FINANCIAL MANAGEMENT For Agribusiness CPU 2nd Sem 2018-2019

FINANCIAL MANAGEMENT
for
AGRI-BASED ENTERPRISES
(Ag 427)
by:
JOYCE S. WENDAM, CESO IV

DR.Dev., Ph.D., DCOMM
Former OIC-Regional Executive Director, DA-Negros Island Region
Owner/Consultant, WENDAM AGRIBUSINESS MANAGEMENT
CONSULTANCY SERVICES
COURSE OUTLINE
I - Financial Management
• Meaning of Financial Management
• Scope/Elements
• Objectives of Financial Management
• Functions of Financial Management
• How to establish sound financial management and why it is
important.
• Benefits of Good Financial Management
• What makes good financial management?
Course Outline
• Financial management systems
• Guiding principles for financial management systems
• Key questions to consider during financial planning
II - Budgeting
Budgeting Tips Everyone Should Know
• Introduction
• Meaning of Budgeting
• How to Create Your Budget
• How to Budget Successfully
• Budget Basics
Farm Planning Budgets
• Cash flow budgets
• Partial budgets
• Whole farm budgets
• Enterprise budgets
Budgeting in Management
• Budget - For Planning and Control
• Assumptions in Budgeting
• Benefits from Budgeting
• Considerations in Preparing the Budget
• Participatory Budgeting
• Budgeting and Accounting
III - How to Raise Capital
- Business Planning for Agri-Based Enterprises
IV - Financial Performance Indicators
• Key Performance Indicators (KPI)
• Key Performance Indicators which will help assess if the
goals of the business are met
 Gross Profit Margin
 Net Profit
 Net Profit Margin
 Aging Accounts Receivables
 Current Ratio
• Categories of Key Financial Indicators
• Benchmarking Financial Performance
• Analyze you Financial Ratios
• Key Ratios and Calculations
 Break-Even Analysis
- Classification of Cost based on variability
 Margin vs Mark-up
- Margin
- Mark-up
 Mark Down
 Profit Ratios
• Return on Investment
 Liquidity Ratios
• Quick Ratio
 Financial Ratios
IV - Course Output
• Analysis of the Financial Management System of a
Rural-Based Enterprise
Part I
FINANCIAL MANAGEMENT
Meaning of Financial Management
• Financial Management means planning,
organizing, directing and controlling the financial
activities such as procurement and utilization of
funds of the enterprise.
• It means applying general management principles
to financial resources of the enterprise.
Financial Management
Financial Management involves:
– Efficient and effective management of money (funds)
in such a manner as to accomplish the objectives of
the organization
– How to raise capital
– Deals with dividend policies of shareholders
Scope/Elements
• Investment decisions includes investment in fixed
assets (called as capital budgeting). Investment in
current assets are also a part of investment
decisions called as working capital decisions.
• Financial decisions - They relate to the raising of
finance from various resources which will depend
upon decision on type of source, period of
financing, cost of financing and the returns thereby.
Scope of Financial Management
 Anticipation
 Acquisition
 Allocation
 Appropriation
 Assessment
1. Anticipation
Financial management estimates the financial
needs of the company.
2. Acquisition
Collects finance for the company from different
sources.
3. Allocation
Uses the collected finance to purchase fixed and
current assets for the company.
4. Appropriation
Divides company's profits among shareholders,
debenture holders, etc.; keeps a part of the profits
as reserves.
5. Assessment
Controls all financial activities of the company.
Importance of Financial Management
• Economic growth and development

• Improved standard of living
• Improved health
• Allows better financial decision
• Creates jobs
• Alleviation of poverty
Objectives of Financial Management
 To ensure regular and adequate supply of funds to the
concern.
 To ensure adequate returns to shareholders which
will depend upon the earning capacity, market price of
the share, expectations of shareholders.
 To ensure optimum funds utilization.
Once funds are procured, they should be utilized
in maximum possible way at least cost.
•
 To ensure safety on investment, i.e, funds should be
invested in safe ventures so that adequate rate of
return can be achieved.
 To plan a sound capital structure.
There should be sound and fair composition of
capital so that a balance is maintained between
debt and equity capital.
FUNCTIONS OF FINANCIAL MANAGEMENT
• Estimation of capital requirements

• Determination of capital composition
• Choice of sources of funds
• Investment of funds
• Disposal of surplus
• Management of cash
• Financial controls
• Estimation of capital requirements: A finance manager has to make
estimation with regards to capital requirements of the company. This
will depend upon expected costs and profits and future programs
and policies of a concern. Estimations have to be made in an
adequate manner which increases earning capacity of enterprise.
• Determination of capital composition: Once the estimation have

been made, the capital structure have to be decided. This involves
short- term and long- term debt equity analysis. This will depend upon
the proportion of equity capital a company is possessing and additional
funds which have to be raised from outside parties.
• Choice of sources of funds.
For additional funds to be procured, a company has many
choices like:
 Issue of shares and debentures
 Loans to be taken from banks and financial institutions
 Public deposits to be drawn like in form of bonds.
.
• Investment of funds: Finance manager has to decide to
allocate funds into profitable ventures so that there is safety on
investment and regular returns is possible.
• Disposal of surplus: Net profits decision have to be made by
the finance manager.
This can be done in two ways:
1. Dividend declaration - includes identifying rate of
dividends and other benefits like bonus.
2. Retained profits - amount has to be decided which
will depend upon expansional, innovational,
diversification plans of the company.
• Management of cash: Finance manager has to make
decisions with regards to cash management. Cash is
required for many purposes like payment of wages and
salaries, payment of electricity and water bills, payment to
creditors, meeting current liabilities, maintenance of
enough stock, purchase of raw materials, etc.
• Financial controls: Finance manager has not only to
plan, procure and utilize the funds but he also has to
exercise control over finances. This can be done through
many techniques like ratio analysis, financial
forecasting, cost and profit control, etc.
How to establish sound financial management and
why it is important
• Financial management is more than keeping accounting
records. It is an essential part of organizational
management and cannot be seen as a separate task to
be left to finance staff or the honorary treasurer.
• Financial management involves planning, organizing,
controlling and monitoring financial resources in order
to achieve organizational objectives.
• Effective financial management may be achieved if
the agri-based enterprise has a sound organizational
plan.
• A plan in this context means:
 having set objectives and having agreed;
 developed and evaluated the policies,
strategies,
tactics. and;
 actions to achieve these objectives.
What makes good financial management
Four components of good financial management:
 clear finance strategy

 plan for generating income
 robust financial management system
 suitable internal environment.
Benefits of good financial management
Good financial management will help agri-based
enterprise to:
- make effective and efficient use of resources
- achieve objectives and fulfill commitments to stakeholders
- become more accountable to donors and other stakeholders
- gain the respect and confidence of funding agencies,
partners and beneficiaries
- gain advantage in competition for increasingly scarce
resources
- prepare for long-term financial sustainability.
Financial management systems
• There is no one model of a financial management

system that suits all organizations, but there are some
basics that must be in place to achieve good practice
in financial management.
• It is helpful to identify certain principles when

