Financial Management 1

Financial Management 1
BSB51918 DIPLOMA OF LEADERSHIP

AND MANAGEMENT
BSB51415 DIPLOMA OF PROJECT
MANAGEMENT
BSBFIM501 Manage Budgets and Financial Plans
ii
This workbook has been designed for use in conjunction with

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BSB51918 DIPLOMA OF LEADERSHIP AND MANAGEMENT and BSB51415 DIPLOMA OF PROJECT MANAGEMENT | FINANCIAL MANAGEMENT 1_V6.0
iii
Contents
Unit of Competency............................................................................................ v
BSBFIM501 Manage Budgets and Financial Plans............................................. v
Grading System................................................................................................. v
Assessment 1................................................................................................... vi
Assessment 2.................................................................................................. vii
Legend............................................................................................................ viii
Session 1........................................................................................................... 1
Activity 1.1..............................................................................................................2
Session 2......................................................................................................... 20
1.1 Access budget/financial plans for the work team.......................................20
1.2 Clarify budget/financial plans with relevant personnel within the
organisation to ensure that documented outcomes are achievable, accurate
and comprehensible...........................................................................................21
1.3 Negotiate any changes required to be made to budget/financial plans with
relevant personnel within the organisation.......................................................23
Activity 2.1............................................................................................................26
Session 3......................................................................................................... 28
1.4 Prepare contingency plans in the event that initial plans need to be varied .
��28
2.1 Disseminate relevant details of the agreed budget/financial plans to team
members.............................................................................................................31
Session 4......................................................................................................... 32
2.2 Provide support to ensure that team members can competently perform
required roles associated with the management of finances...........................32
2.3 Determine and access resources and systems required............................36
Session 5......................................................................................................... 37
3.1 Implement processes to monitor actual expenditure and to control costs
across the work team.........................................................................................37
3.2 Monitor expenditure and costs on an agreed cyclical basis to identify cost
variations and expenditure overruns..................................................................40
Session 6......................................................................................................... 44
3.3 Implement, monitor and modify contingency plans as required to maintain
financial objectives..............................................................................................44
3.4 Report on budget and expenditure in accordance with organisational
protocols..............................................................................................................46
Session 7......................................................................................................... 48
4.1 Collect and collate for analysis, data and information on the effectiveness
of financial management processes within the work team..............................48
4.2 Analyse data and information on the effectiveness of financial
management processes within the work team and identify, document and
recommend any improvements to existing processes......................................50

iv
Session 8......................................................................................................... 53
4.3 Implement and monitor agreed improvements in line with financial
objectives of the work team and the organisation.............................................53
Appendix 1: Glossary....................................................................................... 62
Appendix 2: References................................................................................... 65

v
UNIT OF COMPETENCY
BSBFIM501 Manage Budgets and Financial Plans
Elements
1. Plan financial management approaches
2. Implement financial management approaches
3. Monitor and control finances
4. Review and evaluate financial management processes
For further information on the Units of Competency, please visit

www.training.gov.au, or refer to your Course Outline booklet.
GRADING SYSTEM
High Distinction (HD) 85% and above
Distinction (D) 75-84%
Credit (Cr) 65-74%
Pass (P) 50-64%
Not yet competent (NYC) Below 50%

vi
ASSESSMENT 1
BSB51918
Diploma of Leadership and Management
Course Name
BSB51415
Diploma of Project Management
Subject/module Financial Management 1
Part A: Written or Oral Questions

Assessment method
Part B: Written Assessment
Weighting 50%
BSBFIM501
Unit of Competency
Manage Budgets and Financial Plans
Instructions
1. Assessments should be completed as per your trainer’s instructions.
2. Assessments must be submitted by the due date to avoid a late
submission penalty.
3. Plagiarism is copying someone else’s work and submitting it as your
own. You must write your answers in your own words and include a
reference list. A mark of zero will be given for any assessment or part of
an assessment that has been plagiarised.
4. You may discuss your assessments with other students, but submitting
identical answers to other students will result in a failing grade. Your
answers must be yours alone.
5. Your trainer will advise whether the assessment should be digitally
uploaded or submitted in hard copy. Assessments that are digitally
uploaded should be saved in pdf format.
6. You must attempt all questions.
7. You must pass all assessments in order to pass the subject.
8. All assessments are to be completed in accordance with WHS regulatory
requirements.

vii
ASSESSMENT 2
BSB51918
Diploma of Leadership and Management
Course Name
BSB51415
Diploma of Project Management
Subject/module Financial Management 1
Part A: Multiple Choice

Assessment method
Part B: Written or Oral Questions
Weighting 50%
BSBFIM501
Unit of Competency
Manage Budgets and Financial Plans
Instructions
1. Assessments should be completed as per your trainer’s instructions.
2. Assessments must be submitted by the due date to avoid a late
submission penalty.
3. Plagiarism is copying someone else’s work and submitting it as your
own. You must write your answers in your own words and include a
reference list. A mark of zero will be given for any assessment or part of
an assessment that has been plagiarised.
4. You may discuss your assessments with other students, but submitting
identical answers to other students will result in a failing grade. Your
answers must be yours alone.
5. Your trainer will advise whether the assessment should be digitally
uploaded or submitted in hard copy. Assessments that are digitally
uploaded should be saved in pdf format.
6. You must attempt all questions.
7. You must pass all assessments in order to pass the subject.
8. All assessments are to be completed in accordance with WHS regulatory
requirements.

viii
LEGEND
Not all ICONS are used in this workbook
Investigate
Go and find out some information
Write
Take notes and/or complete an exercise/activity in this
workbook
Read
Selected extra reading
Think
Take some time to think about the information and
record your own ideas
Speak and listen

Talk to your peers, swap ideas or present on a topic
Watch
Selected viewing

1
SESSION 1
At the end of this training session, you should be able to:
ff Identify financial plans and budgets
ff Understand the different types of budgets
Introduction
Planning and organising your work is an important skill that will help you stay
ahead of the challenges you are likely to meet in your job. A manager’s role can
be grouped into five functional areas: planning, organising, staffing, leading and
monitoring. In this unit as we discuss how we manage budgets and financial
plans, we will formulate a process that delivers outcomes by ensuring we have
systems in place in accordance with the management cycle.
ff Planning requires the formation of goals and objectives and then decisions
on appropriate action to achieve these goals.
ff Organising is a coordination function involving people, materials, equipment,
machines, time, money and other resources.
ff Staffing covers all activities needed to attract, recruit and retain individuals in
the company.
ff Leading is providing support, guidance and motivation to ensure other
employees work towards achieving the plan.
ff Monitoring ensures that a manager knows what is happening in all areas of
their responsibility.

2
Activity 1.1
Management Cycle
Use the model provided to brainstorm three managerial activities
associated with each of the stages within the management cycle
Planning
Monitoring Organising
Leading Staffing

3
Budgets and Financial Plans

What are financial plans?
Just as we manage our personal finances, organisations must ensure that they
plan to achieve their financial goals through financial planning and budgeting.
Whether it be the original start-up, to the ongoing operational costs of the
business, all finances should be planned well into the future.
Devising a financial plan forces you to think about how your organisation will
make money. It makes you examine whether your product or service appeals to
the masses or just a small group. If your product or service claims to save a lot
of people a lot of money then it has merit; however, if it claims to save only a few
people a small amount of money it might not be as successful.
Financial plans should include:
ff funds required to start the entity
ff anticipated funding over the next one, two and three years
ff use of funding
ff a timeline for funding
The financial aspect of any business is where all the money making and money
saving is brought together and results are produced. It forms the basis of both
planning and decision making. All of these elements of your initial financing plan
should coincide with the goals and visions of the business as stated in the overall
business plan or mission, including the financing necessary to cover operations,
marketing, and promotion.
To assist us in the management of our financial plans we will need to develop:
ff projected profit and loss statements
ff projected cash flow budgets
ff balance sheets.
With this sort of preparation organisations can plan their activities, meet their
financial obligations and maximise their profits. The concept is very similar to
household budgeting but on a much larger scale.
‘If we fail to plan, we plan to fail!’

4
What are budgets?

“Budgets are simply an organisation’s plan expressed in financial terms” (IBSA,
2009). Budgets and financial plans include any type of planning tool designed to
forecast, monitor or evaluate organisational performance, including:
ff cash flow projections
ff long-term budgets or plans
ff operational plans
ff short-term budgets or plans
ff spreadsheet-based financial projections targets or key performance
indicators for:
• production
• productivity
• waste
• sales
• income
• expenditure
Common types of budgets are:
ff Income budgets
ff Cost and expense budgets
ff Financial budgets
ff Master budgets
ff Zero-based budgets
Income budgets
To show the overall income objective of a firm, budgets are prepared for sales
and other income.
Sales budgets include the quantity and dollar value and can be shown by
product or department or time period.
Other income budgets include revenue from all other sources, eg commission,
royalties, interest, etc
Example
The following budget is the only income budget for Southside Engineering.
Southside Engineering
Sales Budget
April May June
No. of boxes 1,800 2,000 900
Selling price $150 $150 $150
Budgeted sales
value $ 270,000 $ 300,000 $ 135,000

5
Cost and expense budgets

To show the overall cost and expense objective of a firm, budgets are prepared
for
ff Production (Purchases, Direct Labour, Manufacturing overhead);
ff Distribution;
ff Administration and
ff Other Expenses
Example
The following budgets together form the basis of cost and expense budgets for
Southside Engineering.
Production Budget
April May June
Opening Inventory* 1800 1200 540
+ Production required 1200 1340 1460
- Sales units 1800 2000 900
Closing Inventory 1200 540 1100
ff the April opening inventory figure was given
ff the April closing inventory = 60% of May sales
ff the May opening inventory figure = April closing inventory etc
ff the June closing inventory figure was given
Southside Engineering | Materials Budget
April May June
Budgeted Production 1200 1340 1460
Materials/box 12 12 12
Total materials (sqm) 14400 16080 17520
Cost per sq metre $4 $4 $4
Total materials cost $57,600 $64,320 $70,080
Direct Labour Budget
April May June
Hours/box 2 2 2
Total hours required 2400 2680 2920
Rate per labour hour $25 $25 $25
Total labour cost $60,000 $67,000 $73,000

6
Southside Engineering | Factory Overhead Budget

April May June
Depreciation:
Truck $5,000 $5,000 $5,000
Machinery* $4,200 $5,450 $5,450
Power** $800 $1,380 $1,900
Insurance $2,000 $2,000 $2,000
Salaries** $2,400 $2,250 $3,170
TOTAL $14,400 $16,080 $17,520
Production units 1200 1340 1460
Factory O/H per box $12 $12 $12
*depn. new machine purchased 1 May - $1250/mth
**includes variable component
Southside Engineering | Other Operating Expenses
April May June
Office Overhead $2,500 $2,800 $3,380
Fixed Sell. & Admin. $6,000 $6,000 $6,000
Total other op.exp. $8,500 $8,800 $9,380
*Accrued expenses to be paid in July - $9,900

Cost of Goods Sold Budget
$ per
box
Materials 12 sq m x $4 $ 48
Direct labour 2 hrs x $25 $ 50
Factory O/H per box $ 12
Total cost per box $ 110
COGS for the quarter is:
4700 boxes sold @ $110 = $517,000

