The profit volume relationship – an important lesson for any business
Tracey Taylor writes in the NY Times (Apr 7, 2010) about a US design and build company, mkdesigns. The company designs and builds prefabricated, environmentally friendly homes. The founder, Michelle Kaufmann, decided in 2006 to buy or build a factory as she could not find producers willing to form a strong business alliance to deliver quality product on time. The reason for this? Simply, it was 2006 – the top of the construction boom in the US (and Europe). Kaufmann acquired one factory, then another, which increased the businesses cost base. Higher sales volumes were needed to cover the increased costs and maintain profits. Then, the bust came in 2008, sales volume declined and the business had to close its two factories. The basic lesson here is that a certain level of sales are needed to cover costs; increase costs without a corresponding increase in sales an your business is in trouble . Read the full article here –My Green Prefab Business, and How It Once Grew – NYTimes.com.
Some good YouTube videos on basic accounting
If you struggling with basic accounting concepts, here’s a great collection of videos from Susan Crossan which cover the basic accounting topics. The audio quality if not great on some (and some of the terms are more US than Europe) but she gets the topics across well. This link ( FA YouTube Videos ) will bring you to a summary page, where you can then click on the topic of interest to you.
Tacit knowledge in management accounting
Burns, J. & Scapens, R. 2000, “Conceptualising management accounting change: an institutional framework”, Management Accounting Research, vol. 11, pp. 3-25.
Verbs used on exam papers, what do they mean?
It’s exam time for many accounting students, be it college or professional exams. People often ask me for exam tips, and I usually focus on what not to do. There’s no point in mentioning things like the need to read and revise – if you haven’t figured that out, you’re in a lot of bother.
So what should you not do.Probably the worst thing you can do in any exam is to answer something other than what the examiner has in mind. While numerate questions may be relatively easy to understand, narrative questions can be much more troublesome.
Of course, the best advice is always to read questions in full before attempting any answer. It’s also quite useful if you understand the language used by the examiner. Many examiners reports frequently cite things like “the question was not answered”, or “the question was misinterpreted”. To avoid misinterpretation, the Chartered Institute of Management Accounting (CIMA) in London have written a very useful article which explains the verbs used by their examiners. Here’s a link; scroll down to page 4 and you’ll see the list of verbs and their meaning.
Creativity in business – ideas from a creative writer.
I read Creativity Now! by Jurgen Wolff a short while ago. Jurgen is a great writer and he offers regular courses on creative writing in London (see www.timetowrite.com). This book is a wonderful summary of things you can do to be creative. Given the poor business and economic environment we’re in, a little spot of creativity might do us no harm. I’ll give you two examples from Jurgen’s book of how creativity in business has helped increase profits. For more, go on, buy the book.
Adding unusual value to a routine service
Jurgen cites a story about a couple owning a B&B in Connecticut. The husband is an accountant and what has made their B&B successful is a “Tax and Relax” package. Customers can relax and have a night away, with breakfast, while their tax returns are being done. Oh this, is a little different than having a 50″ plasma in the room, but the business is thriving.
Follow your heart, and the money comes too (sometimes)
In this piece, Jurgen recounts the experience of an interior designer who visited a hospice. She was appalled by the sombre surroundings. Using her interior design skills, this lady now makes a good living making the surroundings in healthcare facilities look a little brighter.
Creativity Now! has lots of tips on how to bring out your creative side – this might be just what business people need at the moment.
Preparing a small business budget – 7 easy steps to help you plan
You’ve just started out in business, a first time entrepreneur. Maybe you’ve lost your job or given one up. Whatever the reason, you’re now in business on your own. Your business goals should include making some money. Waiting until the end of a year when dealing with an accountant is too late to see if you’re losing money. You need to plan, or budget from the start to avoid that daunting situation. A budget is simply a plan of revenues and costs for the coming year. It will not be the same as what actually happens, but you can adjust it as actual event happen. So where do you start? Below I outline 7 easy steps to help you. You might find these work quite well in a spreadsheet (MS Office, OpenOffice or even GoogleDocs). To keep it simple, let’s assume all costs are paid as incurred.
Step 1. Decide when the period of the budget. It’s normally a year, and this is broken down by month or quarter.
Step 2. Make a list of all the recurrent costs you know. Things like rent, purchase of goods for resale, wages and so on.Try to work out the costs according to month or quarter, as decided in step 1. Some costs may be higher or lower depending on the time of year e.g. heating or air-conditioning.
Step 3. Think about any one off costs you will have. For example, you might buy some new equipment. Add these costs to those in step 2.
Step 4. Now, think about the income of the business. Try to work out by month or quarter what you hope to sell and at what price.
Step 5. Now you have costs and income, so you have a basic budget by month or quarter. Adding all the number up will give you an annual budget. if you’re just starting out in business, you might find that costs exceed income, which is okay in the short term. At this point, you should be able to see how much profit or loss your business might make.
Step 6. As the months past by, compare your budget to the actual income and costs of the business. You might find that you have to revise the budget, which is always a good idea as it gives a better reflection of actual circumstances.
Step 7. Get on with your business, using the revised budgets as a tool to measure your business performance.
Most businesses of course do not pay for items immediately, but often get a credit period from suppliers or spread payments over a number of months or years. This means that a cash budget might need to be prepared also to complement an income and costs budget. I’ll post something soon on cash budgets.
Can You Write a Business Plan With Fewer Than 140 Characters?
Here’s a really interesting piece from the New York Times (April 15, 2010) about using Twitter to make you business plan/pitch.
