Archive for category equity
Move from loan dependence to independence
Posted by admin in credit, credit cards, economy, effective budgeting, equity on March 16th, 2010
Reaching the Commit stage is the gold medal of partnering— when “me” becomes “we.” As you link your success to each other’s well-being, you move from independence to interdependence.While this goal is sometimes attained in our personal relations, it is elusive for most business partnerships. This doesn’t mean it can’t happen, but long-term partnerships are rare. Businesses change, marketplace realities evolve, and alliances shift market forces in different directions. Achieving this level of partnership ensures that as long as the partnership provides mutual benefits and trust exists, abundance will flow.
The partnership becomes institutionalized when there is formal commitment to it. In our personal lives, people have weddings or other commitment ceremonies to publicly acknowledge their partnerships. Aside from the ritual, which is important, they send a message to the outside world that “we are in this together.” A business example is United Airlines, which ran a series of advertisements featuring their employees, who had just signed an employee ownership contract with management. The message was obvious: Since they were now owner-employees, their customers could expect service as if it were coming from the company leaders—because it was! In an extremely competitive marketplace, this is a powerful message.
Basics of accounting – part 2
Posted by admin in Financial Advice, economy, equity, expenditures, financial growth on August 3rd, 2009
Why do accountants use the double-entry system? Well, we could explain how the system is based logically on the principle of duality, because all activities with any economic significance have two aspects—resources and uses, work and reward, loss and gain. Or we could simply point out that recording every transaction twice dramatically reduces the chance of error. The bottom line is that the system works, although it occasionally seems to defy common sense. Don’t expect to understand it all completely now. Our discussion of the general ledger and subledgers should help make more sense of debits and credits.
The most common structure for financial documents, based on the need to distinguish between debits and credits, is the T account diagram. The left side of the T represents debits and the right side of the T represents credits. In the accounting process, a figure is recorded as a debit (left side) or as a credit (right side) depending on how the transaction affects that particular account.
The Management Function in Budgeting – part 1
Posted by admin in budget, effective budgeting, equity, market demand, market forecasts on August 2nd, 2009
A budget is not a budget until it has been carefully scrutinized by management. Even if the numbers add up correctly, they may not have been estimated properly. It’s middle-management’s job to assemble the budget, but it’s upper-management’s job to question the budget. They do this because the budget is the financial tool that will guide the organization in the coming year. Not only does it need to be accurate, it needs to be well-considered and realistic.
In our example, the company missed the mark rather dramatically, showing a profit margin 22 percent less than the one projected in the budget. What questions should management ask?
Why is the projected actual so far off from the budgeted amount? Perhaps it was the fault of the budgetingprocess being too optimistic or of a budget based on considerations unrealistic to the current situation. Perhaps there was a significant change in market conditions or materials costs. In any of these scenarios, management needs to understand why before it can accurately assess the new year’s budget.
Production costs for Units A, B, and C do not match their profit scenario. What gives? It may be that the unit production varies and standardization needs to be applied. If a more costly unit is not earning more exponentially, it may mean that (a) the unit is improperly priced, or (b) demand has slacked off and there’s too much inventory left in the warehouse. In either case, management must look at production standards and market demand before budgeting unit-production figures for the new year.
Fixed and Variable Costs in fiction – part 2
Posted by admin in Companies, effective budgeting, equity, material costs, profit margin on August 1st, 2009
But now let’s say each one of these units requires $3 worth of raw materials and another $2 in assembly charges to create, or $5 per unit. Since those costs are based on the number of units being produced, those costs are variable with the production flow. If you produce 5,000 units, that’s a variable cost of $25,000. Add to that your $10,000 per year in fixed costs, and you have overall production costs of $35,000, or $7 per unit. At a sales price of $9, the profit margin is $2 per unit.
But let’s increase production to 10,000 at $5 per unit in materials and assembly charges. That’s $50,000 in variable costs, plus $10,000 in fixed costs, for a total of $60,000 for 10,000 units. The price per unit is now $6, which yields a profit margin of $3 per unit.
Budget Components – part 3
Posted by admin in budget, effective budgeting, equity, manufacturing, short-term income on July 31st, 2009
A capital budget sets aside funds for capital expenditures. These are primarily new pieces of equipment or facilities, to be used over a period of years. Strategic in nature, a capital budget involves looking at the long-term profit that’s likely to come from investing in that equipment or building.
Many companies allow for flexible budgeting, a process by which budgets are adjusted to match output and/or marketplace factors that influence the company’s revenues and expenses. Companies with a sudden short-term, unbudgeted income opportunity may create a flexible budget that adds to the expense side of the equation, but also adds corresponding revenues from product sales.
Budget Components – part 2
Posted by admin in effective budgeting, equity, expenditures, manufacturing, market forecasts on July 31st, 2009
The revenue section’s real job is to measure revenue projections—what the company thinks its going to earn through all its sources throughout the cycle of the budget—so that it may balance expenses against them. Unless there is a sound strategic reason for it, a business without a positive bottom line won’t likely be a business very long. Expenses may be higher than revenues in certain months, but the goal is always to make sure revenues exceed expenses by the end of the year.
When it comes to the expense side of a budget, the more detail that can be included within reason, the more accurate a view the budget will provide of the firm’s financial condition. More important, managers will be able to control cash flow better when they have a deeper level of information at their fingertips.