7
Financial budgets
The financial budget shows the complete plan for the business operations.
It is composed of the budgeted Profit and Loss Statement, the budgeted Balance
Sheet and also the Cash Budget, Inventory Budget, Capital Acquisitions Budget
and other relevant budgets.
Example
The following budgets together form the basis of the financial budget for
Southside Engineering.
Budgeted Profit and Loss Statement
for the period ended 30 June 20AB
$ $
Budgeted Sales 705,000
less Budgeted cost of goods sold -517,000
Budgeted Gross Profit 188,000
less Budgeted other operating expenses
Office Overhead 8680
Selling & Administrative expenses 18,000
Financial expenses 745 27,425
Budgeted net profit $ 160,575

8
Budgeted Statement of Cash Flows
April May June
$ $ $ $ $ $
Cash from operating activities
Collections from debtors 171,000 255,000 244,500
Payments to Creditors - 40,000 - 57,600 - 64,320
Wages and Salaries - 139,400 -146,250 -153,170
Interest payments - 375 - 370
Other operating expenses - 8,500 -16,900 - 8,800 41,975 - 9,380 17,260

Cash from investing
Payments for new machinery - 1,325 - 1,325
Cash deposit for machinery - 5,000 - 6,325
Cash from financing
Net change - 16,900 35,650 15,935
Opening bank balance 30,000 13,100 48,750

Budgeted closing bank
balance 13,100 48,750 64,685

Schedule of collections from debtors
$ $ $ $ $
April May June July August
From March Sales 90,000 (1) 30,000
From April sales 81,000 135,000 54,000
From May sales 90,000 150,000 60,000
From June sales 40,500 67,500 27,000
Total bud.coll. $171,000 $255,000 $244,500 $127,500 $27,000

Budgeted Trade Debtors $154,500
(July & August collections)

9
Assumed collections
Cash sales 30%
Credit Sales
Month following sale 50%
2 months after sale 20%
Total 100%
Should show 20% of February 15,000

+50% of March 75,000
Total 90,000

10
Budgeted Balance Sheet

as at 30 June 20 AB
$ $ $
Current Assets
Bank 64,685
Trade Debtors 154,500
Inventory 1100 @ $110 121,000 340,185

Non-Current Assets
Buildings 500,000
less Accum. Depn. 31,000 469,000
Truck 30,000
Machinery 480,000
less Accum. Depn. 265,100 214,900 693,900
TOTAL ASSETS $ 1,034,085
Current Liabilities
Trade Creditors 70,080
Loan from XYZ* 72,350
Accrued expenses 9,900 152,330
Owners' Equity
Paid-up Capital 500,000
Retained Profits 381,755 881,755
$ 1,034,085
*$75,000 - 2($1325)

11
Master Budgets
The Master Budget contains
ff the operating budget (which shows forecast profitability), and
ff the financial budget (which shows the forecasted funding requirements and
the expected financial position of the business.)
The following budgets make up the Master Budget -
ff sales;
ff production;
ff direct materials and purchases;
ff direct labour;
ff factory overhead;
ff cost of goods sold;
ff expense;
ff profit and loss;
ff cash;
ff capital expenditure; and
ff balance sheet.
Example
Sales Budget
April May June
No. of boxes 1,800 2,000 900
Selling price $ 150 $ 150 $ 150
$ $
Budgeted sales value 270,000 300,000 $ 135,000
Production Budget
April May June
Opening Inventory* 1800 1200 540
+ Production required 1200 1340 1460
- Sales units 1800 2000 900
Closing Inventory 1200 540 1100
the April opening inventory figure was given

the April closing inventory = 60% of May sales
the May opening inventory figure = April closing inventory
the June closing inventory figure was given

12
Materials Budget
April May June
Materials/box 12 12 12
Total materials (sqm) 14400 16080 17520
Cost per sq metre $4 $4 $4
Total materials cost $57,600 $64,320 $70,080
Direct Labour Budget
April May June
Hours/box 2 2 2
Total hours required 2400 2680 2920
Rate per labour hour $25 $25 $25
Total labour cost $60,000 $67,000 $73,000
Factory Overhead Budget
April May June
Depreciation $ $ $
Truck 5,000 5,000 5,000
Machinery* 4,200 5,450 5,450
Power** 800 1,380 1,900
Insurance 2,000 2,000 2,000
Salaries** 2,400 2,250 3,170
$ 14,400 $ 16,080 $ 17,520
Production units 1200 1340 1460
Factory O/H per box $ 12 $ 12 $ 12
*depn. new machine purchased 1 May - $1250/mth
**includes variable component
Other Operating Expenses
April May June July*
Office Overhead 2,500 2,800 3,380 3,900
Fixed Sell. & Admin. 6,000 6,000 6,000 6,000
Total other op.exp. $8,500 $8,800 $9,380 $9,900
*Accrued expenses to be paid in July - $9,900

13
Cost of Goods Sold Budget
$ per box
Materials 12 sq m x $4 $ 48
Direct labour 2 hrs x $25 $ 50
Factory O/H per box $ 12
Total cost per box $ 110
COGS for the quarter is:
4700 boxes sold @ $110 = $517,000

14
Budgeted Profit and Loss Statement
for the period ended 30 June 20AB
$ $
Budgeted Sales 705,000
less Budgeted cost of goods sold 517,000
Budgeted Gross Profit 188,000
less Budgeted operating expenses
Office Overhead 8680
Selling & Administrative expenses 18,000
Financial expenses 745 27,425
Budgeted net profit $ 160,575
Budgeted Statement of Cash Flows
April May June
$ $ $ $ $ $
Cash from operating
activities
Collections from debtors 171,000 255,000 244,500
Payments to Creditors -40,000 -57,600 -64,320
Wages and Salaries -139,400 -146,250 -153,170
Interest payments -375 -370
Other operating expenses -8,500 -16,900 -8,800 1,975 -9,380 17,260

Cash from investing
Payments for new machinery -1,325 -1,325
Cash deposit for machinery -5,000 -6,325

Cash from financing

Net change -16,900 35,650 15,935

Opening bank balance 30,000 13,100 48,750
Budgeted closing bank
13,100 48,750 64,685
balance

15
Schedule of collections from debtors
$ $ $ $ $
April May June July August
From last mth 90,000 30,000
From April sales 81,000 135,000 54,000
From May sales 90,000 150,000 60,000
From June sales 40,500 67,500 27,000
Total bud.coll. $ 171,000 $ 255,000 $ 244,500 $ 127,500 $ 27,000
Budgeted Trade
$ 154,500
Debtors
(July & August collections)
Budgeted Balance Sheet

as at 30 June 20 AB
$ $ $
Current Assets
Bank 64,685
Trade Debtors 154,500
Inventory 1100 @ $110 121,000 340,185
Non-Current Assets
Buildings 500,000
Truck 30,000
Machinery 480,000
less Accum. Depn. 265,100 214,900 693,900
TOTAL ASSETS $1,034,085

Current Liabilities
Trade Creditors 70,080
Loan from XYZ* 72,350
Accrued expenses 9,900 152,330
Owners' Equity
Paid-up Capital 500,000
Retained Profits 381,755 881,755
$ 1,034,085
*$75,000 - 2($1325)

16
Zero-based budgets
With zero-based budgeting, rather than adjusting previous figures the business
starts from a zero base, views all its activities and previous priorities as new
ones, and creates new and up-to-date allocations for the coming year.
Each section manager presents proposals and alternatives using cost-benefit
analysis. All proposals are then ranked and funds allocated accordingly.
In other words, the starting point is set at zero and the whole budget allocation
for the next period must be developed, proposed and defended from scratch
Source: Australian Flexible Learning Toolbox
Factors affecting budgets

When preparing a budget the following factors affecting budgets should be
considered:
ff previous sales figures
ff the economy
ff competitors’ actions
ff market research
ff government legislation
Budgets may be:
Short term 1 year

Medium term 1–5 years
Long term 5 + years
Static and Flexible Budgeting

ff A static budget is prepared for one level of sales or volume of production and
this remains unchanged during the budget period.
ff A flexible budget is prepared to show budgeted figures over a range of
Activity levels.
ff Rolling or continuous budgets are continually updated by dropping off the
period just completed and adding the next new time period.

17
Fixed Expenses and Variable Expenses

ff Fixed costs remain the same over a range of Activity. eg rates
$ $
0 Units 0 Units
Units Sold Fixed Costs/Unit
Variable expenses vary in direct proportion to the volume of Activity. eg

materials used in production
$ $
0 Units 0 Units
Units Sold Variable Costs/Unit
In budgeting, an understanding of the relationship between costs and activity

level is helpful to determine the break-even point so the profit area is targeted in
the budget.
Source: Tafe Virtual Campus

18
Benefits of Budgeting
There are a number of benefits claimed for the introduction of a formal
budgeting system, the major benefits are:
ff budgeting forces managers to do some planning. They must think about their
objectives for the period ahead and how those objectives can be realistically
achieved
ff budgeting provides the basis for controlling what happens within the
organisation, by acting as an early warning system if performance begins to
alter negatively from the budget
ff also by identifying early what a business is doing right (performance altering
positively from budget), smart businesses can apply those successful
strategies across the board to improve performance in other areas too
ff budgeting forces managers to think through their organisations operations
and to look both inwardly, and at the world beyond, to consider the position
and what is likely to happen to the business during the budget period
ff in overview budgeting helps coordinate the activities of these various centres
that make up the business, setting commonly understood goals with, usually,
an agreed method to achieve those goals
Developing budgets and financial plans

In larger organisations, numerous people are involved in the development of
budgets and financial plans. The larger the organisation, the more complex it
can be. Therefore many people need to be involved in setting up plans so that the
plan includes all components of the organisation. The following people may be
involved:
ff financial manager
ff accountant
ff financial controller
ff production manager
ff supervisor.
Why do all these people need to be involved?
ff different expertise
ff understanding of finance
ff understanding of production or manufacturing costs
ff understanding of labour costs
ff understanding of taxation laws
ff understanding of accounting principles
ff understanding of advertising and marketing costs.
We will begin by identifying a model for strategic financial planning and the
criteria that need to be met to ensure effective financial planning in your
organisation. It emphasises the reflective nature of the planning process, the
need for an integrated approach over the medium term and, most importantly,
that organisation’s plans and priorities should drive the strategic planning
process.

19
There are four key stages to strategic financial planning, all of which must be
given equal importance in the planning process:
Review the Past:

ff Monitor recent trends in demand and expenditure.
ff Monitor trends in cash flow streams (for example levels of income from
charging).
ff Monitor and report on actual performance and outcomes, including end-of-
year position and performance against specific performance indicators for
social services.
ff Consider the outcome of any external inspection reports and management
letters from external auditors.
Forecast the Future:

ff Identify and estimate levels of the various cash flow streams.
ff Look at the impact of organisational policy initiatives and priorities.
ff Determine the future impact of known trends in demand and expenditure.
ff Identify the financial implications of likely demographic trends and other
‘drivers’ of demand that are outside of the control of the organisation.

20
SESSION 2
ff Understand the importance of effective communications when
communicating budgets
ff Understand the importance of successful negotiations with the team
1.1 Access budget/financial plans for the work team

Access to budgets and financial plans
It is vital for a business to allow all stakeholders access to the budgeting and
financial plan’s development and ongoing management.
Why would it be important to disclose financial plans to all stakeholders?
ff The more your team knows about how the organisation is performing, the
easier it is for them to manage performance.
ff Your team are more likely to conform and understand restrictions and
limitations.
ff Access funds when needed (e.g. petty cash).
By the same token, your team may not need access to all financial documents
(e.g. profit and loss statements), but they may need to be provided with:
ff department budgets
ff sales budgets
ff waste costs
ff production schedules
ff wage budgets, etc.