developing a financial management system. These will
act as a guide to your trustees and managers when
making decisions.
Guiding principles for financial management
systems
• Consistency: financial policies and systems must
remain consistent over time.
• Accountability: you must be able to explain and
demonstrate to all stakeholders how you have used
your resources and what you have achieved.
• Transparency: your organization must be open
about its work and its finances, making information
available to all stakeholders.
Guiding principles for financial management
systems
• Integrity: individuals in your organization must
operate with honesty and propriety.
• Financial stewardship: your organization must
take good care of the financial resources it has
been given and ensure that they are used for the
purpose intended.
• Accounting standards: your organization's system
for keeping financial records and documentation
must observe accepted external accounting
standards.
Key questions to consider during financial planning
• Are we satisfied with our budgeting process and

other financial planning?
• What objectives are our financial management
systems designed to meet? Is the link clear in
practice?
• What are our key principles for financial
management?
Key questions to consider during financial planning
• How do our staff respond to the system? Do people

use it? Is it a 'live' tool?
• Does our financial management system enable
effective decision making when allocating resources?
• Source: Published with permission from Cass Centre for Charity Effectiveness.This
material is taken from "Tools for Success: doing the right things and doing them right",
published in October 2008. Download or buy your copy from Cass Centre for Charity
Effectiveness.
Prelim Exams Jan. 8, 2019
1. Define financial management. What is the best financial management
system? Discuss your answer thoroughly.
2. Explain the various principles that should be observed in order to
achieve a good financial management system.
3. Discuss the benefits of good financial management.
4. Give the objectives of financial management.
5. What are the three major financial statements?
6. Prepare a simple (a) income statement; 7 - (b) balance sheet; and,
8 -(c) cash flow statement. Use your own figures. Interpret the
results of your work.
9. State the significance of each financial statement.
10. Why is there a need to monitor cash flow?
II - Budgeting
Basic Budgeting Tips Everyone
Should Know
Introduction
• Budgeting lies at the foundation of every financial
plan. You need to know where your money is going if
you want to have a handle on your finances.
• Budgeting isn’t all about restricting what you spend
money on and cutting out all the fun in your life.
• It’s really about understanding how much money you
have, where it goes, and then planning how to best
allocate those funds.
Meaning of Budgeting
• Budgeting is the process of creating a plan to spend

your money. This spending plan is called a budget.
• Creating this spending plan allows you to determine
in advance whether you will have enough money to
do the things you need to do or would like to do.
How to Create a Budget
Steps in Creating a Budget
Step 1: Note your net income
• First step in creating budget is to identify amount of
money you have coming in.
• Your final take-home pay is called net income, and that
is the number you should use when creating a budget.
Tip: If you have a hobby or a talent, you may be able to
find a way to supplement your income. Having an extra
source of income can also be helpful if you ever lose your
job.
Step 2: Track your spending
• It’s helpful to keep track of and categorize your spending so
you know where you can make adjustments.
• Doing so will help you identify what you are spending the
most money on and where it might be easiest to cut back.
• Begin by listing all your fixed expenses. These are regular
monthly bills such as rent or mortgage, utilities or car
payments. It’s unlikely you’ll be able to cut back on these,
but knowing how much of your monthly income they take up
can be helpful.
• Next list all your variable expenses—those that may
change from month to month such as groceries, gas
and entertainment.
• This is an area where you might find opportunities to
cut back.
• Credit card and bank statements are a good place to
start since they often itemize or categorize your
monthly expenditures.
• Tip: Record your daily spending with anything that’s
handy—a pen and paper, an app or your smartphone.
Step 3: Set your goals
• Before you start sifting through information you have
tracked, make a list of all financial goals you want to
accomplish in the short-and long-term.
• Short-term goals should take no longer than a year to
achieve. Long-term goals, such as saving for retirement or
your child’s education, may take years to reach.
• Remember, your goals do not have to be set in stone, but
identifying your priorities before you start planning a budget
will help. For example, it may be easier to cut spending if
you know your short-term goal is to reduce credit card debt.
Step 4: Make a plan
• Use variable and fixed expenses you compiled to help you get a
sense of what you will spend in the coming months. With your
fixed expenses, you can predict fairly accurately how much you
will have to budget for. Use your past spending habits as guide
when trying to predict your variable expenses.
• You might choose to break down your expenses even further,
between things you need to have and things you want to have.
For instance, if you drive to work every day, gasoline probably
counts as a need. A monthly music subscription, however, may
count as a want. This difference becomes important when it’s
time to make adjustments.
Step 5: Adjust your habits if necessary
• Once you have done all this, you have what you need to
complete your budget. Having documented your income and
spending, you can start to see where you have money left over
or where you can cut back so that you have money to put
toward your goals.
• Want-to-have expenses are the first area to look for spending
cuts. Can you skip movie night in favor of a movie at home? Try
adjusting the numbers you’ve tracked to see how much money
that frees up. If you’ve already adjusted your spending on
wants, evaluate your spending on needs. You may need
internet at home, but do you need the fastest available?
• Lastly, if numbers still are not adding up, you can look at
adjusting your fixed expenses. Doing so will be much
more difficult and require greater discipline, but on close
inspection a “need” may just be a “hard to part with.”
Such decisions come with big trade-offs, so make sure
you carefully weigh your options.
• Tip: Small savings can add up to a lot of money, so don’t
overlook the little stuff. You might be surprised at how
much extra money you accumulate by making one minor
adjustment at a time.
Step 6: Keep checking in
• It’s important you review your budget on a regular basis to
be sure you are staying on track.
• You can also compare your monthly expenses to those of
people similar to you. Few elements of your budget are
set in stone: You may get a raise, your expenses may
increase or you may have reached your goal and want to
plan for a new one. Whatever the reason, keep checking
in with your budget following the steps above.
• (https://bettermoneyhabits.bankofamerica.com/en/saving-
budgeting/creating-a-budget)
Budgeting Basics
• Do you know why a budget is so important?

• On the surface it seems like creating a budget is just
a tedious financial exercise, especially if you feel your
finances are already in good order. But you might be
surprised at just how valuable a budget can be.
• A good budget can help keep your spending on track
and even uncover some hidden cash flow problems
that might free up even more money to put toward
your other financial goals.
1. How Overspending Breaks Your Budget
• The main reason to create a budget is to help you keep
your finances under control by keeping track of how
much money you’re spending and where it goes.
• When you begin to stray from your budget it’s usually
because of spending too much money somewhere.
• But if you have a budget that tells you exactly how much
you’re supposed to spend, why is it so easy to
overspend?
• There are a number of reasons we overspend, so when
you understand what causes overspending, you can help
put a stop to it and keep your budget on track.
2. Try Using Cash to Keep Spending Under
Control
• Swiping plastic has become incredibly easy. With both
credit cards and debit cards, we can be in and out with a
purchase in a matter of seconds. Unfortunately, this
convenience comes at a cost. By using plastic we can
begin to lose track of how much money is actually being
spent.
• One trick to help keep your daily spending under control
is to use cash instead of your credit or debit cards. It
might not be as fast, but it helps you visualize just how
much money you’re actually spending.
3. Automate Your Savings Plan
• Sometimes, remembering to save can be a struggle.
• Automating your savings is an easy way to stay on
track with your savings plan.
• Schedule automatic transfers from your checking
account to your savings to build your emergency fund.
• Open an individual retirement account and set up
automatic contributions every payday to build your
nest egg.
• You can also use automatic contributions to fund a college
savings account for your child's education.
• Automating deposits into different accounts ensures that
you're saving instead of spending and over time, the power
of compound interest can help your money grow steadily.
5. Outline Your Savings Goals
• If you're going to save money, having a specific goal to
work towards can be a huge help in maintaining your
momentum.
• Think about what you want to accomplish with saving,
both in the short- and long-term.
• For example, you may want to save money for a
vacation in the next six months. Or, you may be
planning to buy a home in the next year and need to
save a down payment.
• Consider what you'd like to achieve with your money, then break
your goals down into specific, actionable steps.
• Set a timeline for achieving each goal and track your

