RTO 90982

CRICOS 02599C

Lecture Assessment 1
Group Activity, Scenario & Written Assignment
Unit: BSBSMB406 Manage small business finances

Qualification: BSB42615 Certificate IV in New Small Business

Training Package: BSB07 Business Services

Assessment Type:
Due Date: Week 5
Group activity, Scenario & Written Assignment
Marking Guide

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Scenario - Report Writing

Instructions
This assessment is a group activity – a group of 2-3 learners.

Over the term to achieve competency, you will build a plan of management. All tasks must be
completed by the due date and in the correct order.

It is recommended that you thoroughly read the performance criteria, required skills and required
knowledge in the Unit Outline for this subject.

Imagine a small business that you want to research and financially manage and write a simple short
report by answering shortly all of the questions that follow.

Note:
 All calculations need to be prepared in Ms Excel or Ms Word Tables.

 Print a copy of your final spreadsheet and attach it to this assessment tool upon submission.

 You can use the templates provided in this assessment tool as examples.

1. What type of business are you thinking about creating? What are its main products/services?
Student must clearly specify the type of business industry and their products/services

2. List and briefly describe the types of financial information you may need to create your business
and understand its the financial position.
Staff pay information – Such as leave/entitlements, rate of pay, hours schedules to work, etc

Asset register – To understand our total assets and their potential value

Balance sheets – To understand assets, liabilities and share folder equity at a particular moment in
time
Business activity statements – Required by the Government to be submitted to report and pay on
their tax obligations for a certain period
Cash flow forecast – An estimation of likely cash movement in and out of the business, useful to
ensure enough ready cash is available to pay debt and obligations
Budgets – To plan/estimate expenses and revenues for a period of time in order to allocate
resources and ensure sufficient resources are available.
Profit & Loss statement – To summarise the financial performance of the company over time.
Compares income to expenses to determine overall position during a period.

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3. Research and describe some “specialist services” that may assist you in operating the business.
(Hint: Describe what advice they can give you and how they help you).
Accountants/Bookkeepers – To analyse and formally record financial position and give advice

Business consultants – To provide advice on a range of topics from HRM to operations

Government agencies – To assist in various licensing & registration issues as well as taxation and
small business assistance, perhaps in the shapes of grants or loans.
Industry/trade associations – To give information about the industry and how various external
factors can impact on it. To facilitate networking and information sessions, to assist with PR, to
lobby Government, etc.
Lawyers – To provide legal advice, to act on your behalf to ensure paperworks are suitable

Mentors – To give advice and support based off of their own experiences

Training providers – To train relevant staff in the use of various knowledge/skills. For example in
the use of particular machines, software programs, soft skills, etc.

4. For your chosen business prepare the following and include it in your report:
a. Choose one product and produce a sales budget projection for your organisation for 3
years. (use the following temple to do the calculation)
In order to prepare the sales budget you need:
 Set up the price for your product
 Estimate the volume of sale (how many products you think you will sell during
the year)
 Assume that the inflation rate is 5 % yearly
 Assume that you will expand your business at the following rate:
 Year 2 by 14% in comparison with the previous year (year 1)
 Year 3 by 16% in comparison with the previous year (year 2)

Volume: 5000 units

Price: $3 per unit

Expected sales results for 1st

5000units x $3 per unit/hourly rate = $15000
year

Forecast price inflation In year 2: 5 % = $3.15

$3 * 1.05

In year 3: 5%
= $3.31
$3.15 *1.05

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 Planned sales expansion 2nd year 14% of Yr 1
= 5700 units
5000 *1.14

16% of Yr 2
Planned sales expansion 3rd year
= 6612 units
5700 * 1.16

Sales budget for year 2

(5000units + 14 %) x ($3 + 5 %) = $17955.00

Sales budget for year 3 (5700 units + 16 %) x ($ 3.15 + 5 %)

= $21885.72

b. Please see the example below and create a 1-year operating expense budget for your
organisation covering all groups of operating expenses that are relevant to your business.

This will cover any short-term costs (less than 1 year) relevant to the daily operations of the company.
It will include common themes such as license fees, advertising, trash removal/cleaning, office
expenses, utilities, legal fees, insurance, wages, rent, etc.
It should specify the name of the budget, the period covering, and list each expense one under the
other with an expense in $’s on the same row, totalled at the bottom.

Operating Expenses Description $

Rent
Wages
Superannuation
Bookkeeping
Telephone
Electricity
Business Insurance
Interest
Advertising
Miscellaneous
Total Operating Expenses

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 c. Produce a production budget for your organisation

Assumptions: Opening stock equals 10% of expected sales in units.

Closing stock in Year 3 will be 0.

Use the sales target (total sales of all product/service) calculated in a.

Year 1 Year 2 Year 3 Total

Expected sales ($) 15000 17955 21885.72 $54840.72

Expected sales (U)

5000 5700 6612 17312

+ Closing stock (U)

570 661.2 0 1231.2

- Opening stock (U)

500 570 661.2 1731.2

Required production
(U) 5070 5791.2 5950.8 16812

d. Based on your calculation from parts a and b prepare cash flow estimates for the next 3 years.