21
1.2 Clarify budget/financial plans with relevant

personnel within the organisation to ensure that
documented outcomes are achievable, accurate and
comprehensible
Why Communication is Critical
Setting budgetary objectives in a team environment can maximise the
opportunities for success for the following reasons:
ff it gives greater likelihood of appropriate decisions being made. By involving
those who actually do the job, the quality of information informing the
decision should be better
ff it results in greater commitment to achieving the defined goals. People will
generally be more committed to implementing actions that they have helped
to formulate, than those which have been imposed.
Once the budgets and plans have been set, the collaborative approach needs to
continue. This entails good communication between all those with a stake in the
budget. Effective communication will ensure:
ff enhanced acceptance of the limitations that the budgets impose
ff enhanced understanding of the opportunities that the budgets offer
ff greater confidence in senior managers/owners about your approach to
managing your financial responsibilities
ff a higher level of commitment to achieving financial goals and targets among
your staff
Communicating budgets and financial plans is not very different from any other
form of communication in terms of what differentiates effective from ineffective
communication.
The aim is to ensure that the message received is:
ff clearly expressed
ff the same as the message sent
ff clear in what is expected of the receiver
In the case of financial plans and budgets, there are four elements you will need
to pay attention to, to achieve effective communication.
Use understandable language, diagrams and concepts

Because most of the people you communicate with are probably not financial
experts, make sure that your package uses everyday language as far as
possible. A statement like ‘Last year we earned $5,000 more than we spent.
This year we are aiming to earn $10,000 more than we spend’ is much easier for
most people to follow than something like ‘In the financial year to June 30, 2003,
revenue exceeded expenditure by $5,000. Targets for the financial year to June
30, 2004, require a 100% increase in the cash flow surplus.’

22
Define any technical or financial terms

As a manager you have probably had to learn some basic financial terms. Indeed
you may now be very comfortable using them. But many people in your team
may not be so familiar with the more technical terms.
This doesn’t mean you shouldn’t use them – they are usually the clearest, least
ambiguous way to describe a concept. What you should do is include a definition.
Assist people to interpret the information

If you explain what a diagram is showing, you are encouraging your readers to
look carefully at the material they are given and to work out what it means. Make
training available that takes the time to:
ff show people how to read and interpret financial information
ff explain technical and financial terms
ff answer people’s questions about information
ff explain the implications for them of the budgets and financial plans
You will improve people’s financial ‘literacy’ and their willingness to read and use
the information.
Depending on the size of the business ‘one-on-one’ training may be appropriate
for a small number of employees, whereas a group training session may be
more appropriate for the larger enterprise. Group training can be conducted
‘in-house’ utilising existing resources and staff with appropriate financial
skills. An alternative for larger employers is to pay for staff to attend training
sessions conducted by professional trainers. Whilst this option is generally
more expensive it has benefits in that no prior assumptions are held about the
attendees’ skill levels and the trainers are better equipped to deal with the less
experienced or skilled.

23
1.3 Negotiate any changes required to be made to

budget/financial plans with relevant personnel
within the organisation
Negotiating budgets and financial plans
You may have the opportunity to submit requests for funding or equipment or
participate in the planning of the budget. If you do have the opportunity to take
part in the budgeting process you will often find that input will be required
from other people. This can become quite a debate as other teams and team
members may have conflicting views when it comes to the way they want the
organisation’s money spent.
Tips for conflict resolution and negotiation

Negotiation skills help you resolve situations where what you want conflicts with
what someone else wants. The aim of negotiation is to explore the situation to
find a solution that is acceptable to both parties.
There are different styles of negotiation, depending on circumstances. Where
you do not expect to deal with people ever again and you do not need their good
will, it may be appropriate to ‘play hardball’, seeking to win a negotiation while
the other person loses out. Many people go through this when they buy or sell a
house – this is why house-buying can be such a confrontational and unpleasant
experience. Similarly, where there is a great deal at stake in a negotiation (for
example, in large sales negotiations), it may be appropriate to prepare in detail
and use a certain amount of subtle gamesmanship to gain advantage.
Both of these approaches are usually wrong for resolving disputes with people
you have an ongoing relationship with. If one person plays hardball, this
disadvantages the other person— this may lead to reprisals later. Similarly,
using tricks and manipulation during a negotiation can severely undermine trust
and damage teamwork. While a manipulative person may not be caught out if
negotiation is infrequent, this is not the case when people work together on a
frequent basis. Honesty and openness are the best policies in this case.
Preparing for a successful negotiation

Depending on the scale of the disagreement, a level of preparation may be
appropriate for conducting a successful negotiation.
For small disagreements, excessive preparation can be counter-productive
because it takes time that is better used elsewhere. It can also be seen as
manipulative because, just as it strengthens your position, it can weaken the
other person’s.
If a major disagreement needs to be resolved, however, it can be worth
preparing thoroughly. Think through the following points before you start
negotiating:

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ff What do you want to get out of the negotiation?

Goals
What do you expect the other person to want?
ff What do you and the other person have that you
can trade? What do you each have that the other
Trades
might want? What might you each be prepared to
give away?
ff If you do not reach agreement with the other
person, what alternatives do you have? Are these
good or bad?
Alternatives ff How much does it matter if you do not reach
agreement? Does failure to reach an agreement
cut you out of future opportunities? What
alternatives might the other person have?
ff What is the history of the relationship? Could or
should this history impact on the negotiation? Will
Relationships
there be any hidden issues that may influence the
negotiation? How will you handle these?
ff What outcome will people be expecting from this
Expected Outcomes negotiation? What has the outcome been in the
past, and what precedents have been set?
ff What are the consequences for you of winning or
The Consequences losing this negotiation? What are the consequences
for the other person?
ff Who has what power in the relationship? Who
controls resources? Who stands to lose the most
Power
if agreement is not reached? What power does the
other person have to deliver what you hope for?
ff Based on all of the considerations, what possible
Possible Solutions
compromises might there be?
Source: IBSA, 2009
Style is critical
For a negotiation to be ‘win–win’, both parties should feel positive about the
situation when the negotiation is concluded. This helps maintain a good working
relationship afterwards. A polite and rational approach should govern the style
of the negotiation – histrionics and displays of emotion are clearly inappropriate.
They only undermine the rational basis of the negotiation and bring a
manipulative aspect to them.
Despite this, emotion can be an important part of negotiations because people’s
emotional needs are often triggered in such situations and must be met fairly.
If emotion is not discussed when it arises, the agreement reached can be
unsatisfactory and temporary. Be as detached as possible when discussing your

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own emotions – perhaps discuss them as if they belong to someone else.
Negotiating successfully
The negotiation itself is a careful exploration of your and the other person’s
position, with the goal of finding a mutually acceptable compromise that gives
you both as much of what you want as possible. People’s positions are rarely as
fundamentally opposed as they may initially appear – the other person may quite
often have very different goals from the ones you expect!
In an ideal situation, you will find that the other person wants what you are
prepared to trade, and that you are prepared to give what the other person
wants.
If this is not the case and one person must give way, then it is fair for this person
to try to negotiate some form of compensation for doing so. The scale of this
compensation will often depend on many of the factors discussed above.
Ultimately, both sides should feel comfortable with the final solution if the
agreement is to be considered win–win.

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Activity 2.1
Read the scenario of Dolly’s Delight manufacturing company and answer the
following questions:
Dolly’s Delight Manufacturing Company

Dolly’s Delight Manufacturing builds and sells doll’s houses to retail
companies.
The company employs 70 people in both the office and manufacturing side
of the business.
The business is owned and run by Bill Blog who acts as chief executive
officer and works on site at the office. Bill is personally responsible for
sales and marketing.
He employs a chief financial officer, Mary Jones, who is responsible for
setting financial plans and budgets, reporting back to Bill.
Hank Stevens is the production manager, responsible for planning and
organising the plant and equipment, and the manufacturing process.
Reporting to Bill is Kate Fowler, who, as team leader, is responsible for the
55 staff who work in manufacturing.
Garry Guest is the human resources manager and supervises the office and
administrative team of 15 people.
It is time to set the wage and expense budgets for the next financial year.
1. Who would be responsible for developing and documenting the budget?
2. Who would the person developing the budgets need to consult and why?

27
3. Why is it important for a number of people to have input into the budget
process?
4. Who would have the final say over the financial plans?
5. If Hank wanted additional money to replace old equipment, to whom should

he approach?

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SESSION 3
ff Identify risk associated with budgets and financial plans
ff Outline contingency plans
ff Understand the information required by relevant teams
1.4 Prepare contingency plans in the event that

initial plans need to be varied
Risk management
Risk is the potential impact (positive or negative) to an organisation or some
characteristic of value that may arise from some present process or from
some future event. In everyday usage, ‘risk’ is often used synonymously with
‘probability’ of a loss or threat. In professional risk assessments, risk combines
the probability of an event occurring with the impact that event would have.
Generally, risk management is the process of measuring or assessing risk and
then developing strategies to manage the risk.
In general, the strategies employed include:
ff transferring the risk to another party
ff avoiding the risk
ff reducing the negative effect of the risk
ff accepting some or all of the consequences of a particular risk
Traditional risk management focuses on risks stemming from physical or legal
causes (e.g. natural disasters or fires, accidents, death, and lawsuits). Financial
risk management on the other hand, focuses on risks that can be managed
using traded financial instruments. Regardless of the type of risk management,
all large corporations have risk management teams and small groups and
companies practice informal, if not formal, risk management.
In ideal risk management, a prioritisation process is followed whereby the risks
with the greatest loss and the greatest probability of occurring are handled first,
and risks with lower probability of occurrence and lower loss are handled later.
In practice the process can be very difficult, and balancing between risks with
a high probability of occurrence but lower loss versus a risk with high loss but
lower probability of occurrence can often be mismanaged.
Risk management also faces a difficulty in allocating resources properly. This
is the idea of opportunity cost. Resources spent on risk management could
be instead spent on more profitable activities. Again, ideal risk management
spends the least amount of resources in the process while reducing the negative
effects of risks as much as possible.

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Identify Risks
Risks may include:
ff commercial and legal relationships
ff economic circumstances and scenarios
ff human behaviour
ff natural events
ff political circumstances
ff technology and technological issues
ff management activities and control
Contingency Planning
In order to reduce the impact of risks associated with the way we operate it is
always a good idea to develop contingency plans. This is action we take ‘just
in case’ or making a ‘plan B’. This is similar to the way in which one would
organise, for example, an alternative indoor venue just in case it rains during
an outdoor barbeque. Our risk management system may hint that there is a
problem looming that is deemed to be serious enough to warrant contingency
action. In many cases the contingency action would be guided by the contingency
plan to develop as part of the planning process.
Developing Systems to Manage Budgets and Finances

Managing budgets and finances will often require you to delegate fragments of
your budget to selected employees. Periodic monitors, support mechanisms and
mentoring are just a few of the responsibilities you will need to demonstrate to
ensure your overall budget is being managed
Setting objectives
When setting goals, whether they are personal or business, they need to follow
the SMART format.
ff Goals should be clear and specific. When writing

Specific specific goals you are identifying the tasks to be
done and the time it will take to complete them.
ff Specific goals provide you with milestones that
indicate your progress. You will learn to estimate the
time it takes to achieve the results you want. When
Measurable
you are asked to nominate the time it will take to
complete a given task you will be able to measure
your progress against the goals you have set.
ff Each team member should be in agreement as to
Agreed
what is to be achieved.

