UNIT 15 FINANCIAL MANAGEMENT Unit code M5080527 Credit

UNIT 15: FINANCIAL MANAGEMENT Unit code M/508/0527 Credit value 15

UNIT 15: FINANCIAL MANAGEMENT �Learning Outcome 3: Evaluate the role of management accountants and accounting control systems.

THE BASIC SYLLABUS � 1 Apply different approaches used to support effective decision-making. � 2 Analyse financial management principles which are used to support effective financial strategies. � 3 Evaluate the role of management accountants and accounting control systems. � 4 Evaluate ways in which financial decision-making supports sustainable performance.

LEARNING OUTCOMES LO 3: Evaluate the role of management accountants and accounting control systems P 4: Evaluate the use of accounting control systems and their value as part of an integrated business system

OVERVIEW � Cost control, also known as cost management or cost containment, is a broad set of cost accounting methods and management techniques with the common goal of improving business cost-efficiency by reducing costs, or at least restricting their rate of growth. �Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise. �A good financial plan can alert an investor to changes that must be made to ensure a smooth transition through life's financial phases, such as decreasing spending or changing asset allocation. Financial plans should also be fluid, with occasional updates when financial changes occur.

COST CONTROL �Cost control and reduction refers to the efforts business managers make to monitor, evaluate, and trim expenditures. These efforts might be part of a formal, company-wide program or might be informal in nature and limited to a single individual or department. In either case, however, cost control is a particularly important area of focus for small businesses, which often have limited amounts of time and money.

COST CONTROL �In a small business the focus is often on selling and servicing the customer. This leaves the task of purchasing slightly side tracked. Even seemingly insignificant expenditures— for items like office supplies, telephone bills, or overnight delivery services—can add up for small businesses. On the plus side, these minor expenditures can often provide sources of cost savings.

COST CONTROL �Cost control refers to management's effort to influence the actions of individuals who are responsible for performing tasks, incurring costs, and generating revenues. First managers plan the way they want people to perform, then they implement procedures to determine whether actual performance complies with these plans. Cost control is a continuous process that begins with the annual budget.

COST CONTROL �As the fiscal year progresses, management compares actual results to those projected in the budget and incorporates into the new plan the lessons learned from its evaluation of current operations. Through the budget process and accounting controls, management establishes overall company objectives, defines the centers of responsibility, determines specific objectives for each responsibility center, and designs procedures and standards for reporting and evaluation.

COST CONTROL �Driving the bottom line through profitable revenue growth likely is the objective of virtually every company. This should be the number one focus, of course. If you’re not growing, you’re dying. But companies also need to focus on controlling costs. Without constant vigilance, companies can find themselves in an uncompetitive situation with bloated overhead.

COST CONTROL �The episodic slashing and burning that then becomes necessary can significantly damage a company. These efforts risk producing exceptions on the financial statements, drive “one-time” charges, and hurt company culture. The better way to maintain the appropriate cost structure is to control them in a sustained fashion.

COST CONTROL �Cost control is the responsibility of everyone working in the business. All your employees have countless opportunities to affect costs throughout each day. If employees are unhappy at work, they can do a lot of damage, if only through what they don't do to monitor and manage costs.

COST CONTROL �If they're bored, frustrated, or feel undervalued, they're less likely to feel that the business's welfare is their responsibility. If they're motivated and feel that they have a stake in the business, they'll be more likely to help control costs.

EFFECTIVE FIANCIAL PLANNING

EFFECTIVE FIANCIAL PLANNING �A good financial plan can alert an investor to changes that must be made to ensure a smooth transition through life's financial phases, such as decreasing spending or changing asset allocation. Financial plans should also be fluid, with occasional updates when financial changes occur. �The process of financial planning in business is designed to forecast future financial results and determine how best to use the company’s financial resources in pursuit of the organization’s short- and long-range objectives. Because planning involves looking well into the future, it is a highly creative thinking process as well as an analytical one.

EFFECTIVE FIANCIAL PLANNING �Companies that make a concerted effort at financial planning can grow their revenues at a more accelerated pace than organizations that have an inefficient planning process. Financial planning provides the numerical logic for decision making. It shows where the business should concentrate its resources for maximum effectiveness in building revenues and managing costs. Efficient financial management allows more funds to be available for marketing, expanding operations and product development, which in turn brings about more growth.

