPANIES INCOME TAX COMPUTATION AND TREATMENT IN FINANCIAL STATEMENTS

COMPANIES INCOME TAX COMPUTATION AND TREATMENT IN FINANCIAL STATEMENTS COMPANIES INCOME TAX COMPUTATION AND TREATMENT IN FINANCIAL STATEMENTS PRESENTED BY OLUFUNKE SODIPO TAX MANAGER: PEAK PROFESSIONAL SERVICES IN HOUSE SEMINAR SERIES NO 4 PEAK PROFESSIONAL SERVICES (CHARTERED

More information

Accounts payable Money which you owe to an individual or business for goods or services that have been received but not yet paid for.

Accounts payable Money which you owe to an individual or business for goods or services that have been received but not yet paid for. A Account A record of a business transaction. A contract arrangement, written or unwritten, to purchase and take delivery with payment to be made later as arranged. Accounts payable Money which you owe

More information

Starting In Business. Are you sure?

Starting In Business. Are you sure? Starting In Business This guide is for whether you have already decided to start a new business, or you are simply considering your first move into self-employment. What do you need to think about before

More information

Accruals and prepayments

Accruals and prepayments 5 Accruals and prepayments this chapter covers... In the last chapter we have looked at the preparation of financial statements or final accounts using the extended trial balance, or spreadsheet, approach.

More information

Many members will be in some way involved with the control of Working Capital and its influence upon business success.

Many members will be in some way involved with the control of Working Capital and its influence upon business success. Working Capital Control, Philip E Dunn Many members will be in some way involved with the control of Working Capital and its influence upon business success. Working capital is a key element in business

More information

Invoice Factoring, Debtors Discounting and Trade Finance are bridging facilities using your debtors, stock or movable assets to raise cash.

Invoice Factoring, Debtors Discounting and Trade Finance are bridging facilities using your debtors, stock or movable assets to raise cash. Dear Sir / Madam, Re Bridging Facilities Invoice Factoring, Debtors Discounting and Trade Finance are bridging facilities using your debtors, stock or movable assets to raise cash. A key element is that

More information

Cash Flow Management for Small Businesses

Cash Flow Management for Small Businesses Cash Flow Management for Small Businesses 1 Contents What is cash flow management and why does it matter?... 3 Thinking about your cash flow... 4 Common cash flow killers... 5 Cash flow forecasting...

More information

Workbook 2 Overheads

Workbook 2 Overheads Contents Highlights... 2 Quick Practice Session on Overheads... 2 Financial Quiz 2 - Overheads... 3 Learning Zone Overheads... 3 Fixed and Variable costs and Break-even analysis explained... 3 Fixed Costs...

More information

GCE. Accounting. Mark Scheme for January 2012. Advanced GCE Unit F013: Company Accounts and Interpretation. Oxford Cambridge and RSA Examinations

GCE. Accounting. Mark Scheme for January 2012. Advanced GCE Unit F013: Company Accounts and Interpretation. Oxford Cambridge and RSA Examinations GCE Accounting Advanced GCE Unit F013: Company Accounts and Interpretation Mark Scheme for January 2012 Oxford Cambridge and RSA Examinations OCR (Oxford Cambridge and RSA) is a leading UK awarding body,

More information

Cash basis for small business

Cash basis for small business Cash basis for small business Introduction From April 2013, it is proposed that sole traders with a low turnover may use the cash basis for determining their taxable profits. Traders here include vocations

More information

So You Want to Borrow Money to Start a Business?

So You Want to Borrow Money to Start a Business? So You Want to Borrow Money to Start a Business? M any small business owners cannot understand why a lending institution would refuse to lend them money. Others have no trouble getting money, but they

More information

financing your business

financing your business setting the whole thing up financing your business A solid financial base is essential when you are starting up a new business. The right financing package will carry you through any temporary difficulties

More information

Planning your cash flow

Planning your cash flow Planning your cash flow Business Coach series Preparing the cash flow forecast Keeping on track Business Coach series The cash flow process The situation Money goes out earlier and faster than it comes