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ff Goals must be attainable. There is no point in setting

unreachable targets. Instead, set goals that might
Realistic stretch your capabilities a little. Goals that are too
easy to achieve are meaningless and of little value in
providing feedback on personal work performance.
ff Goals must have deadlines if they are to be effective.
If you do not have a schedule to work to your goals
might be pushed aside by inevitable day-to-day
Timeframe problems.
ff Setting deadlines helps you to estimate your
progress and focus on your achievements.
Source: Manage Budgets and Financial Plans Learners Resource
Examples of SMART goals

ff To increase sales by 10% by 1 July 201X.
ff To reduce staff turnover by 15% by 1/7/1X.
ff To implement new computer system into 90% of business units by 1/7/1X.
ff To train all safety committee team members in WHS consultation using
approved WorkCover accredited training program by 1/11/1X.
ff To sign five new clients to two-year contracts by 20/12/1X.

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2.1 Disseminate relevant details of the agreed

budget/financial plans to team members
Although the final budget is based on detailed costings of all the elements that
make up the project, this detail does not have to be seen by everyone.
The client, for example, does not have to see the detail. Indeed there are
elements that the producer will not want the client to see such as the profit or
return to the production company. The client wants to know the cost overall and
may, when the project has a number of separate components such as a CD Rom
and web site, want to know the cost of each of these components.
The payment of income is usually staged to coincide with major sign-off points
during the project such as prototype development, beta testing and delivery. The
sub-total of each of these stages can also be provided to the client if required.
There may be occasions when more detailed budgets are required, for instance
if the project is being funded by a government funding body. The level of detail
required in these cases will form part of the funding guidelines.
Unless it is clearly stated by the client that there is a requirement for a particular
level of detail in the budget the best approach is to provide the client with the
level that they need to know which is essentially “how much will it cost”,. In other
word the total amount including contingencies.
On the other hand all people responsible for expenditure i.e. heads of
departments need to have copies of the detailed budget on hand through the
life of the project. This will form the basis of the reports they will provide for
the project manager monitoring expenditure against this budget document.
Department heads do not necessarily need to have detailed breakdowns of other
department budgets.
Budgets therefore are prepared for various people in accordance with their need
to know. Anyone responsible for expenditure needs to know how much they have
to spend in each and every item category that they are responsible for. If the
original budget had profit built into it, then the amount with the profit included is
the figure that the n is provided to the department head.
A government agency may demand a very detailed budget, in which case profit
should be built into the costings.
Internal budget will have profit on a separate line.

In general, the client will receive the least detail. You need a very detailed copy.
Company directors may not need fine detail, but should have all the information
accessible. Every head of dept needs detail about their area of responsibility.
Everyone working on the project needs the tools. Financial procedures, etc
depending on the systems operating within the organisation.

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SESSION 4
ff Understand the need to support teams to perform their roles
ff Identify the resources and systems required to implement financial
management approaches
2.2 Provide support to ensure that team members

can competently perform required roles associated
with the management of finances
Support systems
It is good practice and very beneficial to put in place appropriate support systems
that are easily accessible for team members. Providing support has the potential
to assist team members in performing their roles to the best of their ability and
creating harmony in the workplace. Flexibility and having a range of support is
the key. Generally, team members are likely to require different types and levels
of support at different times for different reasons. It is important to respond
effectively to all requests and situations. Ensure there is equal opportunity for all
team members to access support.
Ultimately, it is important to create a supportive working environment. Team
members need to be informed of support available and how to access it.
Support may include:
ff Access to specialist advice – web based, telephone support or site visit by an
expert.
ff Adjustments to policy and procedures or practices.
ff Changes in the way certain tasks are performed - to allow the team member
to complete tasks successfully.
ff Checklists and guidelines.
ff Coaching – internal and external.
ff Codes of conduct.
ff Communication development opportunities.
ff Creating a quiet and positive work environment.
ff Documentation of policy and procedures.
ff Flexitime – allowing team members to work within the hours that are more
conducive to personal lives.
ff Help desk or identified experts within the organisation.
ff Induction.
ff Information briefings or sessions.
ff Information sharing opportunities.
ff Intranet-based information.
ff Mentoring – co-worker or senior staff member.
ff Modifications to work environment e.g. work station and chair, improving the
ergonomics.
ff Open door policy.

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ff Staff development and learning opportunities – internal and external.

ff Supervision.
ff Support staff – specifically appointed.
ff Team building activities.
ff Team meetings – regularly scheduled.
Depending on the size and nature of the organisation it may be appropriate to
set up formal support and feedback mechanisms to encourage structured and
regular feedback.
The performances of roles associated with administration and finance are
generally routine, although they are often coupled with heavy workloads and
deadlines. There are some tasks however, that can be quite complex and require
considerable skill and experience to be completed successfully.
One approach to dealing with complex tasks is to encourage each team member
to become an expert in at least one area. When something comes up in that area
then all team members can refer to that person for advice and support. This is
then reciprocated when other issues arise in different areas. A different approach
is to allow an experienced team member additional time to handle queries and
this person becomes the mentor for less experienced members.
The key is consistency. Simply put, do the same thing the same way every time.
Routine processes may occur frequently during the day, daily, weekly, monthly,
quarterly and annually. Tasks that are only performed annually or quarterly can
seem more difficult due to the time lapse between each time they are performed.
Monitoring workflows and quality of work being produced by your team will
enable you to ensure that tasks are being completed in a consistent manner.
Check that team members are not struggling and experiencing work difficulties.
Where necessary provide training and appropriate support.
Ensure staffing and skill levels are sufficient to respond to the changing needs of
the organisation.
Documented policies and procedures are an invaluable tool in maintaining
consistency. Team members need to be able to access the same policies and
procedures. By following the procedure and adhering to the policy they will
perform the same tasks in exactly the same way every time, regardless how
often they perform the task.
When systems are updated or changed, or new systems are introduced it is vital
to allow for extra training and the development of support materials such as
user manuals for policy and procedures.
The collection of additional data (for example non financial data such as
customer details) can make processing financial information more difficult and
time consuming. How the additional data is collected, collated and presented
for processing can make a significant difference to the efficiency of the whole
operation. Encouraging communication between the relevant parties and
educating all parties of the importance of the additional data being collected
will assist greatly. Helping the parties to develop a system that works for all and
providing the necessary resources subject to financial constraints will assist.

34
Promote effective communication in the workplace

Personalities of staff members and the culture of the organisation can have a
dramatic impact on the ability to perform tasks. Promote and encourage open
and appropriate communication in the workplace and in particular within your
team.
Feedback is a form of communication often used in the workplace. Being able
to receive and give feedback in a constructive manner is a great skill to have.
Lead by example, encourage open and honest feedback. Feedback may be given
verbally or in written form.
When giving feedback to team members:
ff Be clear about what you want to say – be prepared, make notes if need be
and practice what you want to say.
ff Be specific and provide examples where appropriate to help understanding –
avoid general comments.
ff Be very careful if giving advice – help the team member come to a better
understanding of their issue, how it developed, and how they can identify
actions to address the issue more effectively.
ff Emphasise the positive.
ff Focus on the behaviour rather than the person.
ff Own the feedback – use ‘I’ statements.
Giving feedback includes acknowledging and congratulating team members
when they achieve outcomes, provide input and assistance or have simply done
a great job. Acknowledgment and a simple thank you go a long way. We tend to
repeat behaviour that brings us genuine recognition or support.
When personalities within an organisation do conflict it can disrupt interaction
and workflow and affect the quality of work. There tends to be some level of
conflict in any organisation; we are, after all, human.
Strategies to deal with conflict may include:
ff Address issues early before they get out of hand.
ff Build communication skills within your team.
ff Encourage a culture of conflict resolution.
ff Ensure a cultural fit when employing new team members.
ff Focus team members on the goals of the organisation.
ff Get each party to explain their position and listen to the other parties’
position. You may need to act as a mediator or you may need to use an
independent mediator.
ff Team building sessions
Where you are in a position of authority you may need to make a decision and
direct the parties to comply. If you are not in a position of authority you will need
to follow the appropriate protocol.
Suggestions for achieving a solution:

35
ff Actively listen.
ff Be aware of any tension, aggressiveness and body language – including
yours. An open mind will make a big difference.
ff Come up with solutions after each person has had an opportunity to express
their needs and ask questions.
ff Explore the other person(s) side to gain a better understanding of where they
are coming from
ff Ask questions such as: Tell me about the importance of that to you. What
effect would doing it the other way have on you/the situation?
ff Look at the other person’s point of view without giving up your own.
ff Make sure sufficient information is collected to determine the cause of the
conflict. It is beneficial to write a conflict statement.
ff Monitor to determine if the conflict has gone away. If not, go back and
reassess.
ff Paraphrase the main points to demonstrate you understand. Start your
paraphrase with lead in statements such as: So what you are saying is.....
Have I got this right.........Do you mean......
ff Respect the other person(s). Be hard on the problem, not the person.
ff Together select a solution that is accepted and agreed on by all involved.
Where appropriate, implement the solution
ff It is not uncommon for an organisation to have a formal code of conduct.
This document sets out what is expected and the required standard of
conduct for staff. Overall, its goal is to guide and enhance the conduct of staff
in performing their duties and promote ethical and responsible decision-
making.
Source: Managementhelp.Org, 2010

36
2.3 Determine and access resources and systems

required
Resources and systems may include:
ff Hardware and software.
ff Human, physical or financial resources.
ff Record keeping systems (electronic and paper-based).
ff Specialist advice or support
Required roles may include:
ff Arranging for use of corporate credit cards.
ff Banking.
ff Debt collection.
ff Ensuring security, accuracy and currency of financial operations.
ff Invoicing clients, customers and consumers.
ff Maintaining journals, ledgers and other record keeping systems.
ff Maintaining petty cash system.
ff Purchasing and procurement.
ff Wages and salaries payments and record keeping
Financial management systems

A financial management system is the combination of elements that function
together to produce the capability to manage and effectively use the financial
resources of an organisation. The elements include all hardware, software,
equipment, facilities, personnel, processes and procedures needed for this
purpose.
Financial management systems are commonly interrelated with administration
systems. The processes within an administration system enable system users
to direct or manage the affairs of an organisation towards common goals and
objectives. Administration systems connect different departments through the
management of information and the flow of communication.

37
SESSION 5
ff Understand the processes to monitor actual expenditure
ff Understand the cost control systems an organisation can utilise to monitor
and control finances
Financial controls exist to help ensure that financial transactions are recorded
and maintained accurately, and that personnel don’t unintentionally (or
intentionally) corrupt the financial management system. Controls range from
very basic (eg, using a checkbook and cash register tapes to more complex, eg,
yearly financial audits).
3.1 Implement processes to monitor actual

expenditure and to control costs across the work
team
Effective management of the resources of an organisation, or of a project or
service within an organisation, involves:
A planning and monitoring cycle that ensures that expenditure is always within
available funds, and that the organisation is always aware of the effect on its
overall financial position.
• Estimate income
• Estimate all
running costs
• Adjust activities
to match
available funds
• Balance budget
• Budget
approved

38
ff A record keeping system for financial transactions that meets accounting

standards, and provides accurate and useful financial reports.
• The record keeping system feeds directly into the planning and monitoring
cycle, providing the information about the organisation’s financial position
at the beginning of each cycle and the information for monitoring and
adjusting the budget during the year.
ff A control and risk management system that ensures procedures are in
place to protect the organisation against fraud or insolvency. The control of
an organisation’s finances involves:
• Delegations: The allocation of the authority to approve specific financial
transactions (most usually applied to specifying who can approve
payments at different levels of expenditure, but should also be applied to
other activities such as setting up or closing accounts, transferring funds
between accounts etc).
• Exercise of authority: the actual signing of transaction documents (such
as cheques or receipts) by the people with delegated authority to approve
the transaction.
• Evidence: A ‘paper trail’ of evidence is needed that shows the validity of
transactions and the appropriate exercise of delegated authority.
• Monitoring and auditing: Ongoing monitoring, and closer examination of
the financial records through audits, checks that the evidence exists to
show that transactions are occurring appropriately.
ff An efficiency review process that assesses the most resource efficient way
to do things.