Please assume that you have $5000 opening balance in year 1, your expanses will increase by 2%
in year 2 and by 3 % in year 3 in relation to the base year (year 1) and that your purchases expense
is 10% of your total sales revenue amount.
CASH FLOW Year 1 Year 2 Year 3
OPENING BALANCE 5000
Cash incoming
Sales 15000 17955 21885.72
Other income
Total incoming 15000 17955 21885.72
Cash outgoing
Purchases (Stock etc) 1500 1795.5 2188.57
Accountant fees 200 204 206
Solicitor fees
Advertising & marketing
Bank fees & charges
Telephone
Electricity
Business Insurance

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 Interest
Advertising
Miscellaneous
More…
Total outgoing
Yearly cash balance
CLOSING BALANCE

5. Who are the relevant people in your business that financial reports should be given to?
Depending on the company, but can include:

Family members, franchise agency, owner/operator, partners, trade or industry associations,

regulatory bodies,

6. Why business raise capital?

Businesses commonly raise funds for one of the following reasons:

 Working capital for growth
 Acquisitions
 New products
 Market development
 Capital expenditure
 Restructuring

7. Describe the types of funding available to you for expanding your business and explain which
type of finance is most suited to your business needs?

Friend/Family/Associate loans – Loans from people that you have a personal relationship with.
Usually with lower interest rates and more flexible terms.
Government funding/grants – For some specific groups it is possible to gain loans or grants from the
government, usually only for specific industries or locations.
Commercial bank loan – A loan from a bank at a variety of different amounts, interest rates and
payment terms. The business assets are collateral.
Personal loans – As above, except the personal assets are collateral.
Venture capitalist financing – Where a person or group offers to invest a sum of money to help the
company expand in return for an equity share. Once the company is acquired by another or goes
public they make their return.

8. What things may influence the cost of debt finance?

The aspects that influence the cost of debt finance are:

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 The ability of the borrower to repay the debt
 The risk associated with the debt
 The amount borrowed
 The security offered by the borrower

9. List and briefly explain three ways of improving the cash flow

INFLOWS:
Review credit policies
Review borrowings
Review billing procedures, ensure no delays in invoicing
Grant discount to key account to encourage early payment
Review pricing and profit margins

OUTFLOWS:
Negotiate special payment terms with key suppliers, such as discounts or payment plans
Pay commissions/bonuses only after income is received
Schedule large purchases to coincide with peak income seasons/times
Ensure loans incurring interest are paid on time
Attempt to reduce overheads

GENERAL:
Generate highly accurate forecasts from historical information
Segment customers, suppliers & inventory to identify where difference in times turned, speed of
recouping debts, etc, lie.

10. Why do we need cash control procedures in the business?

To ensure all cash received and sent out are recorded properly.
To reduce the likelihood and ease of theft and/or fraud.
To ensure adequate cash flow and cash reserves.
To track where cash goes in/out to enable quality budgeting and forecasting.
To meet legal obligations.
To ensure accountability of staff.

11. Why it is important to maintain a good accounts receivable process?

It is necessary to ensure healthy cash flow. It takes time and money to collect debts. Inability to
collect on account receivable means you have given your product for free or for a loss. Enables us
to know how much money is owed to us at any given time. Enables us to know which customers are
reliable and which aren’t. A good process is more likely to result in payments made sooner.
12. What will be your procedure for managing overdue invoices?

Will depend on student, but should cover: Communicating with the client through specific mediums
to send reminders and/or demands, remind client about their obligations and the terms of their credit,
potentially including a discount for prompt payment and/or a penalty for continued late payment,
consider an instalment plan, determine when to refer to collections agency.

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13. Explain how you would monitor and maintain your client credit policy to ensure payment and
minimise overdue accounts. Include any plan for debtors in default to maximise cash flow

Use payment reminders when payment date is due or overdue (or both!)
Maintain aged debtor analysis to know the current condition of your debtors
Adjust credit limit and credit terms based off aged debtor situation
Restrict credit and/or sales to delinquent accounts
Check credit history/rating of new and existing customers, do not deal in net terms with any that have
red flags
Categorise customers, give levels or ratings to determine credit terms
Send invoices through a variety of platforms
Contact delinquent accounts to determine WHY they are so
Consider instalment plans
Make collection calls for debtors in default if necessary

14. Should you consider extending credit to your customers? Explain your decision.

This will depend on the business model and cash flow situation of the company. A company with
healthy cash flow and profit, or extensive cash reserves, may consider extending credit. It will also
depend on the customer and how the relationship and reliability of the customer is viewed.
It can be a way to send a message that we expect to be around for a long time, so promote confidence
in our financial and product position. It may also give us a competitive advantage over customers or
increase sales as it makes our product/service more likely to be bought by people who otherwise
couldn’t afford it.
We need to consider however the cost of collecting debts and of bad debts, also the possibility of
people taking offense if they’re not granted credit where others are.
All of these must be considered when deciding whether or not to extend credit.