progress to stay motivated on your savings journey.
(https://www.thebalance.com/budgeting-101-1289589)
How to Budget Successfully
• One of the reasons people fail when they begin to

budget is that they don't believe in the budgeting
process and have a difficult time determining how a
budget will help them improve what they want to do.
• They may feel like they are too poor to budget or that
things will work themselves out.
• Doing these steps in the right order will make it
easier for you to budget successfully in the
future.
1. Preparing your budget
2. Set up your budget
3. Tracking your budget
4. Evaluating your budget
5. Setting goals for your budget
6. Cutting spending
Preparing your Budget
• Before you sit down and hash out the numbers for
your budget, you need to decide what you want your
budget to do for you:
 Write down three or four things you want to
accomplish in the next five or ten years.
This may include thing like home ownership,
starting a family or starting your own
business.
 Write down two things you want to accomplish in
the next year in regards to your finances. This
may include things like paying off your debt,
building an emergency fund or starting a new job.
 Write down one thing you want to accomplish in
the next month, This may be saving a certain
amount of money or to stop using your credit
cards completely.
2. Set Up Your Budget
• Once you have decided what you want your budget to

help you do, then you can set up your budget.
• The clear goals and guidelines you just set up will
help you make the sacrifices necessary to make your
budget work. Writing down your expected expenses
and getting them to equal your income is one of the
easiest parts of the entire budgeting process.
• As you set up your budget make sure that it includes
money for you to reach your goals.
• It helps to have a general idea of what your monthly
expenses are.
• Be sure to include your goals as you set up the categories
in your budget.
3. Tracking Your Budget
• Once you have created your budget, you are ready for
the hard part: following it! This is the place when
people who attempt budgeting fail.
• It can be time consuming to record your transactions
each day and subtract them from your account and the
correct budget category. You can transfer between
categories to cover areas where you had not estimated
the correct amount for the month, but you must make
sure you expenses do not exceed your income.
• Take time to review your budget each night for the
first month to help you track your categories.
• If you are married, you both need to track your
spending so you will be able to stick to your
categories.
4. Evaluating Your Budget
• After the first month you will need to evaluate your

budget. This is essential to getting a working budget.
• Ideally you should evaluate every month for the first
six months that you budget.
• You should also be able to identify your budget
weaknesses. This allows you to make adjustments to
areas where you may have estimated the wrong
amount.
• After the first two months, you may be able to cut your
spending back even more than you originally thought
and increase the amount you put towards the goals
you set for your budget.
• The first month you should not make major cuts, but
each month after that try cutting back to save more.
It is okay if you realize you need to increase spending
in a category, just be sure to subtract that amount
from another category.
5. Setting Goals for Your Budget
• After you have reached the goals you originally set you
may want to set new goals to reach.
• Additionally you can set goals that allow you to reward
yourself for meeting new spending limits.
• For example you may reward yourself with a nice meal
out if you meet the goals you have set for your grocery
budget each month, or if you have managed to eat at
home for the entire month, you can reward yourself with a
meal out at the end of the month. The same thing can go
with any category or reward you want. It can extend to
your entire family as well.
• A financial plan will help you determine the next goals your
should be working on.
• Continuing to set goals will help you to keep moving
forward.
6. Cutting Spending
• Each year you should evaluate areas where you can cut
your spending.
• It is too easy to just assume that your bills are set in stone,
and that you cannot do anything to lower them. However, if
you shop around every year or two for your utilities such as
Internet or satellite television and other expenses such as
car insurance or gym memberships, you may find that you
will save quite a bit of money with just a few hours of work.
• As you do this evaluate whether or not you need the level of
services you are getting and cut back if you can do so
comfortably. (https://www.thebalance.com/how-to-budget-successfully-2385709)
FARM PLANNING BUDGETS
Introduction for New and Beginning Farmers
• A complete farm financial system is composed of a set

of financial statements and planning budgets.
• Four planning budgets to record financial details:

1. Cash flow budgets
2. Partial budgets
3. Whole farm budgets
4. Enterprise budgets
• Purpose of farm planning budgets:
(a) To estimate profitability of plan; and,
(b) To estimate impact of any proposed change to

plan.
Stages in Farm Planning
I  II  III
OBJECTIVES RESOURCES PLAN
(goals, inc. (capital, knowledge, (estimate size of
standard of living, experience) enterprises, farming
leisure time) system)

VI  V  IV
FIXED COSTS PRICES AND COSTS FOR PHYSICAL
(overheads items) EACH PLAN PRODUCTIVITY
(input and output
quantities)

VII  VIII  IX
FINANCIAL BUDGET SENSITIVITY ANALYSIS CASH FLOW
(presentation of all (this will generate estimates (liquidity during the
information in a standard of profits) cropping cycle)
form)
Cash Flow Budget
• Cash Flow Budget - a summary of projected inflows and
outflows over a given period of time.
• Purposes:
 to estimate the amount and timing of future borrowing
needs; and,
 to demonstrate farm’s ability to repay debts in a timely
fashion.
• Cash flow budget represents projection of future deposits
and withdrawals to farm business checking and savings
accounts.
ILLUSTRATION OF CASH FLOW
Strauss Printing Services
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flow from Operating Activities:

Cash received from customers P 146,000
Cash paid for expenses (81,000)
Cash paid to suppliers (47,500) P 17,500
Cash Flow from Investing Activities:
Cash paid to acquire additional equipment (20,300)
Cash Flow from Financing Activities:
Cash received from investment of owner P 10,000
Cash received from bank loan 50,000
Cash paid for bank loan – partial payment (27,000)
Cash paid to owner – withdrawal (20,000) 13,000
Net Increase (Decrease) in Cash for the Year P 10,200
Add: Cash – January 1, 2017 10,800
Cash – December 31, 2017 P 21,000
ILLUSTRATION 2
Emme's Cash Flow Analysis (part 1)
January February March April May June July
Cash at Start of
5,000 3,340 3,080 2,220 1,960 1,700 –740
Month
Cash Coming In
Sales Paid (75%) 7,500 7,500 7,500 7,500 7,500 6,000 6,000
Collections of
2,000 2,000 2,000 2,000 2,000 1,600 1,600
Credit Sales
Loans & transfers 0 0 0 0 0 0 0
Total Cash In 9,500 9,500 9,500 9,500 9,500 7,600 7,600
Cash Going Out
Inventory 4,500 4,500 4,500 4,500 4,500 4,500 4,500
Rent 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Wages 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Utilities 100 100 100 100 100 100 100
Phone 30 30 30 30 30 30 30
Insurance 1,200 0 0 0 0 0 0
Ads 200 0 0 0 0 280 0
Accounting 130 130 130 130 130 130 130
Miscellaneous 0 0 600 0 0 0 0
Loan payments 0 0 0 0 0 0 0
Taxes
Total Cash Out 11,160 9,760 10,360 9,760 9,760 10,040 9,760
Cash at End of
3,340 3,080 2,220 1,960 1,700 -740 -2,900
Month
August September October November December
Cash at Start of
–2,900 –6,410 –4,770 –5,030 –5,290
Month
Cash Coming In
Sales Paid (75%) 5,250 9,000 7,500 7,500 11,250
Collections of Credit
1,400 2,400 2,000 2,000 3,000
Sales
Loans & transfers 0 0 0 0 0
Total Cash In 6,650 11,400 9,500 9,500 14,250