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ff The budget: A draft budget should be prepared by someone with expertise

in budgeting, and a good knowledge of the organisation’s activities. The
following should be checked by whoever is approving the budget:
• Amounts allocated to different items should be realistic, and information
about how the figures for both income and expenditure items were
decided should be provided.
• The figures should take into account inflation and cost increases
(particularly those for wage or rent increases).
• ‘Accruals’ must be included - these are amounts that are unspent from
the previous year, but are still ‘owed’ (such as accrued long service leave)
and amounts that will need to be set aside from this year’s budget to pay
for things in the future (such as relief staff to cover leave accrued during
this year, funds to cover replacement of equipment).
• Income must cover expenditure, even if some of the income is being
brought forward into the budget from previous year’s surplus.
• All income should be allocated to something (this may include being set
aside for future expenses).
ff Financial reports: Financial reports are essential for monitoring the budget,
and will provide the most accurate reflection of how the budget is going if:
• ‘Year to date’ figures are shown in monthly or quarterly reports as well as
the figures for that month or quarter
• The figures for actual amounts are compared with the amounts budgeted
for the period and year to date
• The amounts budgeted are based on a cash flow chart (that is, have been
realistically estimated in terms of their timing over the year)
• Cash flow charts: These can be used to make sure that the organisation
does not run out of money or into problems during the year. A simple
cash flow chart shows the timing of receipts and payments over the year,
and the impact of this on available funds
Source: Financial Accounting Handbook

40
3.2 Monitor expenditure and costs on an agreed

cyclical basis to identify cost variations and
expenditure overruns
Critical operating activities in yearly accounting cycle:
Budget Management
A budget depicts what you expect to spend (expenses) and earn (revenue)
over a time period. Amounts are categorized according to the type of business
activities, or accounts (for example, telephone costs, sales of catalogs, etc.).
Budgets are useful for planning your finances and then tracking if you’re
operating according to plan. They are also useful for projecting how much
money you’ll need for a major initiative, for example, buying a facility, hiring a
new employee, etc. There are yearly (operating) budgets, project budgets, cash
budgets, etc. The overall format of a budget is a record of planned income and
planned expenses for a fixed period of time.
Managing Cash Flow

As a new business, your biggest challenge is likely to be managing your cash
flow - probably the most important financial statement for a new business is
the cash flow statement. The overall purpose of managing your cash flow is
to make sure that you have enough cash to pay current bills. Businesses can
manage cash flow by examining a cash flow statement and cash flow projection.
Basically, the cash flow statement includes total cash received minus total cash
spent. Cash management looks primarily at actual cash transactions.
The Importance of Cash Management

Cash Management
Business analysts report that poor management is the main reason for business
failure. Poor cash management is probably the most frequent stumbling block
for entrepreneurs. Understanding the basic concepts of cash flow will help you
plan for the unforeseen eventualities that nearly every business faces.
Cash vs. Cash Flow

Cash is ready money in the bank or in the business. It is not inventory, it is
not accounts receivable (what you are owed), and it is not property. These can
potentially be converted to cash, but can’t be used to pay suppliers, rent, or
employees.
Profit growth does not necessarily mean more cash on hand. Profit is the
amount of money you expect to make over a given period of time, while cash
is what you must have on hand to keep your business running. Over time, a
company’s profits are of little value if they are not accompanied by positive net
cash flow. You can’t spend profit; you can only spend cash.
Cash flow refers to the movement of cash into and out of a business. Watching
the cash inflows and outflows is one of the most pressing management tasks for

41
any business. The outflow of cash includes those checks you write each month
to pay salaries, suppliers, and creditors. The inflow includes the cash you receive
from customers, lenders, and investors.
Positive Cash Flow

If its cash inflow exceeds the outflow, a company has a positive cash flow. A
positive cash flow is a good sign of financial health, but is by no means the only
one.
Negative Cash Flow

If its cash outflow exceeds the inflow, a company has a negative cash flow.
Reasons for negative cash flow include too much or obsolete inventory and
poor collections on accounts receivable (what your customers owe you). If the
company can’t borrow additional cash at this point, it may be in serious trouble.
What Are the Components of Cash Flow?

A “Cash Flow Statement” shows the sources and uses of cash and is typically
divided into three components:
Operating Cash Flow. Operating cash flow, often referred to as working capital,
is the cash flow generated from internal operations. It comes from sales of the
product or service of your business, and because it is generated internally, it is
under your control.
Investing Cash Flow. Investing cash flow is generated internally from non-
operating activities. This includes investments in plant and equipment or other
fixed assets, nonrecurring gains or losses, or other sources and uses of cash
outside of normal operations.
Financing Cash Flow. Financing cash flow is the cash to and from external
sources, such as lenders, investors and shareholders. A new loan, the
repayment of a loan, the issuance of stock, and the payment of dividend are
some of the activities that would be included in this section of the cash flow
statement.
Source: Steven E Springer - FindLaw
How Do I Practice Good Cash Flow Management?

Good cash management is simple. It involves:
ff Knowing when, where, and how your cash needs will occur
ff Knowing the best sources for meeting additional cash needs
ff Being prepared to meet these needs when they occur, by keeping good
relationships with bankers and other creditors
The starting point for good cash flow management is developing a cash flow
projection. Smart business owners know how to develop both short-term
(weekly, monthly) cash flow projections to help them manage daily cash, and
long-term (annual, 3-5 year) cash flow projections to help them develop the
necessary capital strategy to meet their business needs. They also prepare and
use historical cash flow statements to understand how they used money in the
past.
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Setting Up and Managing Your Bank Account

You will need to set up a business bank account, which will include a business
checking account. Banks often classify and handle business bank accounts
differently than private or personal bank accounts.
Credit and Collections

One of your biggest challenges in managing cash flow may be decisions about
granting credit to customers or clients, and how to collect payment from them.
Budget Deviation Analysis

You learned above that a budget depicts what you expect to spend (expenses)
and earn (revenue) over a time period. Budget deviation analysis regularly
compares what you expected, or planned, to earn and spend with what you
actually spent and earned. The budget deviation analysis can help greatly when
detecting how well you’re tracking your plans, how much to accurately budget in
the future, where there may be upcoming problems in spending, etc. A budget
deviation analysis report might include columns with titles:
Difference % Deviation
Planned for
Actual for Month (planned minus (Difference x
Month
actual) 100)
Activities in Yearly Accounting Cycle:

Financial Statements and Analysis
Financial Statements
To really understand the current and future conditions of your business, you
have to look at certain financial statements. These statements are generated by
organizing and analysing numbers from your accounting activities. You should
understand the two primary financial statements, the Profit and Loss Statement
(or Income Statement) and the Balance Sheet. (Some sources believe that
there are other primary statements, too, such as the cash flow statement or
change in capital, etc. However, the Income Statement and Balance Sheet are
the two standard statements for any business.) The following links will give you
an overview of these two key statements, and we’ll soon get into them in more
detail later on below.
Profit and Loss (Income) Statements
These “P and L” statements depict the status of your overall profits. These
statements include much money you’ve earned (your revenue) and subtract how
much you’ve spent (your expenses), resulting in how much you’ve made money
(your profits) or lost money (your deficits). Basically, the statement includes total
sales minus total expenses. It presents the nature of your overall profit and loss
over a period of time. Therefore, the Income Statement gives you a sense for
how well the business is operating.

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Balance Sheets
Whereas the P and L statement depicts the overall status of your profits (or
deficits) by looking at income and expenses over a period of time, the balance
sheet depicts the overall status of your finances at a fixed point in time. It totals
your all your assets and subtracts all your liabilities to compute your overall net
worth (or net loss). This statement are referenced particularly when buying or
selling a business, or applying for funding.
Financial Analysis
Financial analysis can tell you a lot about how your business is doing. Without
this analysis, you may end up staring at a bunch of numbers on budgets, cash
flow projections and profit and loss statements. You should set aside at least
a few hours every month to do financial analysis. Analysis includes cash flow
analysis and budget deviation analysis mentioned above. Analysis also includes
balance sheet analysis and income statement analysis. There are some
techniques and tools to help in financial analysis, for example, profit analysis,
break-even analysis and ratios analysis that can substantially help to simplify
and streamline financial analysis. How you carry out the analysis depends on the
nature and needs of you and your business.
Break-Even Analysis
The break-even analysis uses information from the income statement and cash
flow statements to compute how much sales much be accomplished in order
to pay for all of your fixed and variable expenses. Fixed expenses are expenses
that you’d have regardless of the level of sales of products or services (eg, sales,
rent, insurance, maintenance, etc.). Variable expenses are incurred according
to the level of sales of products or services (eg, sales commissions, sales tax,
freight to ship products, etc.). Break-even analysis can help you when projecting
when you’ll make a profit, deciding how much to charge for a product, setting a
sales goal, etc.
Ratios
There are a variety of ratios that can be used to help determine the current
and future condition of a business. The following links provide explanation
and procedures for using those ratios. The ratios are produced from numbers
on the financial statements. Note that the usefulness of ratios often are from
comparing ratios from different time periods in the same business or from
industry standards for a type of business, eg, manufacturing, wholesale, service,
etc.

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SESSION 6
ff Understand how to modify plans to ensure financial objectives are maintained
ff Understand financial reporting requirements
3.3 Implement, monitor and modify contingency

plans as required to maintain financial objectives
To maintain their financial objectives organisations need to have a good financial
management system.
What is a “system”
Good Financial management is not the responsibility of an accounts department
alone, rather it is the product of a comprehensive system of functions that
impact on a number of organisational units simultaneously. The nature of a
system implies individual components working together as a coherent whole.
Each individual component of your financial system should have its own agenda
and process goals that need to be met that when taken together provide a
complete Financial Management System. Rejecting any one of these areas
jeopardises the success of the whole system.
Strategic Goals
All measurements and business goals should come as directives from the
Board. These directives then inform the types and functions of financial
management undertaken by an organisation.
Budgetary Planning
Budgets should grow from the strategic goals. Projects and activities should be
projected as accurately and detailed as possible, taking into account suppliers
and all potential resource allocations. “What if” analyses can be conducted to
determine the impact of different locations, numbers and support needs on the
financial resources of the company. The budget is then endorsed by the Board
and thereafter used as the guiding measurement for Board communication,
project analysis and organisational performance.
Accounting Systems
Use a full functionality accounting package that provides complete coverage of
your entire accounts functions and allows for fully customisable reporting and
integration with all other reporting aspects of the business via it’s exportable
reporting capacity.