More information

Plan and Track Your Finances

Plan and Track Your Finances Chapter 9 Plan and Track Your Finances 9.1 Finance Your Business 9.2 Pro Forma Financial Statements 9.3 Record Keeping for Businesses Ideas in Action Electronic Safekeeping Katelin Shea addressed the unmet

More information

Paper FFM. Foundations in Financial Management FOUNDATIONS IN ACCOUNTANCY. Pilot Paper. The Association of Chartered Certified Accountants

Paper FFM. Foundations in Financial Management FOUNDATIONS IN ACCOUNTANCY. Pilot Paper. The Association of Chartered Certified Accountants FOUNDATIONS IN ACCOUNTANCY Foundations in Financial Management Pilot Paper Time allowed: 2 hours This paper is divided into two sections: Section A ALL TEN questions are compulsory and MUST be attempted

More information

Cash Flow Forecasting & Break-Even Analysis

Cash Flow Forecasting & Break-Even Analysis Cash Flow Forecasting & Break-Even Analysis 1. Cash Flow Cash Flow Projections What is cash flow? Cash flow is an estimate of the timing of when the cash associated with sales will be received and when

More information

Chapter 002 Financial Statements, Taxes and Cash Flow

Chapter 002 Financial Statements, Taxes and Cash Flow Multiple Choice Questions 1. The financial statement summarizing the value of a firm's equity on a particular date is the: a. income statement. B. balance sheet. c. statement of cash flows. d. cash flow

More information

Understanding A Firm s Financial Statements

Understanding A Firm s Financial Statements CHAPTER OUTLINE Spotlight: J&S Construction Company (http://www.jsconstruction.com) 1 The Lemonade Kids Financial statement (accounting statements) reports of a firm s financial performance and resources,

More information

JOINT INSOLVENCY EXAMINATION BOARD

JOINT INSOLVENCY EXAMINATION BOARD JOINT INSOLVENCY EXAMINATION BOARD Joint Insolvency Examination Monday 3 November 2008 LIQUIDATIONS (3.5 hours) ANSWER ALL FOUR QUESTIONS QUESTIONS 1 AND 2 CARRY TWENTY MARKS EACH QUESTIONS 3 AND 4 CARRY

More information

The Nature, Elements and Importance of Working Capital

The Nature, Elements and Importance of Working Capital C. WORKING CAPITAL MANAGEMENT 1. The nature, elements and importance of working capital 2. Management of inventories, accounts receivable, accounts payable and cash 3. Determining working capital needs

More information

PREPARING FINAL ACCOUNTS. part

PREPARING FINAL ACCOUNTS. part 15_1312MH_CH09 27/1/05 8:38 am Page 87 PREPARING part 3 FINAL ACCOUNTS 9 The final accounts of sole traders 10 Accounting principles, concepts and policies 11 Depreciation and fixed assets 12 Bad debts

More information

Business Plan Helpsheet

Business Plan Helpsheet NORTHERN IRELAND Business Plan Helpsheet Published by Chartered Accountants Ulster Society with content from CCAB-I and the Irish Banking Federation Business Plan Helpsheet 01 Contents This helpsheet has

More information

Construction Economics & Finance. Module 6. Lecture-1

Construction Economics & Finance. Module 6. Lecture-1 Construction Economics & Finance Module 6 Lecture-1 Financial management: Financial management involves planning, allocation and control of financial resources of a company. Financial management is essential

More information

Chart of Accounts AA Corp Tax 0000-1020 / page 1. Sales. Income from participating interests. Income from other fixed asset investments

Chart of Accounts AA Corp Tax 0000-1020 / page 1. Sales. Income from participating interests. Income from other fixed asset investments 0000-1020 / page 1 0000 Sales 0001 Sales type A 0002 Sales type B 0003 Sales type C 0004 Sales type D 0005 Sales type E 0006 Sales type F 0007 Sales type G 0008 Sales type H 0009 Sales type I 0100 UK sales

More information

Financial Advice Guide for your Business

Financial Advice Guide for your Business Financial Advice Guide for your Business Contents Section 1: Section 2: Section 3: Section 4: Section 5: Section 6: Talk to your bank Reviewing your business for the future Managing your business today