Cash Going Out
Inventory 4,500 4,500 4,500 4,500 4,500
Rent 4,000 4,000 4,000 4,000 4,000
Utilities 100 100 100 100 100
Phone 30 30 30 30 30
Insurance 0 0 0 0 0
Ads 0 0 0 0 0
Accounting 130 130 130 130 130
Miscellaneous 400 0 0 0 200
Loan payments 0 0 0 0 0
Taxes
Total Cash Out 10,160 9,760 9,760 9,760 9,960
Cash at End of
-6,410 -4,770 -5,030 -5,290 -1,000
Month
Whole Farm Budget
• Whole Farm Budget - summary of available resources

and planned type and volume of farm production that are
under the management of farm owner.
• Constructed to include the expected costs, revenues, and
profitability of each enterprise that compose the overall
farm business.
• Purpose of this budget is to analyze major change that
has the potential to affect several enterprises.
• Simple whole farm budget may include minimal
information (e.g., list enterprises and production level)
or include detailed data for each enterprise (e.g., seed
and fertilizer prices and volumes, custom harvest costs,
pre- and postproduction labor hours, application rates,
etc.)
• Time period analyzed in a whole farm budget can vary
depending on the needs of farm owner or manager. For
example, the current or upcoming year, a typical or an
average year, or, a transitional period might be selected
as the time frame of interest.
To develop a whole-farm budget:
• List the goals and objectives of the farm firm.
• Inventory the resources available for use in
production.
• Determine physical production data that will be used
in the input/output process.
• Identify reliable input and output prices.
• Calculate the expected variable and fixed costs and
all returns.
• Since whole farm budget is a plan for future use of
farm resources and establishes future direction of
farm organization, whole-farm budget must conform
to farm family goals and objectives to be successful.
• Farm management that is goal-directed integrates
goals and objectives of the farm with those of the
family and reduces pressure on competitive uses of
family controlled resources.
Illustration of Whole Budget
COMPLETE BUDGET
Present farm program Alt1 Alt 2

Total Receipts ____ ___ ___
Total Expenses ____ ___ ___
Net Farm Earnings ____ ___ ___
Partial Budget
• Partial budgeting is a planning and decision-making
framework used to compare costs and benefits of
alternatives faced by farm business.
• Partial budget is a formal and consistent method for
making management decisions based on relatively small
changes to an existing farm plan.
• It focuses only on the changes in income and expenses
that would result from implementing a specific alternative.
Thus, all aspects of farm profits that are unchanged by the
decision can be safely ignored.
• Purpose:
To outline available options by comparing profitability
of one alternative (usually the current situation) to
profitability of a proposed alternative.
• Construction of partial budget allows farm manager to
assess only those factors that will be affected by proposed
change; all other unaffected factors are held constant.
• Partial budgeting allows you to get a better handle on how
a decision will affect the profitability of the enterprise, and
ultimately profitability of the farm itself.
When and How to Use Partial Budgets
 Partial budgets are typically constructed on an annual basis to
clarify differences in profitability.
 Partial budget framework can be used to analyze a number of
important farm decisions, including:
• adopting new technology
• changing enterprises
• choosing to specialize
• hiring custom work
• leasing instead of buying machinery
• modifying production practices
• making capital improvements
Seven steps to successful use of partial budget
analysis as decision-making tool
1. State the proposed change.
It is important to have a clear understanding of exactly
what alternative is being analyzed. If possible, you
should analyze several alternatives; however, analysis
of each is carried out on an individual basis. Clarity at
this stage will help you to easily complete the other
steps.
2. List the added returns.
Identify any possible means of generating new
revenue streams or increasing existing streams.
Suppose the alternative is purchasing a mixer.
Will that lead to increased milk production? If
so, then the added revenue resulting from
growth in milk sales should be determined.
3. List the reduced costs
In this step, begin by identifying general areas where the
choice might lower expenses. Once all general areas are
identified for the specific alternative, you can work to plug
numbers into the partial budget.
Take, for example, the choice to hire custom crop

harvesting. One of the most obvious savings associated
with this decision is a decreased need for labor. You can
identify how many hours of labor will be saved, and then
multiply that figure by the hourly wage rate to obtain a
value for the partial budget. Keep in mind that this is one
reduced cost. It is important to identify all possible costs
that the choice will reduce.
4. List added costs.
• Start by identifying all of general areas in which costs will be increased.
Choice to have crops custom-harvested has one obvious new cost:
payment for service.
• Suppose instead choice was to purchase a new piece of machinery for
P50,000 with useful life of 10 years, salvage value of P5,000, financing
interest rate of 7 percent, and repair and insurance rates of 2 percent and
3 percent of average value, respectively. In the situation of capital
purchases, depreciated cost must be claimed annually, not total purchase
cost. Average value (P27,500) should be used to compute annual interest,
repair, and insurance expenses. To summarize, added annual costs for
purchase of this piece of machinery are:
• Depreciation: P4,500 Repairs: P550
• Interest: P1,925 Insurance: P825
5. List the reduced returns.
• Will revenues be decreased or eliminated as a
result of choosing a particular alternative? For
instance, suppose you are deciding whether or not
to adopt a no-till system of crop production. Will this
decrease yield? If so, then you must estimate the
amount of the reduction and multiply that by an
expected price to approximate the reduced
revenues resulting from the adoption of no-till.
6. Summarize the net effects.
• Once you have identified individual positive (steps 2
and 3) and negative (steps 4 and 5) aspects of the
alternative, these should be aggregated to determine
a total cost and total benefit of the alternative.
• The net benefit of the alternative is found by
subtracting total costs from total benefits. If the net
benefit is positive, then that alternative may have
some economic advantages. However, if the net
benefit is negative, the business would be better off
staying with the current situation or analyzing a
different alternative.
7. Consider non-economic and other factors.
• Non-economic considerations must be taken into
account when considering an alternative. Such
considerations may include social aspects of having
less labor on the farm, increased/decreased leisure
time, need for increased or specialized knowledge,
and safety and/or ease of use of equipment.
• Note that these are generally focused on quality of
life measures, which are frequently difficult to
quantify.
Illustration of Partial Budget
Enterprise Budget
• Farm enterprise budget is organization of revenues,

