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Financial Modelling

Financial Modelling

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Published by webworx
A “what if” analysis is a simulation of what the impact of your business decision will be on turnover or revenue, expenses and profits.
A “what if” analysis is a simulation of what the impact of your business decision will be on turnover or revenue, expenses and profits.

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Published by: webworx on Aug 31, 2009
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11/14/2010

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Financial Modelling And Analysis
Let’s say you’re a small business owner who’s thinking of expanding your operations. You may be experiencing a period of high growth with acceleratedsales courtesy of a new product you’re selling. Before you decide to embark onthe crucial decision of purchasing new equipment, renting a new warehouse andmoving to new premises, you may want to undertake financial modelling andanalysis. What this essentially means is that you test out the scenario of expansion on your overall business operations using computer based techniquesthat provide an idea of the impact on your operations of any decision you take.
“What If” Analysis
Before even contemplating approaching a bank for funds to finance your proposed business expansion, it would be a good idea to test out your proposalusing simulated financial statements. A competent <ahref=”http://www.bookkeepingcentral.com.au”>bookkeeper </a> will be able touse computer spreadsheets such as Microsoft Excel or accounting software suchas MYOB – Mind Your Own Business – to perform these simulations to show youhow your borrowings will affect the expected returns of your business expansionventure.A “what if” analysis is a simulation of what the impact of your business decisionwill be on turnover or revenue, expenses and profits. Say, you wanted to borrowAUD$300,000 at a specified interest rate to purchase the necessary equipmentto expand your business. A “what if” analysis would show how much your totalexpenses will be with the interest payments, what additional revenue your extrabusiness opportunity will bring and how long it will take you to earn a return onyour investment in new premises and equipment. This sort of analysis is crucial if your proposed investment will be a heavy financial burden to bear.“What if” analysis can be done for any form of business decision. You could testout how adding a new line of products to your existing product offering will affectrevenue and expenses. You could see how well or badly your business will do if you bought new vehicles and started taking on projects in another town. Your outsourced accounting services can perform “what if” analysis to reveal how your financial statements will be affected if you wanted to use more expensivematerials or do a marketing campaign to increase sales. You can find out therelevant ratios, debtor levels, sales margins and projected cash flow connectedwith your proposal.The whole idea of a “what if” analysis is to reveal which areas of your businesswill be affected by your proposals without you having to learn the outcome thehard way. Financial modelling is a very powerful tool that will aid you in makingeffective decisions concerning the prosperity of your business.
 
Profitability Analysis
You’re in business to be profitable and not run at a loss. You want to know howmuch profit your business is making and what are the types of expenses thatimpact on it. Your accounting services will be able to perform a profitabilityanalysis to identify how your business has earned its profits. This includes salesand margin analysis to identify whether you have priced your products andservices at the optimum level to maximise profits. The analysis will reveal theprofitability of various categories of your products and services and determinewhich category is contributing the most in terms of profits to your business.If you’re running a home refurbishment business doing repairs and painting, youmay find that your painting services are actually making a loss even though your overall business is profitable. This sort of analysis will assist you in decidingwhether you want to continue providing painting services or merely concentrateon home repairs to increase your profits and reduce your expenditure.Profitability analysis may indicate that your small business is better off focusingon one aspect of your business rather than spreading your resources too thinlyand incurring losses in the end.An experienced and qualified <ahref=”http://www.bookkeepingcentral.com.au”>bookkeeper </a> is in a perfectposition to analyse the profitability of your business and advise you on the keyfeatures that impact your profits. Merely preparing your financial statements andlodging your BAS regularly is insufficient to conduct your business in acompetitive environment. You need to understand what the financial statementssay about your business entity. You can then use this information to consolidateor divest certain aspects of your business to enhance profitability.
Business Case Analysis
Every business has different factors that impinge upon its viability, liquidity andperformance. A plumber’s expenses may not be comparable to that of a buildingcontractor’s, as the focus of each service is entirely different. Bookkeepingservices understand the nuances of a wide variety of businesses and cananalyse individual services independently of each other. They can bring to bear experience gathered of similar services to analyse your particular business case.They can provide you with cogent, vital information and advice to assist you inbuilding a better business. With an acute awareness of the specificcircumstances of your business, accounting services can forestall potentiallydisastrous financial obligations and encourage better management of youbusiness.If looking at so many numbers in so many columns makes you somewhat dizzy,your bookkeeper can easily present your data in a more meaningful way. You cansee charts or graphs instead of rows of numbers. You can have debtor turnover 

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