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Trained/Professional Staff
Being committed to a positive system means a commitment to increased
training and quality in staffing. In addition to a practice of recruiting specialist
and qualified staff for the accounts functions, develop a staff performance
system that allocates full accountability for the procedural aspects of individual
roles with links to performance payments based on the accurate maintenance,
development and adherence to procedural guidelines. (See Appendix A –
Position Profile). Combined with an independent audit of these processes with
the aim of continuous improvement and accuracy, these procedures provide
significant strength and comfort in the procedural aspects of the business.
External Support
Following the business principle of “sticking to the knitting”, run the group
training aspects of your business and have others do the jobs that they are
trained for; Put in place maintenance contracts for all hardware and software,
ensuring you have the certainty of system functionality without loading your
staffing costs down with “experts” in unrelated fields. systems can easily be
maintained at optimum working efficiency without the usual difficulty of internal
skill gaps and the mis-allocation of staff time and staff resources.
Internal Audit/Continual Improvement

A focus on continuing review of procedures and regular systems checks
ensures that potential problems are diagnosed early and resolutions developed.
Independent checking and support is strongly recommended to provide
additional certainty of information and procedural accuracy. This can be done
by anybody in-house (it can be a great staff training tool) although an external
professional (such as a CPA) can provide contractual services on a regular basis
and ensure statutory, taxation, and company accounting requirements are met,
while also acting to provide internal audit functions.
Management Accounting
Prior to the release of the monthly reports, all balance sheet items and cash
flow movements should be reviewed independently by Internal Audit and
Executive Management. Before being communicated to Board a meeting is
scheduled between internal Accountant and Executive Management to detail
the changes in the financial position of the company. On the monthly reports all
profit and loss items are reported against budget expectations, all variances are
accounted for by accompanying notes and a full ratio analysis is presented to the
Board.

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3.4 Report on budget and expenditure in accordance

with organisational protocols
Financial reporting is an essential part of operating a business. Financial
reporting provides an overview of an organisations financial activity over a period
of time. Reporting of financial activity is also an essential requirement for an
organisation to meet its statutory requirements
Budget report that provides the basis for controlling (monitoring and revising)
activities of an organization by comparing actual performance (actual sales or
costs) with budgeted performance (budgeted sales or costs). A budget report
has columns for budgeted and actual amounts. The difference between the two
is the Variance.
Financial reports or budgets can be used to identify the cash position at any
point in time. The organisation’s cash position will change constantly, depending
on stock/ material/ supplies purchases, leases or wages payments, incoming
payments. Excess funds should also be identified so that management can
assess new profit-making opportunities or invest in additional resources with
the aim of expansion.
There are a number of different types of financial reports or budgets, each
providing information about specific cost centres or projects. It is commonly
recognised that budgeting is the process of predicting an organisation’s
prospective costs, sales, cash flow and profit. It should also be remembered
that the budget is a management tool which should be used to monitor
performance. The budget for an organisation or for the sections/ cost centres
within the organisation should be constantly referred to, in order to check that
the organisation is actually achieving its objectives. Budgeting and managing
financial information is not simply a once yearly (or 6 monthly) process – where
a budget is prepared and at the end of the budgeting term I check to see
whether my business activities match the projections. If I use the budget in this
way I may get a very big surprise at the end of the year.
The other thing that should be remembered is that it is very difficult for
employees to work toward achieving a budget if they do not know what the
projections are. Reports and other relevant financial information (egg sales
targets, cost cutting needs etc) must be communicated to the employees within
the organisation, as well as to other shareholders and stakeholders.
Having collected information from the various cost centres or personnel in the
organisation, I need to match the data to the reporting and budgeting needs of
the organisation, at the time.

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Using Conversion and Consolidation Procedures

Financial reporting is a picture at a point in time of a business organisation’s
financial operations
What is owned today? – i.e. my assets

(What has money been spent on?)
ff cash
ff cars
ff property
ff machinery
ff equipment
ff fittings etc
What was the inflow of resources? – i.e. my revenue

ff sales of product/ service – daily
ff bank interest – monthly
ff any other revenue sources
What is owed today?- i.e. outgoings/ debts

(Where has money come from?)
ff bank loan/s
ff investors
ff money owed to suppliers etc What resources flow out? – outgoings
ff wages paid weekly
ff electricity paid monthly
ff rent/ lease paid monthly
ff phone paid monthly
ff product purchases paid weekly
ff loans paid monthly etc
Financial reporting gives a snapshot and a history of a business or organisation.
Financial records, budgeting and reporting enable the business to allocate
specific amounts of money to each business. For the purposes of financial
management and reporting of an organisation’s financial activities can be
classified as:
ff assets
ff liabilities
ff revenue
ff expenses
ff equity

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SESSION 7
ff Understand the data that needs to be collected and the sources of data
ff Understand how to analyse and interpret data
4.1 Collect and collate for analysis, data and

information on the effectiveness of financial
management processes within the work team
Information is vital to ensure that effective business decisions are made.
Regrettably not all information is good. Most businesses are bombarded with too
much information. Information technology allows even the smallest amount of
information to be examined and then cross-examined. So what constitutes good
information? Is it something that allows a well- informed decision to be made,
or is it something that increases a person knowledge about a particular task or
activity? Most people would suggest that it is a combination of both. What do you
think?
The types of information gathered by an organisation will vary greatly depending
on the nature of business undertaken. A public sector organisation such as a
water utility needs lots of information covering the wide range of products and
services it provides. The quality of this information needs to be very high because
it is available to many interested groups of people. On the other hand a clothing
shop would require information about many aspects of its operations but not in
as much detail as a water utility.
Information can come from either:
ff internal sources
ff external sources.
Internal sources
As the name suggests information from internal sources comes from within the
organisation. If we consider a service business such as an accounting firm or a
medical practice, internal information would include:
ff client or patient personal details
ff amounts owing by clients or patients
ff appointment schedules
ff employee details
ff absentee details
ff employee costs
ff profit and loss statements
ff asset register
ff creditor details
ff expenses.

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External sources
In many cases managers will need information from outside the organisation.
Gathering this information can be time consuming, however it is important
to remember that this information may be critical to decision making and
managers should avoid the temptation to take short cuts. At the end of the day
well-informed decisions are likely to be more effective than those based on
limited information.
Examples of external sources of information include:
Type of
ff Examples of sources
information
interest rates ff Reserve Bank www.rba.gov.au
competitors ff company reports and their websites
taxation ff Australian Taxation Office www.ato.gov.au
economic ff Committee for Economic Development of Australia
information www.ceda.com.au
export markets ff Austrade www.austrade.gov.au
demographics ff Australian Bureau of Statistics www.abs.gov.au
ff various state authorities such as
work health and • https://www.worksafe.qld.gov.au/;
safety • http://www.safework.nsw.gov.au/;
• https://www.worksafe.vic.gov.au/ etc
To gather information from both internal and external sources organisations

need to have an effective information system. It is also important to remember
that an information system is only as good as the information that is put in and
that will require well trained employees.
Gathering information about customers, competitors, business operations is
all well and good but unless this information is utilised by the organisation and,
more importantly, is kept up to date, the exercise can be not only useless but a
significant cost to the organisation.
So information needs to be:
ff easily accessible
ff accurate
ff relevant.
Computers and the use of a variety of data base software programs can make
calling up information, particularly historical data very easy. These programs
often allow you to use historical data to forecast future trends – a fantastic
benefit in planning future activities.

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4.2 Analyse data and information on the

effectiveness of financial management processes
within the work team and identify, document
and recommend any improvements to existing
processes
Accuracy is not just important – it is essential. In order to make effective
decisions you need accurate information. The majority of accounting systems
are managed by well trained and dedicated employees. While this provides some
confidence over the accuracy of the data, often it is a good idea to check some
of the data. This may be as simple as talking with one of the debtors to verify the
amounts that they owe. Likewise, check with a creditor to confirm how much you
owe.
Information that is gathered from internal sources and which have effective
accounting processes in place can be regarded as accurate. On the other
hand information that is gathered from external sources may vary in accuracy
depending upon the type of information. For example information obtained from
the Australian Taxation Office would tend to be regarded as more accurate than
information you have obtained about a competitor’s customers from their annual
report.
The relevance of information gathered will vary between different managers,
different divisions and different organisations. Relevant information must
be related to the immediate area that is receiving the information. It should
examine things such as performance, costs and risks. Often information is
shared within an organisation that has not a lot of real relevance to a manager’s
immediate workplace.
Some examples of information that is not relevant include:
ff the production manager receives information about the expenses incurred in
the finance area
ff the marketing manager receives a report detailing absenteeism across the
organisation
ff the human resource manager receives information about machinery
maintenance.
Relevance of information also relates to time. Sometimes information continues
to be gathered about activities that were once important to an organisation’s
success. For example if an organisation had once operated an outlet in Tasmania
but closed that operations down three years ago, should they still be collecting
demographic information about Tasmania? The answer would be no.
All the above factors concerning information are frequently summarised by the
terms ‘validity’ and ‘reliability’, ie to be useful information should be both valid
and reliable.

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Organising information
Organising information into categories can be achieved through a number of
computer data base programs or spreadsheets.
A data base, simply put, is a collection of files. Data bases sort, manage and
retrieve information. Many organisations use data bases to store information
about:
ff customers
ff inventories
ff debtors
ff creditors
ff assets, etc.
In some small organisations this information may be stand alone. In other
words each area would have a separate data base designed to meet their
specific needs. One problem with this is if one area needs part of another
area’s information, it may need to be re-entered, resulting in duplication. In
larger organisations an integrated approach may be used. This means that one
system is used and information is only entered once. While the initial cost of an
integrated system can be expensive it does have ongoing benefits of efficiency.
Spreadsheets are a great way of entering large amounts of repetitive
information. One of the benefits of spreadsheets is that you can enter formulas
into the cells to enable calculations such as summation or substraction. Another
benefit is that you can change information and quickly see what the result will be
numerically. For example, if you wanted to see what the impact on profit would
be by raising your price, the spreadsheet can quickly calculate that.
What type of activities get reported on?

This will vary from one organisation to another. It will also depend on whether
you are providing information internally or to external stakeholders.
The financial performance of any organisation is gauged by comparing the actual
outcome of the organisation’s activities against the planned outcome.
Information is useful to the user only when it provides details for decision
making and is provided quickly in order to make these decisions and it is in a
format that is understood by the user. In addition some information gathered
now may be critical for decisions made in the future.
Some information needs to be monitored more regularly than others. For
example information on debtors may need to be monitored as frequently as
weekly to ensure that your organisation has adequate cash flow. On the other
hand, budget information comparing actual versus planned would probably be
done monthly.
Often non-financial information is collected in conjunction with the financial
information. Work health and safety and environmental activities are common
examples.

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Analysing information
Organisations are dynamic – that is they are constantly changing. They respond
to legal, ethical, environmental and political pressures as well as pressures
coming from customers, employees and the owners.
Organisations with the exception of not-for-profit organisations, are profit
driven. All organisations need to at least cover their costs to make them viable.
In order to make sure this happens organisations need to constantly analyse
information. Analysing information requires an understanding of various
research methods.
Let’s consider this in more detail. A production area will want to know whether
changing a raw material in the process will have an impact on consumers. For
example a new raw material may cost half that of the existing one used, and will
dramatically improve the financial bottom line in terms of cost of goods sold.
However, if a customer detects a quality issue they may abandon the product
completely and turn to a competitor’s product. This too would have an impact on
the bottom line albeit negative.
In another example, the sales and marketing area may be considering changing
the packaging to a product. The existing packaging is expensive but distinctive
and a now cheaper alternative is available but is less distinctive. The sales and
marketing team will want to know how consumers will react and whether the
new packaging will have a positive impact.
In both these cases managers and other key people within the organisation will
have a general idea what the impact will be, but is that enough? Probably not, so
they may look at doing further research, to give them additional information that
they can factor into their decision making process.
Assumptions and interpretations

After collecting the data and collating it into meaningful information, it is
time to interpret the information. When you do this, it is vital to ensure that
the relationship between data and any implications of the findings are based
on clear assumptions and not ‘gut feel’. These assumptions should also be
consistent with the objectives and intentions of gathering this information in the
first instance. Often opinions are formed on very loose assumptions and in some
cases managers have used these opinions to make some poor decisions.