More information

Short Term Loans and Lines of Credit

Short Term Loans and Lines of Credit Short Term Loans and Lines of Credit Disadvantaged Business Enterprise (DBE) Supportive Services Program The contents of this training course reflect the views of the author who is responsible for the

More information

Preparing Financial Statements

Preparing Financial Statements Preparing Financial Statements Understanding financial statements is essential to the success of a small business. They can be used as a roadmap to steer you in the right direction and help you avoid costly

More information

HOW DO SMALL BUSINESSES OPERATE

HOW DO SMALL BUSINESSES OPERATE HOW DO SMALL BUSINESSES OPERATE Sources of Finance and Advice N4 BUSINESS IN ACTION N5 UNDERSTANDING BUSINESS LEARNING INTENTIONS AND LEARNING INTENTION: I understand the SUCCESS CRITERIA different sources

More information

Helpsheet Business Plan Guidance

Helpsheet Business Plan Guidance Helpsheet Business Plan Guidance Published jointly by CCAB-I and the Irish Banking Federation This helpsheet has been prepared by the Consultative Committee of Accountancy Bodies - Ireland (CCAB-I) and

More information

NEPAL ACCOUNTING STANDARDS ON CASH FLOW STATEMENTS

NEPAL ACCOUNTING STANDARDS ON CASH FLOW STATEMENTS NAS 03 NEPAL ACCOUNTING STANDARDS ON CASH FLOW STATEMENTS CONTENTS Paragraphs OBJECTIVE SCOPE 1-3 BENEFITS OF CASH FLOWS INFORMATION 4-5 DEFINITIONS 6-9 Cash and cash equivalents 7-9 PRESENTATION OF A

More information

Too often business owners do a cash flow in their head. Putting the information down on paper will give you the following:

Too often business owners do a cash flow in their head. Putting the information down on paper will give you the following: CASH FLOW A cash flow is a forecast of when you expect to receive cash from your sales and when you expect to pay your bills. It is not and should not be confused with a pro-forma income statement. A cash

More information

Introduction. What is a business?

Introduction. What is a business? 1 Introduction to accounting By the end of this chapter you should be able to: define and classify businesses define accounting as a business activity state the main purpose of accounting list the qualities

More information

Glossary of Business Terms (List is separated by Accounting & Finance Terms. Note, terms may be repeated)

Glossary of Business Terms (List is separated by Accounting & Finance Terms. Note, terms may be repeated) Glossary of Business Terms (List is separated by Accounting & Finance Terms. Note, terms may be repeated) Accounting Terms Account a record of financial transactions; usually refers to a specific category

More information

Trading Profit and Loss Account

Trading Profit and Loss Account Trading Profit and Loss Account Trading Account The trading account shows the income from sales and the direct costs of making those sales. It includes the balance of stocks at the start and end of the

More information

Lecture 18 SOURCES OF FINANCE AND GOVERNMENT POLICIES

Lecture 18 SOURCES OF FINANCE AND GOVERNMENT POLICIES Lecture 18 SOURCES OF FINANCE AND GOVERNMENT POLICIES Learning Objectives Sources of finance for small and medium-sized businesses. Types of financial assistance Finance is needed throughout a company

More information

SMALL BUSINESS OWNER S HANDBOOK

SMALL BUSINESS OWNER S HANDBOOK SMALL BUSINESS OWNER S HANDBOOK PART II: FINANCIAL PLANNING FOR SMALL BUSINESSES Introduction Financial Planning Methods of Financing Your Business Other Types of Funds & Financing How to Approach Lenders

More information

Secured loans - A guide

Secured loans - A guide Secured loans - A guide WHAT IS A SECURED LOAN? A secured loan is a loan in which the borrower pledges some asset such as a car or property as collateral for the loan, which then becomes a secured debt

More information

What is a business plan?

