Posts Tagged lenders
Innumerable financial and accounting schemes
Posted by admin in consulting, fixed costs, market forecasts, profit margin on October 5th, 2009
Innumerable financial and accounting schemes, all legal, also dilute your share of profits. Accounting tricks include non-deducted stock options, accruing unearned sales and commissions, classifying big losses as nondeducted special items, and counting pension gains as income. All tricks make earnings appear higher than they really are. Creating huge reserves in a bad year is common as well. This allows the company to then post high earnings in succeeding years. Many companies also use cash flow to speculate in the stock of hot companies. This boosts profits quickly, though it turns a solid business into a volatile investment fund. Companies also finance purchases by shaky customers. This boosts sales and profits in the shortterm but leads to huge write-offs later when the shaky customers fail.
All these accounting tricks inflate profits short-term. Higher profits justify higher salaries, bonuses, and grants of stock options. When these tricks are discovered and set right, earnings are restated and your stock price collapses. However, bonuses and salaries are long gone and stock options cashed. A series of legal accounting schemes can siphon off all earnings and leave the company bankrupt and you holding a worthless stock certificate.
Enron is a recent example. Enron used off balance sheet entities to inflate profits and enrich management. When the tricks were discovered, the stock price collapsed; outside shareholders ended up with penny stocks.
Defining Budget Type – part 2
Posted by admin in Companies, Money Tips, expenditures, financial growth, production cycles on July 30th, 2009
Longer business cycles require longer-lived budgets. Even though they may be subject to review and revisions, some items or operations unfold more fully over a longer time period. This results in a longer-term or strategic budget. While the operational budget anticipates financial flow for a year or less, the strategic budget reacts more intrinsically with a company’s long-term business plan. The net effect may be a less precise, but more comprehensive approach to financial management.
Not all companies need to create a strategic budget. Your company may be one of those happy to project from year to year, knowing that retained earnings and reserves may be all you need to set the stage for the subsequent year’s financial growth. On the other hand, if the company is involved in major capital acquisition that will depreciate over time, includes extensive research and development that runs up expenses for years before any revenue might be realized from the project, or involves extensive investment plans that will take several years to bear fruit, then a strategic budget may be more appropriate.
Defining Budget Type – part 1
Posted by admin in Companies, Global Markets, budget, expenditures, production cycles on July 30th, 2009
Budgets, like business plans, come in different makes and models depending on the purpose for which a company wants to use them. If its purpose is to plan strategies for the future, the company uses a long-term budget to set general goals for the next five or ten years. If its purpose is to plan the details of its operations, the company prepares a short-term budget, generally for a single year, to translate its goals into financial terms. Whether a budget is long-range or short-range, smart managers will revise them periodically, as conditions change.
The one-year budget is most commonly known as an operational budget, designed to help a company or the departments within that company get through one more year of sales and production cycles with some semblance of financial success. The 12-month time frame does make the budget somewhat strategic in nature, but by and large its purpose is to anticipate and plan for coming issues and trends within the business year.
The Budget: Definition – part 2
Posted by admin in Companies, budget, expenditures, management skills on July 29th, 2009
Although time periods vary, 12 months is the most common
thinking at best. Anything shorter, while useful, may not anticipate all the bumps in the road a business will face.
The budget your family kept when you were young revolved around savings and expenditures, charting the ebb and flow of resources and supplies. When it comes to a company’s budget, things grow a little more complicated, but the
principles are the same. Budgets predict sales and other revenue (income) and production and operating costs (expenses), and the difference between the two (the company’s profit or loss). The budget is the tool for estimating those numbers, and hopefully help managers prevent losses. And, working in tandem or as part of the business plan, it sets goals for either or both.
Budgeting is that simple. And it’s that important.
The Budget: Definition – part 1
Posted by admin in Companies, Investment Opportunities, budget, management skills on July 29th, 2009
Chances are when you were growing up, your family had a budget, it may have included expense categories such as groceries and clothing, a little cash kept in the sugar bowl or a desk drawer, and an envelope of coupons clipped from the newspaper. That was the first experience most of us had with budgets and, in its simplest form, it’s the quintessential definition of budgeting for business.
Like any other strategic direction and business plan, every company requires a financial plan to face the future. The company and departmental budgets are manifestations of that plan, a year-long look at the peaks and valleys of sales and expenses, the projection of cash flow (or lack of same) and the financial direction a company will take over the next 12 months.
Business Plan Shortfalls – part 2
Posted by admin in Business plans, Companies, Money Tips, management skills on July 29th, 2009
These words of advice are intended to help you avoid problems with lenders and investors. But they are also sound guidelines for your business plan even if you don’t expect it to be read by a single outsider. All the employees of a company—from top managers down to the mail room—are lenders and investors: they lend their abilities and invest their energy in your company. If your business plan fails to support their hopes and inspire them, you risk turning those employees—no matter what their level of responsibility or pay—into wage slaves.
Many business plans are created with a circular approach that offers a summary at both the beginning and the end, using the points in between to enhance the introductory summary so the concluding summary is more complete and comprehensive. For investors, it answers the question, “Why should we invest in this company?” It can save the reader time and give a company a greater opportunity to attract the type of financing it seeks.