expenses, and profit for a specific farm enterprise that is
constructed on a per-unit-of production basis (e.g.,
crop yield per hectare, number of head of livestock, or
number of trees per hectare).
• Purpose of an enterprise budget:
 To demonstrate potential profitability of each
enterprise to the farm business.
• Enterprise budgets can be created for different
levels of production (i.e., bushels per hectare,
pounds per square foot) or types of technology
(e.g., conventional, organic, irrigated, double-
cropping).
• A completed enterprise budget provides farm
managers with a tool that includes opportunity
costs that demonstrate the economic returns to the
enterprise in addition to the accounting costs.
Components of Enterprise Budget
• First component is title, which should include specific
information about the enterprise and any
distinguishing characteristics (e.g., tillage practices,
machinery assumptions, etc.).
• For example, a hay enterprise budget title might be
“Orchardgrass - Fescue Hay, Round-Baled, 4-Ton
Yield.”
• Second component lists all expected farm revenues
or sales receipts, such as quantities produced, units
of measure, and market price per unit for the
enterprise.
• Under the revenue section, all items produced by the

enterprise (e.g., feeder lambs, wool, cull ewes, rams,
etc.) are listed, along with market prices estimated per
unit for each revenue-generating item.
• Third component details all expected costs related
to producing, processing, harvesting, or marketing
the products.
• Costs listed in this section include variable costs
(operating or direct costs) and can also include fixed
costs (ownership or indirect costs) assigned to this
enterprise.
• Key financial risk management goal is to understand
economic costs of selecting particular enterprise.
• Using enterprise budget, economic costs of selecting this
enterprise can be estimated by calculating interest on
operating costs.
• To determine economic costs, manager may add all
variable costs and then multiply by annual interest rate
and portion of year money will be used to operate the
enterprise.
• Final calculation of total variable costs will include this
economic cost and will represent the cost of selecting this
enterprise over the next-best alternative.
• Fixed costs are charged to all fixed assets, which are items
that are not completely exhausted during a single
production period (e.g., machinery, breeding livestock, land,
buildings, facilities, fences, owner’s labor and management
skills, etc.).
• Fixed costs include charges for owner labor, management
fee, and charges that represent the enterprise share of the
“DIRTI-5” (depreciation, interest, rent, taxes, and
insurance).
• Farm owner labor can be valued at the market price for
physical labor, depending on the required skill set.
• Management fee is typically calculated as 5 percent of
gross revenues.
• If the farmland is rented, the rental rate can be entered;
however, if the farm manager owns the land, the rental
charge can be estimated by using the opportunity cost
of the land (the fee that could be charged if the manager
were to rent the land to someone else).
• Fourth and final component is calculation of net return
to farm enterprise, which is determined by subtracting
estimated total costs from total revenues.
• Calculated net returns can be defined as “estimated
return to profit” if the fixed cost estimate included a
management opportunity cost, typically represented as a
percentage of the gross revenues. This opportunity cost
represents payment to farm manager or owner in return
for the time and resources dedicated to this enterprise.
• If management charge was not included in the fixed
costs section, calculated net return is labeled “estimated
return to management and profit.”
How do farm managers assess the information in an
enterprise budget?
• Farm enterprise budgets demonstrate estimated profitability of
each enterprise and may be created for different levels of
production or types of technology, providing a great deal of
flexibility that makes this tool valuable to farm managers by
informing the planning process.
• Key determinants included in enterprise budget are:
- production levels (e.g., bushels per hectare, pounds per
hectare, sale weight per animal, pounds of milk per
cow, etc.),
- sales prices, and
- cost of production.
• Farm managers who create the budget must provide
documentation to justify production levels (e.g.,
average yields or previous yields achieved on a
farm) and production costs (e.g., VCE budgets using
current input costs) that were included in the
enterprise budget.
• For example, details that reveal how sales prices
were determined (e.g., prices paid by buyers at the
local sale barn, three-year average prices as
recorded by the farm manager, etc.) should be
noted.
• Farm managers new to an enterprise are
encouraged to research current market price trends
to inform their decision to produce these items.
• In addition, it could take several years for a new
farm enterprise to achieve “average yields” listed in
VCE enterprise budgets; therefore, managers are
encouraged to include 80 percent of average yields
for the projected yield estimates in the expected
farm revenues component of the budget.
• Because enterprise budget calculations include
opportunity costs, returns above variable and total
costs can be measured to provide guidance on both
short- and long-term decisions related to the enterprise.
• Returns above variable costs measure how much
revenue remains after all variable costs are paid.
• Enterprise must generate positive returns above
variable costs to operate in the short term because this
indicates that revenues are sufficient to at least pay
operating costs resulting from decision to produce that
item.
• Finally, completed enterprise budgets can be used to
determine break-even prices and yields needed to cover
variable and/or fixed costs, giving the farm manager
another necessary piece of information to use when
making short- and long-term decisions related to specific
farm enterprises.
• Short-run, break-even price represents lowest price that
can be accepted per unit, given a specified yield per unit,
to reimburse farmer for variable costs incurred to produce
the items.
• To calculate short-run break-even price:
divide variable costs by yield per unit (VC/Yield per unit)
• Long-run break-even price represents lowest price
that can be accepted per unit, given a specified yield
per unit, to reimburse farmer for both fixed and
variable costs incurred to produce the items.
• To calculate long-run break-even price:
divide total costs by yield per unit (TC/Yield per unit)
• To determine short- and long-run break-even yields,
same calculations can be used by holding prices per
unit constant and allowing yields to vary.
Illustration of Enterprise Budget
Crop Budgeting Tool
• Assignment:
• Using your own assumptions:
- Prepare:
a) Cash flow budget
b) Partial budget
c) Whole budget
d) Enterprise budget
• Quiz
1. What are the 4 types of farm plan budgets? Discuss the
significance of each type.
2. What are the purposes of farm planning budgets?
3. How is farm planning budget being done? What are the stages involved.
Discuss the importance of each stage.
BUDGETING IN MANAGEMENT
Budget - For Planning and Control
• Time and money are scarce resources to all individuals
and organizations; the efficient and effective use of
these resources requires planning.
• Planning alone, however, is insufficient. Control is also
necessary to ensure that plans actually are carried out.
• A budget is a tool that managers use to plan and
control the use of scarce resources.
• A budget is a plan showing the company’s
objectives and how management intends to acquire
and use resources to attain those objectives.
(https://courses.lumenlearning.com/tcc-managacct/chapter/introduction-to-budgeting-
and-budgeting-processes)
• Planning process that results in a formal budget
provides an opportunity for various levels of
management to think through and commit future
plans to writing.
• In addition, a properly prepared budget allows