15. Develop and show a suitable client credit policy for your organisation

Answers will vary but a Credit policy should contain at a minimum: when full payment is due, net
terms (such as discounts), when payment is overdue, the penalties or interest accrued on overdue
payments and the terms for this, when an account will be considered seriously overdue and what
steps will be taken, whether or not behaviour will be reported to credit agencies.
16. Where can you find information about whether a customer can be trusted with credit?

Credit agencies, trade references from current/previous suppliers, ask for copies of their current
financial position (current income and debts).
17. How would you ensure that business has adequate resources for paying taxes in accordance with
legal requirements?

Ensure you understand the tax liabilities related to your company structure type.

Create a model to calculate tax commitments and include these as expenses or a reserve in the
budget.
Utilise a business model which maximises cash flow to ensure ready cash on hand.

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 18. What taxes should you budget for? Name four different taxes that may be payable by a business
in Australia.

Company tax, Capital Gains Tax, Goods & Services Tax, Land Tax, Fringe Benefits Tax, Customs
duties, Payroll taxes
19. Explain why it is important to record and document financial procedures?

To ensure legal requirements are met.

To ensure everyone is following the same method.
To ensure there is no confusion about what is to be done.
To aid in ease of training.
To ensure all clients are treated equally.
To help gain trust/faith of investors.

20. Name five common financial procedures in your business and explain how you would
communicate these procedures to the relevant people to help the implementation of the business
plan.

Procedures for preparation of: Business Activity Statements, Payroll, Terms of Credit, Payment
Demand, Invoices, Stock Ordering, etc.

These can be communicated through: The creation of a financial procedure manual, ongoing training
sessions, notices/flowcharts/steps placed on noticeboards, team/staff meetings, placement in a P&P
register on an intranet, etc.

21. Explain how would the following situations impact on your financial plan?

a. Your marketing strategy includes launching a new product in the 2 nd half of the financial
year.
It may increase sales/revenues but would also likely increase expenses such as advertising, cost of
production including raw goods and labour, taxes payable, etc. Depending on where the financing is
coming from for this launch it may affect cash reserves and depending on the payment terms for the
clients it may also affect cash flow.
b. Your operational strategy includes an expansion of your operations to another state at the
start of the year.
There may be increased licensing/registration fees for operating in a new state. There would likely
also be increased marketing expenses and labour and/or transport expenses. There is also potentially
increased property and plan expenses as well of that of sourcing HR as required, etc. This should
hopefully be balanced by increased revenues.

Presentation

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After answering all the above questions and completing your report, prepare a Power Point
Presentation and present the information to your Trainer especially focusing and explaining the
following questions.

22. What kind of key performance indicators should be used to monitor financial performance?

Stock turnover (days) – Time taken to sell inventory.

Debtor turnover (days) – Time taken to collect debts
Current ratio – Extent that current assets cover current liabilities to meet short-term obligations
Debt/Equity – Measure of extent of reliance on external borrowings to fund operations.
Return on Investment – After-tax return owners are receiving on investment as compared to other
forms of investment.
Gross Profit Margin – Indicates profitability, reflects on cost of sales and pricing.
Breakeven Sales – Number of sales required to cover all expenses.
Net Profit Margin – Indicates effectiveness of making profit on each dollar of revenue.
Quick ratio/Acid test – Like current ratio but excluding inventory. Conservative estimate of ability to
meet short-term obligations.
Working Capital – Indicates short-term financial health by determining what is left when current
liabilities are taken from current assets.

23. Explain the importance of calculating and evaluating ratios in your business?

They are importance as they can give us a picture of the financial health of our business from a
variety of different perspectives such as: profitability, efficiency, solvency, liquidity and leverage.
They allow us to compare with industry benchmarks or goals and help us to monitor our progression
and the way we operate in order to decide where improvements or changes can be made.
They can be indicators, clues or red flags about relationships between variables.

24. What are budgets used for in the business?

Budgets are plans of action for managers and points of comparison for actual performance against
expected performance. They can also be used to motivate employees as they know what is expected
and the limitations imposed on them.
They are used to allocate resources, measure progress and results and give indications of when plans
need to be changed due to differences between expected results and reality.

25. Explain the relationship between budgets/projections and the actual figures in a business?

A close relationship between budgets/projections and actual figures suggests that the current plans
and activities are suitable to the current resources allocated and plans and goals are on track to be
achieved.
A variance between expected and actual results means that one or more variable is not performing as
expected and it is important to identify what the variable(s) is, why it is behaving differently and to
modify current plans and expectations to be in line with the reality and the effects of this variance.

26. When assessing financial plans, why should we look for the variance when comparing
budgets/projections and actual numbers?

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 It is important to look for variance as it means we are deviating from what is expected/planned.
Variance can be good or bad but in both cases we should understand what is driving it so we can
adjust our plans if required.
A variance may possibly affect a variety of associated variables and in turn can affect resources such
as time and money which in turn can make us unprepared for other unexpected events or unable to
meet our goals.

27. Explain why do we consider variances in budgetary control?

To determine if we need to make any adjustments

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