Practical Financial Management: A Guide to Budgets, Balance Sheets and Business Finance

225 Pages·2008·5.81 MB·English

by  Colin Barrow

Practical Management-Small Business prelims:Practical Financial Management 25/6/08 14:20 Page
Practical
Financial
Management
Practical Management-Small Business prelims:Practical Financial Management 25/6/08 14:20 Page
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Practical Management-Small Business prelims:Practical Financial Management 25/6/08 14:20 Page
Practical
Financial
Management
7TH EDITION
A guide to budgets, balance
sheets and business finance
Colin Barrow
Practical Management-Small Business prelims:Practical Financial Management 25/6/08 14:20 Page
Publisher’s note
Every possible effort has been made to ensure that the information contained in this book is accurate at the
time of going to press, and the publishers and authors cannot accept responsibility for any errors or omis-
sions, however caused. No responsibility for loss or damage occasioned to any person acting, or refraining
from action, as a result of the material in this publication can be accepted by the editor, the publisher or the
author.
First published in 1984 as Financial Management for the Small Business
Second edition published in 1988
Third edition published in 1995
Reprinted in 1997
Fourth edition published in 1998
Fifth edition published in 2001
Reprinted in 2002
Sixth edition published in 2006
Seventh edition published in 2008 as Practical Financial Management
Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted
under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or trans-
mitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of
reprographic reproduction in accordance with the terms and licences issued by the CLA. Enquiries concern-
ing reproduction outside these terms should be sent to the publishers at the undermentioned address:
Kogan Page Limited
120 Pentonville Road
London N1 9JN
United Kingdom
www.koganpage.com
© Colin Barrow, 1984, 1988, 1995, 1998, 2001, 2006, 2008
The right of Colin Barrow to be identified as the author of this work has been asserted by him in accordance
with the Copyright, Designs and Patents Act 1988.
The views expressed in this book are those of the author, and are not necessarily the same as those of Times
Newspapers Ltd.
British Library Cataloguing in Publication Data
A CIP record for this book is available from the British Library.
ISBN 978 0 7494 5273 5
Typeset by Jean Cussons Typesetting, Diss, Norfolk
Printed and bound in Great Britain by Bell & Bain Ltd, Glasgow
Practical Management-Small Business prelims:Practical Financial Management 25/6/08 14:20 Page v
Contents
Preface xvii
Part 1: Assembling financial data
1. Keeping the books 5
The accounts you have to keep 5; Getting some help 13
2. The cash flow statement 15
Why cash is king 15; The structure of the cash flow
statement 15; Avoiding overtrading 16; Estimating start-up
cash requirements 17; Cash flow spreadsheet tools 18
3. The profit-and-loss account 19
The difference between profit and cash 19; Structuring the
profit-and-loss account 19; Dealing with debtors and
creditors 24; Handling depreciation 26; Cost of goods sold 26;
Profit and loss for a service business 27; Profit-and-loss
spreadsheet tool 29
4. The balance sheet 30
A personal experience 30; The public picture 36; The structure
of the business balance sheet 38; The ground rules, concepts
and conventions 42; Accounting for stock 47; Methods of
depreciation 47; The capital register 48; Preparing a package
of accounts 49; Balance sheet and other online tools 49
Practical Management-Small Business prelims:Practical Financial Management 25/6/08 14:20 Page v
Practical Management-Small Business prelims:Practical Financial Management 25/6/08 14:20 Page v
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Contents ix
Part 2: Understanding the figures
5. Funding strategies, safety and performance 57
Debt vs equity 57; Using your own resources 59; Borrowing
money 62; Getting an investor 69; Going public 72; Free
money 75
6. Using ratios 76
Levels of profit 76; Working capital relationships 77; Return
on investment (ROI) 78; Market tests 79; Combined ratios 80;
Getting company accounts 80; Ratio analysis spreadsheets 82
7. Costs, volume, pricing and profit decisions 83
Adding up the costs 83; The components of cost 84; Break-
even point 88; Margin of safety 90; Costing to meet profit
objectives 90; Costing for special orders 92; Real-time internet
pricing strategies 93; Costing for business start-up 94; Costing
to identify unprofitable products and services 96; Getting help
with break-even 98
8. Improving performance 99
Pricing for profit 99; Reducing costs 101; Squeezing working
capital 103; The profit-improvement programme 104
Part 3: Figuring out the future
9. Revenue budgets 109
Budgeting for a business 109; Timescale and detail 111;
Objectives 112; Market appreciation 115; Forecasting sales 118;
Resources appreciation 120; Key strategies and operating
plans 125; Setting the budget 127; Budget guidelines 127;
Monitoring performance 128; Flexing the budget 129; Seasonality
and trends 130; Cash and capital budgets 131; Building a budget
model 131