management to follow the management-by-
exception principle by devoting attention to results
that deviate significantly from planned levels.
• Importance of Budget:
1. shows management’s operating plans for the
coming periods;
2. formalizes management’s plans in quantitative terms;
3. forces all levels of management to think ahead,
anticipate results, and take action to remedy
possible poor results; and,
4. motivates individuals to strive to achieve stated goals.
• Failing to budget because of uncertainty of the future is a poor
excuse for not budgeting.
• In fact, the less stable the conditions, the more necessary and
desirable is budgeting, although the process becomes more
difficult.
• Obviously, stable operating conditions permit greater reliance on
past experience as basis for budgeting. Remember, however,
that budgets involve more than company’s past results.
• Budgets also consider company’s future plans and express
expected activities. As a result, budgeted performance is
more useful than past performance as a basis for judging
actual results.
Assumptions in Budgeting
• A budget should describe management’s assumptions relating
to:
(1) state of the economy over the planning horizon;
(2) plans for adding, deleting, or changing product lines;
(3) nature of the industry’s competition; and
(4) effects of existing or possible government regulations.
• If these assumptions change during budget period,

management should analyze effects of changes and include
this in evaluation of performance based on actual results.
Benefits of Budgeting
• Many other benefits result from the preparation and use of
budgets:
(1) businesses can better coordinate their activities;
(2) managers become aware of other managers’ plans;
(3) employees become more cost conscious and try to
conserve resources;
(4) company reviews its organization plan and changes it
when necessary; and,
(5) managers foster a vision that otherwise might not
be developed.
Benefits of budgeting to business management
1. Budgeting forces managers to do better forecasting.
2. Budgeting motivates managers and employees by
providing useful yardsticks for evaluating performance.
3. Budgeting can assist in the communication between
different levels of management.
4. Budgeting is essential in writing a business plan.
Benefits of Budgeting to Business Management
1. Budgeting forces managers to do better forecasting.
Managers should be constantly scanning the business
environment to spot changes that will impact the business.
Vague generalizations about what the future may hold for the
business are not good enough for assembling a budget.
Managers must put their predictions into definite and
concrete forecasts.
2. Budgeting motivates managers and employees by

providing useful yardsticks for evaluating performance.
Budgeting process can have a good motivational impact by
involving managers in the budgeting process and by providing
incentives to managers to strive for and achieve the
business goals and objectives. Budgets provide useful
information for superiors to evaluate the performance of
managers and can be used to reward good results.
3. Budgeting can assist in the communication between
different levels of management.
Putting plans and expectations in black and white in
budgeted financial statements — including definite
numbers for forecasts and goals — minimizes confusion
and creates a kind of common language. Well-crafted
budgets can definitely help the communication process.
4. Budgeting is essential in writing a business plan.
New and emerging businesses need to present a
convincing business plan when raising capital. Because
these businesses may have little or no history, the
managers and owners must demonstrate convincingly that
the company has a clear strategy and a realistic plan to
make profit. A coherent, realistic budget forecast is an
essential component of a business plan.
(http://www.dummies.com/business/operations-
management/benefits-of-budgeting-that-relate-to-business-
management/)
Conditions to Consider in Budgeting
• Budgeting involves the coordination of financial and

nonfinancial planning to satisfy organizational goals and
objectives.
• No foolproof method exists for preparing an effective
budget.
• However, budget makers should carefully consider the
conditions that follow (next slides).
Conditions to Consider in Budgeting
1. Top management support

2. Participation in goal setting
3. Communicating results
4. Flexibility
5. Follow-up
1. Top management support.
• All management levels must be aware of budget’s importance
to the company and must know that the budget has top
management’s support.
• Top management must clearly state long-range goals and
broad objectives.
• These goals and objectives must be communicated throughout
the organization.
• Long-range goals include expected quality of products or
services, growth rates in sales and earnings, and percentage-
of-market targets.
2. Participation in goal setting
• Management uses budgets to show how it intends to acquire
and use resources to achieve company’s long-range goals.
• Employees are more likely to strive toward organizational
goals if they participate in setting them and in preparing
budgets.
• Often, employees have significant information that could help
in preparing a meaningful budget.
• Employees may be motivated to perform their own functions
within budget constraints if they are committed to achieving
organizational goals.
3. Communicating results
• People should be promptly and clearly informed of their
progress.
• Effective communication implies:
(1) timeliness,
(2) reasonable accuracy, and
(3) improved understanding.
• Managers should effectively communicate results so
employees can make any necessary adjustments in their
performance.
4. Flexibility
• If significant basic assumptions underlying the budget change
during the year, the planned operating budget should be
restated.
• For control purposes, after actual level of operations is known,
actual revenues and expenses can be compared to expected
performance at that level of operations.
5. Follow-up
• Budget follow-up and data feedback are part of the control
aspect of budgetary control.
• Since budgets are dealing with projections and estimates for
future operating results and financial positions, managers
must continuously check their budgets and correct them if
necessary.
• Often management uses performance reports as a follow-up
tool to compare actual results with budgeted results.
Participatory Budgeting
• Participatory budgeting means that all levels of

management responsible for actual performance actively
participate in setting operating goals for the coming
period.
• Managers and other employees are more likely to
understand, accept, and pursue goals when they are
involved in formulating them.
Participatory Budgeting
• Although many companies have used participatory budgeting
successfully, it does not always work.
• Studies have shown that in many organizations, participation in
the budget formulation failed to make employees more motivated
to achieve budgeted goals.
• Whether or not participation works depends on management’s
leadership style, the attitudes of employees, and the
organization’s size and structure.
• Participation is not the answer to all the problems of budget
preparation. However, it is one way to achieve better results in
organizations that are receptive to the philosophy of
participation.
Budgeting and Accounting
• Budgets are quantitative plans for the future. However, they are
based mainly on past experience adjusted for future
expectations.
• Thus, accounting data related to the past play an important part in
budget preparation.
• Accounting system and budget are closely related. Details of the
budget must agree with company’s ledger accounts. In turn,
accounts must be designed to provide appropriate information for
preparing the budget, financial statements, and interim financial
reports to facilitate operational control.
Budgeting and Accounting
• Management should frequently compare accounting data

with budgeted projections during budget period and
investigate any differences.
Quiz- February 5, 2019
1. Discuss the importance of budget for planning and

control.
2. Why is budgeting important to business management?
Cite the benefits of budgeting to business management.
3. Why is there a need to conduct performance evaluation?
4. Explain participatory budgeting. Why is it important to
management?
5. Discuss the conditions to consider in budgeting.
Auditing
• Basic objective of any control system is to provide

information about how well things are going and to
indicate how better results might be achieved. There will
always be an unending search for the best.
• Each control system should provide feedback about less
costly or more efficient ways of working. The organization
cannot allow all activities to take place without following
general rules, procedures and policies.
Auditing
• To make control system more effective, organization

draws up in advance, policies and procedures which
guide and govern decisions and their implementation.
• These procedures and policies are generally adopted to
promote efficient operation and conserve scarce
resources.
• It is very important for management to see that all actions
comply with the agreed procedures and policies.
Auditing
• Auditing is a systematic process of evaluating
transactions to determine an organization's compliance
with prescribed policies and procedures.
• Objective of auditing is to minimize the likelihood of fraud,
misappropriation, waste or inefficiency.
• Audit procedure should ensure that activities are
performed efficiently.
• Audit report should indicate whether the organization is
moving towards the desired goals.
Auditing
• Audit process is conducted by a competent and
independent authority, which systematically examines
financial records and other information.
• In particular, attention is focused on:
 adequacy and reliability of information and control system;
 fairness of financial statements and performance reports
issued by management with the intent of disclosing present
conditions and assessing results of past operations and
programs of the organization;
Auditing
 efficiency of operations;
 effectiveness of programs in accomplishing their
intended results; and
 faithfulness of administrators and operating personnel in
adhering to prescribed rules and policies and complying
with legislative interests.
Elements of Audit Process
Audit process - broadly speaking - has four elements:

 financial;
 compliance;
 operational; and,
 program audits.
Elements of Audit Process
A. Financial audit examines financial records and controls with

the purpose of ascertaining whether funds have been used
legally and honestly, whether receipts and payments have
been recorded properly, and if financial statements are
complete and reliable.
B. Compliance audit examines whether management
has followed policies and procedures and whether it has
adhered faithfully to legal and administrative requirements
Elements of the Audit Process
C. Operational audit examines efficiency of operations and

effectiveness of operating policies, procedures, practices
and controls in promoting operational efficiency.
D. Program audit judges effectiveness and accomplishments
of a program.
(http://www.fao.org/docrep/w7507e/w7507e05.htm)
Problem Identification
• Problem identification may sometimes indicate that

less-than-optimal practices are being followed by the
organization. If that is so, further examination would
be necessary.
• Discussing specific findings and suggesting ways to
improve lie at the heart of internal audit. This
requires analysis of pertinent information, detailed
examination of causes, effects and corrective actions,
and accumulation of supporting material evidence.
Steps in the problem analysis/examination process:
- identifying a problem;
- determining whether the circumstances are unique or
general;
- evaluating the significance of deficiencies and faults in terms
of costs or adverse effects on performance;
- ascertaining causes;
- identifying the person or persons responsible for the
deficiency or faulty operation; and
- determining possible lines of corrective and preventive
action, and formulating constructive recommendations.
QUIZ
1. Discuss the importance of auditing. Why is there a need

to conduct audit?
2. What are the areas being given focus by the auditors?
3. What are the steps in the problem analysis/examination
process?
4. What is participatory budgeting?
5. Discuss the importance of participatory budgeting.
III – HOW TO RAISE CAPITAL FOR AGRI-
BASED ENTERPRISES
BUSINESS PLANNING FOR AGRI-BASED ENTERPRISE
WHAT IS A BUSINESS PLAN?
• Document that summarizes how a business owner/manager/
entrepreneur will organize a set of resources and implement
activities for the venture to succeed.
• Outlines how to achieve business objectives.
• Provides a road map and a timeline showing where you are,
where you want to be within a given time period, and how you
intend to get from point A to point B.
• Therefore, you should be directly involved in the process of
establishing goals, assessing resources, determining what is
needed, and creating a strategic action plan.
WHY DO YOU NEED A BUSINESS PLAN?
• It is best for business plans to be written documents. Some advantages
of preparing a written document:
 forces you to refine your ideas and objectives so that you can
easily communicate them;
 allows you to examine how your product or service will satisfy the
needs of your targeted consumers;
 provides a blueprint of exactly how you intend to operate your
business;
 reduces the chance of there being any ambiguity among personnel
as to the objectives of the business and what is required of them;
 effectively communicates your objectives to others;
 provides basis for soliciting feedback; and,
 shows that you have done necessary preparatory
work when seeking outside funding.
 Altogether, business plan is a way to show that you
know how to produce the product, how to sell it, and
how to manage financial risk (SARE 2003).
MAIN COMPONENTS OF A BUSINESS PLAN
• Components of business plan can vary considerably:

1. Executive Summary
- appears first in a business plan but usually written
last;
- contains brief description of vision, mission and
goals of business; and,
- summarizes key elements of business plan such
as strategies, sales growth, and profitability.
2. Description of Company
 covers all aspects of business such as: name, location,
and history (including summary of past performance for
an existing company or start-up plan for a new company).
3. Marketing Plan
 identifies targeted customers;
 describes products or services being offered;
 examines competition, pricing strategies, and advertising;
 predicts sales forecasts; and,
 explains how the product will be distributed and packaged.
4. Operational Plan
 includes a detailed description of how products or services
will be produced.
 specifically, it focuses on the ff’:
- production systems to be used;
- physical resources that are available or will need to
be acquired (purchased or leased);
- size and capacity of the business; and,
- regulations/policies governing product production,
such as special permits, zoning and licensing.
5. Human Resource Plan
 describes organizational structure of business (identifies
who will manage the business; number and type of
employees needed; and, provides information on
compensation and benefits).
6. Financial Plan
 describes funding requirements
 provides detailed information on break-even analysis,
projected income statements, cash flow and balance
sheets; and,
 discussion of selected financial indicators
HOW MUCH DETAIL SHOULD BE A BUSINESS PLAN
• Amount of detail in a business plan will vary depending on

purpose of plan.
• Most experts believe that, as a rule of thumb, if plan
requires outside resources (loans or equity investment),
then it will need to be between 25 and 50 pages long
(generally, less than this will not be read).
• If on the other hand, plan is for internal use only, then plan
can be shorter.
Some Points to Remember
• Common misconception is that business plan is only
needed for starting a new business or to assist in securing
outside funding.
• Truth is that everyone operating a business needs a
business plan. A sound business plan is essential to
running a successful business.
• Think of business plan as blueprint for achieving your
goals.
• It is important to realize that business plan is not static,
but a living document that will require adjusting as
situations change.
• It is very important to routinely assess whether the
business is meeting its objectives.
• Whether you are an experienced producer or a new
producer, you need a business plan.
• Simple business plan is better than no plan at all, and it
is never too late to create one.
Assignment: Prepare a simple business plan.
IV - FINANCIAL PERFORMANCE
INDICATORS
KEY PERFORMANCE INDICATORS (KPI)
• KPI is a blanket term for the types of markers that

businesses use to measure performance in a variety
of areas, from marketing to HR to finance.
• Keeping close tabs on your small business’ financial
performance is essential to long-term success.
• These five financial KPIs will help you answer the
question:
Is my business meeting its goals?
Key Performance Indicators which will
help you assess if your business is
meeting its goals
1. Gross Profit Margin
2. Net Profit
3. Net Profit Margin
4. Aging Accounts Receivables
5. Current Ratio
1. GROSS PROFIT MARGIN
Gross Profit Margin
• Gross profit margin tells you whether you are pricing
your goods or services appropriately.
• Equation to calculate gross profit margin:
Gross profit margin = (revenue – cost of goods
sold) /revenue
• Gross profit margin should be large enough to cover
your fixed (operating) expenses and leave you with
profit at the end of the day.
2. NET PROFIT
Net Profit
• Net profit is your bottom line — the amount of cash
left over after you’ve paid all bills. You can figure out
net profit using simple subtraction:
Net profit = total revenue – total expenses
• For example, if your sales last year totaled P100,000
and your business expenses for rent, inventory,
salaries, etc. added up to P80,000, your net profit is
P20,000.
• If you are sole proprietor, your salary or draw will come
out of your net profit, so it’s vital that this amount be
enough to cover your personal needs plus enough
extra to build reserves that can keep your business
operational during slow periods.
• Financing is also a possibility to help smooth out

seasonal fluctuations. Many companies go this route to
keep things moving during the down season.
3. NET PROFIT MARGIN
Net Profit Margin

