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2011 Test 3 Review

Winter 2023

Financial Management
• Variance analysis refer to an investigation of
differences between budget and actual numbers
• The break‐even point is when sales dollars equal the
total of fixed and variable costs
• The General Journal is used to record transactions
that affect multiple accounts.
• The General Ledger is a record of all the individual
transactions for each account in a business.

Financial Management
• Inventory turnover refers to number of times
inventory is sold in a year
• The Income Statement equation:
Revenue ‐ Cost of Goods Sold
• An income statement can show a profit even though a
business's cash position may have deteriorated
• Mortgage payable is an example of a long‐term
liability that would be reported on a balance sheet

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The key difference between an income SA

statement and a cash flow statement
• IS: money recognized in month which revenue or
expenses happened
• CF: the bills may be paid in a month that is different
from when the revenue or expense is recognized
• Managing when monies will be received and when
your own payments have to be made is critical to
having money on hand to make vital payments like
rent and payroll

An income statement can show a profit

Cash Flow Scenario even though a business's cash position
may have deteriorated

Income Statement
April May
Sales $50,000
Expenses $24,000
Net Income $26,000
Balance Sheet
April May
Account Receivable $50,000
Chequing Account $75,000 $61,000 $14k paid
Accounts Payable $10,000 $10k AP
$24k
My cash went down even though I made money

Reasons that businesses should extend credit

to their customers
• To increase sales revenue
• To remain competitive
• To build customer loyalty

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Operational Success:
Measurable Standards
• Output
• On time
• Speed of process
• Minimal waste
• Minimal defects
• Consistency
• Low cost of raw materials
• Labour budget
• Energy efficient
SA
• Safety
• Downtime
• No ‘shrinkage’ (loss through
theft, breakage or poor
administration)
• Prudent inventory
management
• Minimal returns
• Customer satisfaction

Resources SA
Raw materials
Components
Equipment
Information
Labour Inputs Conversion Output
Money
Space
Time Quality Control

PRODUCTIVITY
EFFICIENCY & EFFECTIVENESS
(maximize (maximize
quantity) quality)

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Operations
• Entrepreneurs are typically weaker in areas of
marketing and financial management than in
managing the production process
• The owner‐manager's task is to organize production
so as to produce goods efficiently
• Management must make sure that physical
facilities are efficient and up to date

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Operations
• The interior layout of facilities can greatly enhance
productivity
• Retail store product placement requires ranking
profitability and identifying high traffic areas
• Shrinkage describes loss of inventory
• In a small business, inventory management is
important because generally there are limited
economic resources

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Human Resources
• Eventually most successful small business
owners develop a management team
• Job descriptions should include what is to be done,
how it is to be done and why it is to be done
• Offers of employment should include terms and
conditions associated with the job

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Human Resources
• Reviewing social media sites in order to research
applicants is a growing practice. 33 percent of
business that do so have opted not to hire someone
as a result of this review
• Time management in a small business is difficult
because there are many operating crises in the normal
course of a day
• Wage subsidy programs assist business that hire
qualified persons

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Human Resources
• In Canada, labor standards are established at the
Provincial and Territorial level
• Employers deduct government required amounts
from employees and must then remit these amounts
to the government on a prescribed form. For example;
• Employment Insurance
• Canada Pension Plan
• Income Taxes

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A job description should include SA

• Job Title • Expected hours (how many and

• Skills/knowledge/education
requirements
• List of required activities and
responsibilities
• Outcomes
• Compensation
• Outline of working conditions
• Physical requirements
when)
• Location and travel (if applicable)
• Dress and appearance
• Equipment and safety gear (if
applicable)
• Reporting structure
• In some cases (eg, sales or
production), measurable targets
are set

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Key Applications of a Job Description

Recruitment Selection Compensation Orientation Training PERFORMANCE REVIEW Development Strategies

Measure of performance
against goals
SA Compensation – Bonuses,
Incentives, etc.
Promotions, Transfers
Succession Planning
Identify Areas For

WARNING: Improvement

Many people get these

questions mixed up!

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Managing Growth
• An acknowledged advantage of a larger growing
business is an easier time raising capital
• Success and growth can make a business more
difficult to manage
• Effective planning for the future of a business
requires an understanding of the life cycle of the
business

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Maturity

Low profits
during Growth Decline
Growth
Volume

Sales and profit

decline
Development

Time

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Managing Growth
• The start‐up stage of a business is known for its low
profits
• In the decline stage of a business both sales and
profits usually decline
• At the end of a growth stage a business will need to
make changes in its business strategy

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Managing Growth
• As a business grows it becomes more difficult to control
• When it comes to growth, management often overlooks
the importance of planning
• One of the biggest challenges facing growth companies
is human resources
• As a business grows owners often need to let go of
managing all parts of the operation

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Managing Growth
• Owners who intend to sell their business should
ensure that it can run without them
• Prospective buyers are very interested in businesses
that have consistent revenue
• In a recent survey, 80 percent of family businesses had
no formal succession plans

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Things that are required to SA

effectively manage growth
• Additional capital
• Financial information and analysis
• ‘Intelligent’ growth strategies
• Excellent staff (and/or excellent human resources)
• Management depth (or strong Managers)
• Managerial controls (to ensure accountability)
• Market research

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Integration SA

• A horizontal integration consists of companies that

acquire a similar company in the same industry, while
a vertical integration consists of companies that
acquire a company that operates either before or
after the acquiring company in the production
process.

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VERTIGRATION

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Horizontal Integration

Porche Volkswagon

INTEGRATION
Kraft Foods Cadbury

AT&T T‐Mobile

Molson Coors

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Vertical Integration
INTEGRATION

Saputo Cheese
McCain Frozen Pizza
Day & Ross Shipping

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Transferring the Business

• Some generally recognized ways to transfer a family
owned business to family members are through a
gifting program or joint ownership
• Two principles of success for family owned businesses
• recognize the importance of objectivity
• provide incentives for non‐family employees
• An ESOP refers to an Employee Share Ownership Plan

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Transferring the Business

• It is easier for an unincorporated business than an
incorporated business to close down
• When it comes to debt obligations an incorporated
company has some protection

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