EFFECTIVE FIANCIAL PLANNING �Financial planning is a process of setting objectives, assessing assets and resources, estimating future financial needs, and making plans to achieve monetary goals. Many elements may be involved in this process, including investing, asset allocation, and risk management. Tax, retirement, and estate planning are typically included as well. A financial plan is a comprehensive evaluation of an investor's current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans.

EFFECTIVE FIANCIAL PLANNING �Most individuals work in conjunction with a financial planner and use current net worth, tax liabilities, asset allocation, and future retirement and estate plans in developing financial plans. These metrics are used along with estimates of asset growth to determine if a person's financial goals can be met in the future, or what steps need to be taken to ensure that they are.

EFFECTIVE FIANCIAL PLANNING �Strategic planning determines the course of action the company will take: the tasks scheduled to be accomplished, as well as who is responsible for their timely completion. Financial planning takes the actions described in the strategic plan and converts them into dollars. The financial plan shows the revenues projected to result from the implementation of the strategies and the expenses required to implement the action steps. Senior management and marketing and operations personnel are heavily involved in the strategic planning process. Their efforts must be coordinated with those of the financial staff in charge of preparing the financial plan.

EFFECTIVE FIANCIAL PLANNING �Planning in business is very important. It provides a guide for the overall operation of the business. Likewise, financial planning provides a structure to the way finances are handled within the organization or company. Financial planning manages the flow of cash in and out of the business. Essentially, it’s impossible for an organization to function and be financially stable without financial planning.

EFFECTIVE FIANCIAL PLANNING �Financial planning requires the review of financial reports to encourage an understanding of income and profit loss. This is important because it helps the business identify its sales or revenue, cost of goods sold/cost of sales, gross profit, operating expenses and net income. Knowing these factors can help the business identify which ventures have been profitable and which need improvement.

EFFECTIVE FIANCIAL PLANNING �Financial planning entails the analysis of financial reports. Without analysis, it’s difficult or impossible to make plans. When the business examines its financial records, it’s able to see the growth and present condition of the business. Financial planning helps to compare different situations and allows for a thorough understanding of how cash is earned and expended in the business. Eventually, it becomes an important factor in determining which areas the business needs to improve on in terms of finances.

EFFECTIVE FIANCIAL PLANNING �Financial planning entails the analysis of financial reports. Without analysis, it’s difficult or impossible to make plans. When the business examines its financial records, it’s able to see the growth and present condition of the business. Financial planning helps to compare different situations and allows for a thorough understanding of how cash is earned and expended in the business. Eventually, it becomes an important factor in determining which areas the business needs to improve on in terms of finances.

EFFECTIVE FIANCIAL PLANNING �In detail, the assets of the company or business are best monitored through financial planning. Since financial reports hold records of expended, earned and remaining assets, financial planning becomes crucial in keeping an upto-date record of the company’s resources. Financial planning analyzes the current assets, fixed assets and intangible assets of the business. Financial planning or financial projection considers these three factors before deciding how best to expend and gain resources.

EFFECTIVE FIANCIAL PLANNING �Just as financial reports hold records for the assets of the business, they also state the different liabilities of the company. Financial planning also requires an analysis of the company’s current liabilities, long-term debt and owner’s equity. This helps the business keep track of liabilities due in the near future. It also helps the company plan out how to finance and devote resources to its debts before they create any trouble for the operation.

EFFECTIVE FIANCIAL PLANNING �Following the examination of financial reports, the business and those involved in it become more proactive. Through financial planning, different conditions, problems, losses and gains are predicted. Financial planning allows managers and top management to think ahead of the current situation and makes them more prepared. Different business opportunities can also be identified via financial planning.

EFFECTIVE FIANCIAL PLANNING �Financial Planning is process of framing objectives, policies, procedures, programmes and budgets regarding the financial activities of a concern. This ensures effective and adequate financial and investment policies. The importance can be outlined as�Adequate funds have to be ensured. �Financial Planning helps in ensuring a reasonable balance between outflow and inflow of funds so that stability is maintained. �Financial Planning ensures that the suppliers of funds are easily investing in companies which exercise financial planning.

EFFECTIVE FIANCIAL PLANNING �Financial Planning helps in making growth and expansion programmes which helps in long-run survival of the company. �Financial Planning reduces uncertainties with regards to changing market trends which can be faced easily through enough funds. �Financial Planning helps in reducing the uncertainties which can be a hindrance to growth of the company. This helps in ensuring stability an d profitability in concern.

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