What is a business plan? What is a business plan? A business plan is the presentation of an idea for a new business. When a person (or group) is planning to open a business, there is a great deal of research that must be done

More information

CENTRE FOR CONTINUING EDUCATION BBA (AVIATION OPERATION)

CENTRE FOR CONTINUING EDUCATION BBA (AVIATION OPERATION) CENTRE FOR CONTINUING EDUCATION BBA (AVIATION OPERATION) BATCH: SEMESTER: NAME: ROLL NO: ASSIGNMENT 1 & 2 FOR BUSINESS ACCOUNTING BBCF 131 UNIVERSITY OF PETROLEUM & ENERGY STUDIES Assignment-1 Note: All

More information

Summary of Significant Accounting Policies FOR THE FINANCIAL YEAR ENDED 31 MARCH 2014

Summary of Significant Accounting Policies FOR THE FINANCIAL YEAR ENDED 31 MARCH 2014 46 Unless otherwise stated, the following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements. The Company and

More information

Ministry Of Finance VAT Department. VAT Guidance for Financial Services Version 4: June 09, 2015

Ministry Of Finance VAT Department. VAT Guidance for Financial Services Version 4: June 09, 2015 Ministry Of Finance VAT Department VAT Guidance for Financial Services Version 4: June 09, 2015 Introduction This guide is intended to provide businesses offering financial services with information about

More information

Limited Company Guide

Limited Company Guide Limited Company Guide A complete accountancy service for the small business across the United Kingdom What is a limited company? A limited company is a type of business whereby the owner s liability is

More information

ACCOUNTING 1 (ACN101- M)

ACCOUNTING 1 (ACN101- M) 1 ACCOUNTING 1 (ACN101- M) STUDY UNIT 1: THE NATURE AND FUNCTION OF ACCOUNTING DEFINITION: Accounting can be defined as the orderly & systematic recording of the monetary values of financial transactions

More information

Statement of Cash Flows

Statement of Cash Flows STATUTORY BOARD FINANCIAL REPORTING STANDARD SB-FRS 7 Statement of Cash Flows This version of SB-FRS 7 does not include amendments that are effective for annual periods beginning after 1 January 2014.

More information

Managing Cash Flow. A guide to help you broaden your understanding of how to manage cash flow in a small business

Managing Cash Flow. A guide to help you broaden your understanding of how to manage cash flow in a small business Managing Cash Flow A guide to help you broaden your understanding of how to manage cash flow in a small business This guide looks at the key elements of cash flow and working capital and how its management

More information

Transition to International Financial Reporting Standards

Transition to International Financial Reporting Standards Transition to International Financial Reporting Standards Topps Tiles Plc In accordance with IFRS 1, First-time adoption of International Financial Reporting Standards ( IFRS ), Topps Tiles Plc, ( Topps

More information

EasyPC Training. Accounting Basics

EasyPC Training. Accounting Basics EasyPC Training Accounting Basics Contents Accounting Basics... 3 The Accounting Equation... 3 Assets... 3 Liabilities... 3 Owner s Equity... 3 The Balance Sheet... 5 Double Entry Bookkeeping... 6 Ledger

More information

Tax and Small Business: Navigating the ATO minefield as June 30 draws closer

Tax and Small Business: Navigating the ATO minefield as June 30 draws closer June 23, 2015 Tax and Small Business: Navigating the ATO minefield as June 30 draws closer The small business sector has variously been described as the engine room of the economy, as well as the biggest

More information

Article Accounting Terminology

Article Accounting Terminology Article Accounting Terminology Contents Page 1. Accounting Period... 4 2. Accounts Payable (Sundry Creditors)... 4 3. Accounts Receivable (Sundry Debtors)... 4 4. Assets... 4 5. Benchmarks... 4 6. B.O.S.

More information

CASH FLOW STATEMENT & BALANCE SHEET GUIDE

CASH FLOW STATEMENT & BALANCE SHEET GUIDE CASH FLOW STATEMENT & BALANCE SHEET GUIDE The Agriculture Development Council requires the submission of a cash flow statement and balance sheet that provide annual financial projections for the business

More information

Process Accounts Payable and Receivable

Process Accounts Payable and Receivable Process Accounts Payable and Receivable UNIT PURPOSE On successful completion of this unit the learner will be able to maintain financial records of a business using both manual accounting processes and

More information

Glossary of Accounting Terms Peter Baskerville

Glossary of Accounting Terms Peter Baskerville Glossary of Accounting Terms Peter Baskerville Account for or 'bring to account': An accounting phrase used to describe the recording of a financial transaction that is required under the generally accepted

More information