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SESSION 8
ff Understand how to implement and monitor agreed improvements with the
work teams
4.3 Implement and monitor agreed improvements

in line with financial objectives of the work team
and the organisation
Presenting information
Presenting information to a group or even an individual can be one of the
hardest tasks facing a manager. After all the hard work of collecting, collating
and analysing data you now need to present it a way that appeals to the
audience.
To get support for what you are presenting will depend on your ability to present
the findings, conclusions and recommendations clearly and in a positive
manner.
Managers are often inundated with information, much of which is dull and
incomplete, but the way it is presented can have immediate results. On the other
hand the information that is interesting and complete can have limited results if
it is poorly written. Communication is thus a vital skill.
Selecting the right method of communication

The more effective and frequent the flow of communication is in your workplace,
the more motivated your team will be – and this will mean fewer problems to
resolve and less discontent.
Making sure your communication is effective and frequent will also build
the relationships necessary to establish open communication between team
members and management. So, how you send your communication is critical
to how effective the communication will be. In some cases, you may need to
send your message in a number of different ways to ensure that the message is
received.
Some methods of communication in the workplace, their advantages and
disadvantages are summarised in the table below.

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Advantages and disadvantages of methods of communication
Method of
Advantages Disadvantages
Communication
ff Clearer meaning ff Not always possible
through body ff Can be expensive
language to get people from
Face-to-face ff Feedback can be different locations
conversations instant together
ff Misunderstandings ff Can be time –
can be clarified consuming
immediately
ff Quick ff No non-verbal
ff Cheap communication
ff Feedback can be ff Distractions are easy
gained immediately on the phone
Telephone call
ff Person may take
the call when he or
she is not really in a
position to talk
ff Many people receive ff Some people
the message at the may dominate
same time discussions
ff Opportunity for ff Agendas or meeting
Meetings/video
feedback objectives may not
conferencing
ff Opportunity for be clear
discussion ff Expensive to get
people from different
locations together
ff Have written ff Slow – not good for
record of the urgent issues
communication ff Feedback is not
ff Can be confidential instant
ff Restricted in
Letters the amount of
information that can
be sent
ff Requires sound
writing skills
ff Costly

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Method of
Communication
ff Same information ff Feedback takes time
reaches all ff Not good for more
recipients in the complex messages
organisation ff Members might not
ff Written record of receive interoffice
information mail in time to
Interoffice memos ff Informal and good respond
for short messages,
notice of meetings,
instructions and
minor changes
to policies and
procedures
ff Excellent for ff Time-consuming to
reporting findings read
or making ff Feedback is limited
recommendations ff Often slow to
that require action produce
ff Can deal with ff Difficult to change
Reports and complex information
submissions ff Can be restricted to
ff Written record only certain people
of what is being and not everyone
communicated who needs the
ff More formal information will
documents useful for necessarily get it
legal purposes
ff Useful for showing ff Can be poorly
complex information labelled
Diagrams, graphs or ff Can overcome ff No feedback is
pictorial presentations language barriers received
ff Useful for WHS signs ff Can be
etc misunderstood
ff Useful for training ff Can be boring if not
ff Allow participation prepared well
and feedback ff Not always sufficient
Presentations ff Send the same time to answer all
consistent message questions
at the same time ff Requires specific
equipment

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Method of
Communication
ff Instant ff Information overload,
ff Can make contact people delete
with people that you information without
might not be able to reading
access on the phone ff ‘Email rage’ can
or face-to-face occur where people
ff Can send the same are aggressive and
message to a hostile because they
number of people in can avoid face-to-
Email lots of locations face confrontation
ff Feedback can be ff Reduces politeness
instant and respect
ff Confidentiality ff Requires skills
and appropriate
technology
ff Files can be deleted
ff Inappropriate
material can be sent
by email
ff Instant ff Feedback can be
ff Complex information slow and limited
Faxes can be sent ff Lacks confidentiality
ff Diagrams and ff Requires technology
pictures can be sent
ff Instant ff Can be overused
ff Good for keeping ff Can be used at
track of staff inappropriate times
Mobile phone ff Can communicate ff Costly
with people who are
away from the office
ff Feedback is instant

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Sending information to your team and management

When communicating or sending information to your team or management, you
need to make a decision about the form of the communication and the channel
that will be used.
Here are some useful questions to ask before you send the information:
ff Who am I sending this information to?
ff How many people need to receive the message?
ff What is the purpose of the communication?
ff Will it need to be informal or formal?
ff How much information needs to be conveyed?
ff Is there a need for feedback?
ff Does it need to be confidential?
ff Is substantiation or documentation required?
ff How quickly is the information required?
ff What are the costs involved in sending the information?
Contingency plan
An example of a contingency plan
Function Possible action Comments
ff change suppliers
ff reduce materials on hand
ff renegotiate new contracts with suppliers
Purchasing
ff ask for discounts from suppliers
(suppliers)
ff integrate with supplier
ff investigate new products
ff change selling price
ff backup financial records

ff photocopy key documents
ff engrave assets
ff conduct stock take every six months
ff increase prices
ff decrease prices
ff reduce cost of goods sold
Finance ff buy cheaper materials
(intellectual ff buy cheaper stock
property)
(profit) ff reduce expenses
(cash flow) ff postpone paying creditors
ff increase prices
ff decrease prices (sales)
ff sell surplus assets
ff restrict credit
ff improve debtor collection
ff reduce workforce
ff inject more capital
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Function Possible action Comments
ff alter the marketing mix

ff target new customers
ff conduct research with customers
Marketing ff change marketing strategies
ff reduce marketing budget
ff increase advertising
ff negotiate better deal with distributors
ff train staff
ff reduce staff
ff employ more staff
Human ff redundancy
resources ff redeployment
ff performance management
ff employment alternatives (casual, part
time, contractors etc)
As a manager, you undertake many activities, ranging from planning to

implementation and review. Many managers retain a lot of information in their
heads. This might be alright in most circumstances, but what if something
happens to that manager, eg an accident? What would be the impact on the
workplace? In some cases it may take days or even weeks to recover.
Using a contingency plan can help minimise any risks. Identifying the various
actions that you will use depending upon the situation is great, but how and
when do you know to engage these actions?
You may like to develop a simple process such as the following that will help you
deal with any unsatisfactory performance.
Identify current or potentially unsatisfactory event
Indentify reasons for unsatisfactory event
Determine appropriate corrective action

using contingency plan
Take corrective action

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Let’s see how this process works.

Example:
1. Identify unsatisfactory event – after analysing your financial results, you find
that one of your main customers has not paid any accounts now for 60 days.
This customer represents 15% of your business.
2. Identify reasons for the unsatisfactory event – you investigate the reasons
for this event and find that your customer has had problems with your
product and this has resulted in equipment failures that have delayed further
manufacturing and generated large repair costs. The customer advised you
about the problem over a month ago and the sales representative has not
yet come back to them so they are refusing to pay any outstanding bills. You
have now discovered that there was a poor batch of materials a few months
ago and that the sales rep has forgotten to get back to one of your largest
customers.
3. Decide on appropriate corrective action – after referring to your contingency
plan you decide:
• to negotiate with your supplier about the quality of raw materials
• look for a new supplier
• negotiate payment terms with your customer
• take appropriate action with the sales representative.

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4. Take corrective action – you now implement the decisions you made in the
previous step.
• demand higher quality of raw materials from the supplier
• commence looking for other suppliers to be ready in case another
problem occurs
• apologise to the customer and negotiate with them to make a part
payment and accept an extended final payment term
• performance manage the sales representative.
Organisations are spending considerable money on training as well as
increasing the awareness of WHS issues. Managers and their employees are
conducting risk assessments of workplaces from the perspective of avoiding any
possible accidents. Is this a form of contingency planning? Yes, it is.
Communication and the manager

Employers in all industries value managers who are good communicators. Here
are some reasons why:
ff your team will achieve higher productivity and it will be more efficient when
there is less misunderstanding
ff your team will be better able to find ways to improve work processes, and
serve your customers better
ff as you become a good communicator, your workplace will have less time lost
due to procedural breakdowns and in settling disputes, as well as reduced
time lost on safety issues.
As a manager you communicate with customers and team members every day,
including:
ff serving customers
ff resolving complaints
ff making phone calls
ff solving problems
ff giving instructions
ff supervising people
ff dealing with people you know and don’t know
ff answering work enquiries
ff sending and receiving emails
ff speaking in meetings
ff making presentations
ff negotiating solutions to problems
ff implementing policies.

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So how does this apply to finance?

As a manager you will be confronted with information that will suggest that
action needs to be taken. Your analytical problem solving skills will determine
the course of action required and you may need to:
ff seek additional information to verify what has been identified
ff take corrective action on positive or negative trends
ff implement new methods
ff do nothing.
It may be taking corrective action about a downward trend in sales or an upward
trend in expenses. At times you will be called to explain why these trends have
occurred and what you are going to do about them. What has been discussed so
far cover some of the skills that will help you deal with people at all levels within
the organisation.
We know that having accessible, accurate and timely information is imperative to
make effective decisions.
When taking corrective action you may need to implement changes. How
successful these changes will be depends to a large extent on how well you
communicate those changes to the people affected.

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APPENDIX 1: GLOSSARY
Accounting Includes bookkeeping Cash includes monies in cheque or
and other accounting work to prepare savings accounts as well as petty cash.
financial statements for a business. Sometimes referred to as “cash at
A measurement and record keeping bank”.
process to facilitate planning, Contribution the surplus of sales
decision-making and control. Includes revenue over variable costs. An amount
preparation of journals and ledgers available to meet fixed costs and profit.
Accounts Payable amounts payable Creditors amounts payable to carriers
to carriers and suppliers for services and suppliers for services rendered.
rendered. Another word for accounts Another expression for creditors is
payable is “creditors”. “accounts payable”.
Accounts Receivable amounts owed to Current Assets resources owned by
the business by customers for services the business including cash and other
rendered (or goods sold). Another name resources that can be converted into
for accounts receivable is “debtors”. cash in the short term (usually within
Accrual Accounting accounting based 12 months). Normally includes cash,
on the period during which income was debtors, short term investments, stock,
earned or costs incurred irrespective pre-payments.
of when cash changes hands for these Current Liabilities resources owed by
items. Based on the idea of matching the business including bank overdraft
costs and revenue for a period of time. and other items that must be paid for
Administrative Expenses Costs in cash within the short term (usually
incurred to provide management with within 12 months). Normally includes
goods and services to allow office bank overdraft, creditors, accrued
functions to be performed. expenses, provision for dividend,
Aged Debtors Listing a list of debts provision for tax. For a travel agency
indicating amounts owed by debtors deposits from customers are included.
over set periods of time, eg. current, 30 Debtors amounts owed to the business
days, 60 days, 90 days and over, etc. by customers for services rendered (or
Assets resources owned by an goods sold). Another expression for
individual or a business that are used to debtors is “accounts receivable”.
generate sales activity. Deposits from Customers funds
Balance Sheet a financial statement received by a travel agency in advance
prepared at a particular date reflecting of a tour or cruise and reflected as
the financial position of the business. a current liability since services are
It shows assets (things owned) and usually to be provided in less than one
liabilities (things owed). year.
Break-even Point the point at which Depreciation allocation of the original
zero profit is made. That is, where the costs of a fixed asset over its estimated
surplus of income over variable costs life to reflect obsolescence, wear and
(called contribution) equals fixed costs. tear. A book entry and is not a funds
item. It relates to purchase of a fixed
Capital amounts invested in a business
by its owners, partners or proprietor asset some time in the past. The only
as a basis for operations. Sometimes impact on funds is when that asset was
called “shareholders’ funds”, “equity” originally purchased.
or “proprietorship”.