Can You Write a Business Plan With Fewer Than 140 Characters? – You’re the Boss Blog – NYTimes.com.
The key question asked really is can you sum up your business, and its viability in 140 characters or less?
A simple way to bill customers – software you can use for free!
I read this article in Business & Finance (Ireland) recently and thought, whoa, this is too good to be true! A new website
called billfaster.com offers small business owners the ability to create good looking invoices for free – yes free! I had a quick look at the software, and it is free to start off with. You can, according to the website, add more features at a charge but the basic invoicing function is free. You can easily (3 clicks they claim) create and invoice and print it or email it to your customer.
To be fair, the 3 click is probably right if you have all your products and customers set-up. The invoices created are quite professional and all is in simple layman’s terms. The whole idea is wonderful for a start-up business in two ways 1) it’s free and 2) it helps you get off to a good start in terms of accounting – a point I keep on making in my books. As the system is web-based, this means your accountant can hop in every so often to see if you doing okay and also you don’t need to worry about things like computers failing or needing backups. A big drawback though is that although invoices can be done, that’s as far as it goes it seems on the free version. You cannot for example get any reports on how much each customer owes you etc.
How to Choose Business Accounting Software
Elizabeth Wasserman writes an informative piece on inc.com- ” How to Choose Business Accounting Software.” The piece summarises the questions a small business owner/entrepreneur should ask when deciding on a what accounting software to buy.
A tax on banks? A view from a bishop and a writer
The Sunday Times (London, 14th March, 2010) had an interesting piece on what to do about taxing financial institutions in the hope of getting some money for re-distribution to the less well off. Rowan Williams, the Archbishop of Canterbury, and Richard Curtis, the writer, comment on a proposed “Robin Hood” tax. The tax, which would be levied at 0.05% (that’s 50p/c per £/€1,000) on certain financial transactions could yield £250 billion (yes billon) per annum. Williams and Curtis, neither of whom are obvious financial or economic experts feel thus amount of money could go a long way towards improving social services (education, health, transport etc.) in a developed country like the UK. The also suggest some money could be given to developing countries. Given it’s an election year in the UK and how the UK taxpayer has, like other European taxpayers, bailed out the banks this sort of thing might become an issue on the doorsteps. Read the full article here
How to critique qualitative academic research
This post will be more of interest to those of you doing some research for a dissertation or thesis. Whether you are reading an article in an academic journal for use in a literature review chapter of your thesis or you have been asked to critique an academic article, there are some key questions you need to ask. I summarise these questions below, with focus on qualitative research. The questions are presented in a way which mimics headings you might find in a typical article.
Introduction
Is the purpose of the study set out clearly?
Will a theoretical or practical contribution be made?
Literature reviewed
Is the literature reviewed up-to-date and comprehensive?
Are some pieces of literature emphasised more than others?
Are the findings evaluated critically?
Is the literature related to the current study?
Does the review help establish the relevance of the current study?
Research problem/question
Is the problem stately clearly?
What type of research is being carried out?
Methodology/Methods
How was the research subject(s) selected?
Could the selection method effect the results?
Are biased responses possible?
Is data validated?
Are the methods adopted described in detail?
Are there any weaknesses in the methods used?
Is the researcher biased?
Results
Are findings presented clearly?
Are findings supported by adequate narrative and argument?
Are findings supported by quotes/examples from data?
Discussion/Conclusion
Are conclusions clearly related to the research problem?
Are findings interpreted?
Are findings related to previous studies/literature?
Are limitations of findings mentioned?
Are conclusions clearly related to findings and discussion?
Are the findings generalisable?
This is by no means an exhaustive list of questions to ask yourself, but it’ll help you on your way. Good luck with your research.
The management style of Eugene H. Krabs
Ok, this post was written in the NYTimes Blogs on April 1st, but anyone with younger kids know’s the love Eugene Krabs (from SpongeBob Squarepants) has for cash.
As someone once said, cash is king!
How to track the “Critical Numbers” in your business
I read an article recently from Inc Magazine -“How to Track Your Company’s Critical Numbers” – which a useful piece on how to watch the key numbers in your business. The article emphasises the need to achieve a balance between having a good accountant, and not being too reliant on them at the same time. You don’t need to be an accountant yourself to keep a track on key figures and ratios in your business.
A great quick guide to starting a business for very little money.
Found this link on the http://www.smallbusiness.co.uk http://bit.ly/aYUNza. Some good tips on starting a business on a small budget. The piece is mainly about how technology can help.
Numbers “your granny could understand” – keep the business plan simple
The text of this article caught my eye in the Sunday Times of 22/11/2009. The piece “Write your own success story” by Sandra O’Connell refers to the need for a good business plan for any start-up business. According to O’Connell, a business plan needs to provide TEN – text, evidence and numbers. Text is the story of you business plan, evidence is your supporting facts and research and numbers are the supporting financial data which show that your story and evidence convert to sales and profits. So how can you provide numbers in a way even you old granny would understand. The answer is to keep it simple. This means three key numbers should be the main focus of your plan; 1) how much can you sell, 2) how much does it cost, and 3) how much money do you need to get this off the ground. I think even granny can understand these! But should my business plan not be detailed I hear you say? Yes of course, but you can summarise it down to a page or two that you place at the front as an executive summary. The details – sales prices and volumes; detailed costs; detailed cash requirements – can be provided in as much detail as necessary later in the plan. So, as you fight with projected costs, revenues and cash-flows, try to do a summary of each as you go. Then give it to granny to see if she can understand it.
Finally, here’s a link to a sample business plan you might find useful http://www.dceb.ie/search/business%20plan
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