63
Equity amounts invested in a business Leasehold Improvements expenditure

by its owners, partners or proprietor associated with improving a rented
as a basis for operations. Sometimes property for use during a lease period.
called “capital”, “shareholders’ funds” Classified as a fixed asset and carried
or “proprietorship”. out with the landlord’s permission.
Expenses amounts expended while Liabilities amounts owed by a business
offering services to customers to earn for funds supplied on a short term
income. or long term basis. Includes current
Financial Management planning liabilities, long term liabilities and
and controlling the flows of financial capital.
resources to ensure that a business Liquidity concerns access by a business
achieves profitable growth with to an adequate level of short term
appropriate liquidity and security. finance to meet short term financial
Fixed Assets assets which were needs.
purchased for long term purposes for Long Term Finance Long term finance
producing income. Not intended to be is of two kinds, long term liabilities
converted into cash within 12 months and capital. The former represents
and therefore referred to as long term borrowing’s from outsiders whilst
assets or capital expenditure. the latter represents funds supplied
Fixed Cost an expense or cost that indefinitely by the owners of the
tends to be relatively fixed in the short business and includes profit that has
run (say 12 months). been accumulated.
Gearing related to “leverage” . We Long Term Liabilities amounts owing
talk of companies being highly geared to outsiders for funds provided not due
where their long term debt is far to be repaid within the short term, say
greater than their capital base and 12 months. Sometimes called “deferred
conversely of being lowly geared when liabilities”. Includes long term
it is only a fraction of the capital base. mortgages and debentures.
Goodwill the amounts of money a Net Profit the excess of income over
purchaser pays for a business over expenses as shown by a profit and loss
and above the value of resources being statement for a period of time.
purchased. It represents a premium Occupancy Expenses costs incurred to
for the intangible assets associated provide a business with a place to do
with the location of the business, its business, eg. rent, lighting, etc.
reputation and its logos and name, etc. Pay Back Period the number of years
Gross Margin the excess of sales of net cash flow required to equal the
revenue over cost of sales where initial investment. Expressed in number
cost of sales includes the cost of raw of years.
materials and other costs involved in Personnel Expenses expenditures
manufacturing. Sometimes referred made on behalf of employees for
to as “gross profit”. Cost of sales is wages, salaries, fringe benefits, payroll
sometimes referred to as “cost of taxes, etc.
goods sold”.
Pre-payments amounts paid in advance
Income Statement a summary of the in respect to costs for future periods or
financial results of operations under by customers in anticipation of services
the headings of income and expenses to be rendered, eg. for a travel agency,
for a period of time highlighting net pre-paid tour expenses are amounts
profit. paid to the agency by clients prior to
their departure date.
64
Present Value the value of a dollar Sometimes called “profit & loss
earned in the future in today’s terms. appropriation” or “accumulated profit”.
Profitability concerns the capacity Return on Investment a ratio which
of a business to provide owners and compares the return for a business (net
investors with an adequate return on profit) with the amount of investment in
their investment after satisfying the the business (assets or equity). There
financial needs of customers, suppliers, are two measures most often used. The
employees and taxing authorities. first is ROI on assets managed. This
Profit & Loss Appropriation net profit compares net profit before tax with total
earned in the past which owners have assets and is a popular “internal” test of
decided shall remain in the business for managerial efficiency. The second is ROI
use in future operations. The amount on capital. This compares net profit after
“ploughed back” into the business to tax with owners/shareholders’ funds and
help finance future growth. The amount is a test most often used by outsiders,
left over after income tax and dividends eg. lenders, prospective shareholders.
have been deducted from net profit from ROI is a function not only of earning
operations. Sometimes referred to as power (as indicated by the Profit & Loss
“retained earnings” or “accumulated Statement) but also of asset turnover (of
profit”. which Stock and Debtors are a part).
Profit & Loss Statement (sometimes Security refers to having a reasonable
called an Income Statement or Revenue foundation on which to build the financial
Statement) measures the profitability structure of the business. Security
for a firm over a period of time by simply refers to the relationship between long
comparing income and expenses. term liabilities and capital. The higher
the former the less secure the financial
Proprietorship amounts invested in
a business by its owners, partners or foundation of the business (financial
proprietor as a basis for operations. structure).
Sometimes called “shareholders’ funds”, Shareholders’ Funds amounts invested
“equity” or “capital”. in a business by its owners, partners
or proprietor as a basis for operations.
Ratios relationships between financial
figures expressed as multiples or Sometimes called “capital”, “equity” or
percentages to simplify comparisons “proprietorship”.
between accounting periods and Variable Cost an expense or cost that
with other businesses. They enable tends to vary directly in proportion to the
comparisons to be made despite great volume of business activity.
differences in the numbers involved. Working Capital The difference between
Ratio Analysis ratio comparisons to current assets and current liabilities is
help us form opinions as to whether called “Working Capital”. It is the amount
business performance is “good” or “bad” of liquid capital that we have to work with
or “better” or “worse” than previous to meet our short term commitments.
performance or than that of others in the It represents a comfort zone or cushion
industry. to meet the demands of our current
liabilities and operating expenses as
Retained Earnings net profit earned in
the past which owners have decided they occur. It represents cash plus
shall remain in the business for use in other current assets (which we expect
future operations. The amount “ploughed will become cash in the short term)
back” into the business to help finance minus the short term commitments we
future growth. The amount left over after have (current liabilities and operating
income tax and dividends have been expenses) which we expect will be paid
deducted from net profit from operations. for in cash in the short term.
65
APPENDIX 2: REFERENCES
Australian Flexible Learning Framework
http://toolboxes.flexiblelearning.net.au/demosites/series2/207v2/toolbox/fnbacc03b/
document/index_introduction.htm, viewed 07 June, 2010
(site no longer available)
Financial Accounting Handbook, Volume 4 Monitoring and Assessment
Information Sheet 4.1 – Monitoring and Assessment of Internal Controls
FindLaw
https://tinyurl.com/yxeqccts, viewed 17 November, 2019
Innovation and Business Skills Australia
Student Workbook BSBFIM501A Manage budgets and financial plans 1st Edition
2009
Learners Resource, Diploma of Business, Manage Budgets and Financial Plans
https://TafeVC.com.au, viewed 06 June, 2010 (site no longer available)
Management Help
http://managementhelp.org/finance/fp_fnce/fp_fnce.htm, viewed 06 June, 2010
(site no longer available)
TAFE Virtual Campus
http://tle.tafevc.com.au/tafevc/item/lorn/4c3e2552-e65f-5106-09e2-6cc9856036cd/1/
ViewIMS.jsp, viewed 06 June, 2010 (site no longer available)
Textbook
Cole, K, (2009), Management: Theory and Practice 4th Edition, Pearson Education

BSB51918 Diploma of Leadership and Management
11 subjects
1. Advanced Management of WHS 10. Effective Workplace Relationships
2. Financial Management 1 11. Manage Diversity 1
3. Fundamentals of Human Resources
4. Employee Relations 1
5. Manage Quality Customer Service
6. Risk Management 2
7. Performance Management
8. Operational Planning
9. Emotional Intelligence MANAGEMENT
APC also offers the following courses:
ACCOUNTING BUSINESS HOSPITALITY INFORMATION TECHNOLOGY HUMAN RESOURCES
MANAGEMENT MARKETING TOURISM PROJECT MANAGEMENT CHILDCARE
f BSB20115 Certifi cate II in Business f BSB61218 Advanced Diploma of Program

f BSB20215 Certifi cate II in Customer Management
Engagement f BSB41015 Certifi cate IV in Human
f BSB30115 Certifi cate III in Business Resources
f BSB42015 Certifi cate IV in Leadership and f BSB50618 Diploma of Human Resources
Management Management
f BSB51918 Diploma of Leadership and f BSB60915 Advanced Diploma of
Management Management (HR)
f BSB61015 Advanced Diploma of f FNS40217 Certifi cate IV in Accounting &
Leadership and Management Bookkeeping
f BSB42415 Certifi cate IV in Marketing and f FNS50217 Diploma of Accounting
Communication f FNS60217 Advanced Diploma of Accounting
f BSB52415 Diploma of Marketing and f SIT30616 Certifi cate III in Hospitality
Communication f SIT50416 Diploma of Hospitality
f BSB61315 Advanced Diploma of Marketing Management
and Communication f SIT30216 Certifi cate III in Travel
f 10118NAT Diploma of Social Media Marketing f SIT50116 Diploma of Travel and Tourism
f BSB30515 Certifi cate III in Business Management
Administration (International f 10005NAT Certifi cate IV in Communicative
Education) TESOL
f BSB41515 Certifi cate IV in Project
Management Practice
f BSB51415 Diploma of Project Management
For further information on APC courses please see Student Services, email info@apc.edu.au with
your enquiry, or visit our website at www.apc.edu.au
©2019 Australian Pacifi c College
Head Offi ce:
Lower Ground, 189 Kent Street
Kent St Campus (CBD)
Sydney NSW 2000
P (61 2) 9251 7000
F (61 2) 9251 7575
Web: www.apc.edu.au
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BSB51918 DIPLOMA OF LEADERSHIP

This workbook has been designed for use in conjunction with

Publisher: Young Rabbit Pty Ltd

© 2019 Young Rabbit Pty Ltd

Lower Ground, 189 Kent Street

Front page cover: APC Image

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

2. Implement financial management approaches

3. Monitor and control finances

4. Review and evaluate financial management processes

For further information on the Units of Competency, please visit

Distinction (D) 75-84%

Credit (Cr) 65-74%

Pass (P) 50-64%

Not yet competent (NYC) Below 50%

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

Subject/module Financial Management 1

Part A: Written or Oral Questions

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

Subject/module Financial Management 1

Part A: Multiple Choice

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

Speak and listen

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

Budgets and Financial Plans

‘If we fail to plan, we plan to fail!’

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

What are budgets?

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

Cost and expense budgets

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

Southside Engineering | Factory Overhead Budget

*Accrued expenses to be paid in July - $9,900

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

Budgeted Sales 705,000

less Budgeted cost of goods sold -517,000

Budgeted Gross Profit 188,000

less Budgeted other operating expenses

Office Overhead 8680

Selling & Administrative expenses 18,000

Financial expenses 745 27,425

Budgeted net profit $ 160,575

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

Cash from financing

Net change - 16,900 35,650 15,935

Opening bank balance 30,000 13,100 48,750

April May June July August

From March Sales 90,000 (1) 30,000

From April sales 81,000 135,000 54,000

From May sales 90,000 150,000 60,000

From June sales 40,500 67,500 27,000

Total bud.coll. $171,000 $255,000 $244,500 $127,500 $27,000

(July & August collections)

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

Should show 20% of February 15,000

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE

Budgeted Balance Sheet

WORKBOOK | © 2019 YOUNG RABBIT PTY LTD, AUSTRALIAN PACIFIC COLLEGE