• Net profit margin tells you what percentage of your
revenue was profit. The equation is simple:
Net Profit Margin = net profit/total revenue
• In the example, your net profit margin is 20 percent
(20,000/100,000). This metric helps you project
future profits and set goals and benchmarks for
profitability.
4. AGING ACCOUNTS RECEIVABLE
• If your business involves sending bills to customers,
an accounts receivable aging report can be eye-
opening.
• If customer A consistently pays her bills within 15
days, while customers B, C, and D drag their
payments out to 90 or even 120 days, you may have
found a root cause of your business’ cash flow
problems. It could be time to start charging interest
on overdue accounts or let go of slow-paying clients.
• Invoice financing is also an option that can help you
capitalize on outstanding invoices.
5. CURRENT RATIO
Current Ratio
• Describes ability of business to pay its bills.
• Formula:
Current ratio = current assets/current liabilities
• The resulting number should ideally fall between 1.5 and 3.
• A current ratio of less than 1 means you don’t have enough
cash coming in to pay your bills. Tracking this indicator may
give you advance warning of cash flow problems, especially if
your current ratio dips into danger zone between 1.5 and 1.
IMPORTANCE OF MONITORING CASH FLOW
• It’s critical for entrepreneurs to project and monitor
cash flow (Henao. n.d.) .
• Even a company that is generating profits can quickly
find itself in trouble if it doesn’t have enough cash to
operate.
• You should know your financing needs in advance in
order to manage your business proactively.
• "If the business is growing, you are most likely going
to require financing for receivables, inventory,
machinery and equipment to hire more people, etc. If
you wait until you need the funds, you’re putting the
company in jeopardy."
CASH FLOW
• Cash flow can be defined two ways:

- Balance of cash received less the amount of cash
paid out over a period of time
• Moving cash in or out of a business

Cash Flow Projection Spreadsheet
• First set of rows, titled Sources of Cash, document all
sources of incoming cash, including cash from customer
sales, interest earned, loan funds, and current checking
and savings account balances.
• The second section, Operating Uses of Cash contains

all those expenditures associated with the day-to-day
buying and selling process. Most of these expenses show
up on the P&L statement.
Cash Flow Projection Spreadsheet
• The third section, Non-Operating Uses of Cash, show

expenses that normally show up on your Balance Sheet:
equipment purchases, the principle portion of loan
payments, inventory, taxes, and owner’s draw.
• Subtract your Uses of Cash from your Total Cash

Available, and you have Ending Cash for the month.
Ending Cash for one month becomes Opening Cash for
the next month
ILLUSTRATION OF CASH FLOW STATEMENT
Strauss Printing Services
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flow from Operating Activities:

Cash received from customers P 146,000
Cash paid for expenses (81,000)
Cash paid to suppliers (47,500) P 17,500
Cash Flow from Investing Activities:
Cash paid to acquire additional equipment (20,300)
Cash Flow from Financing Activities:
Cash received from investment of owner P 10,000
Cash received from bank loan 50,000
Cash paid for bank loan – partial payment (27,000)
Cash paid to owner – withdrawal (20,000) 13,000
Net Increase (Decrease) in Cash for the Year P 10,200
Add: Cash – January 1, 2017 10,800
Cash – December 31, 2017 P 21,000
ILLUSTRATION OF CASH FLOW ANALYSIS
January February March April May June July
Cash at Start of
5,000 3,340 3,080 2,220 1,960 1,700 –740
Month
Cash Coming In
Sales Paid (75%) 7,500 7,500 7,500 7,500 7,500 6,000 6,000
Collections of
2,000 2,000 2,000 2,000 2,000 1,600 1,600
Credit Sales
Loans & transfers 0 0 0 0 0 0 0
Total Cash In 9,500 9,500 9,500 9,500 9,500 7,600 7,600
Cash Going Out
Inventory 4,500 4,500 4,500 4,500 4,500 4,500 4,500
Rent 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Wages 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Utilities 100 100 100 100 100 100 100
Phone 30 30 30 30 30 30 30
Insurance 1,200 0 0 0 0 0 0
Ads 200 0 0 0 0 280 0
Accounting 130 130 130 130 130 130 130
Miscellaneous 0 0 600 0 0 0 0
Loan payments 0 0 0 0 0 0 0
Taxes
Total Cash Out 11,160 9,760 10,360 9,760 9,760 10,040 9,760
Cash at End of
3,340 3,080 2,220 1,960 1,700 -740 -2,900
Month
Some strategies for creating a positive cash flow:
• Increase the number of items sold

• Increase the price of items
• Reduce expenses
• Change the timing of expenses
• Save money to have sufficient Opening Cash to get
through the “start-up” period
• Obtain sources of cash other than sales, such as a line of
credit
Some strategies for creating a positive cash flow:
• Reduce or change the timing of your owner’s draw
• Research vendor options for buying inventory at lower

price or obtaining credit from vendors
• Establish policies to get paid sooner from customers

BENCHMARKING FINANCIAL PERFORMANCE
• It is recommended that entrepreneurs benchmark

financial performance of their business against that of
similar companies in same industry. Results that are
below the average may highlight areas for
improvement (Henao, n.d.).
• For instance, a subpar gross profit margin might
indicate faulty pricing based on inaccurate reading of
costs. To solve the situation, you will likely have to
reduce costs, increase prices or a combination of the
two.
Analyze Your Finances: Financial Ratios
• Financial or benchmarking ratios are useful to help

identify potential problems w/ your business.
• When a ratio appears outside normal benchmarks, you
can easily investigate & help stop any further damage
from occurring.
• Ratios vary greatly from industry to industry, so
comparing your ratio to benchmark ratio for your
particular industry will give you a better idea of how
your business is tracking.
CATEGORIES OF KEY FINANCIAL INDICATORS
1. Growth
Are your sales and profits increasing or
decreasing year-over-year? Is there a trend?
2. Profitability
Is your business making enough profit compared to
other similar companies?
CATEGORIES OF KEY FINANCIAL INDICATORS
3. Liquidity
Can the company meet its short-term obligations?
4. Leverage
Is the company taking advantage of financing to
operate and grow?
5. Activity
Are you managing the assets of the company
effectively?
Key ratios & calculations to help you monitor
different areas of your business:
1. Break-Even Analysis
• Break-even formula helps find point at which your
business will start making profit.
• Break-even point analysis can help set sales goals
& better manage inventory.
• Calculation will tell you total sales or number of
products/services you need to sell to break-even.
CLASSIFICATION OF COST
Cost can be classified based on variability or in
relation to the volume of activity as:
1. fixed; or,
2. variable
in relation to changes in the level of activity within a
given period.
3. semi-variable or mixed cost (they vary in amount but
not in direct proportion to changes in the level of activity)
1. FIXED COSTS
• Fixed costs - those which remain fixed irrespective of
the volume of production or sales.
• Examples:
 Managing director’s salary will not vary (change) with the
volume of goods produced during any year.
 Insurance premiums
 Rent charges
 Insurance on property
 Depreciation
 R&D costs
2. VARIABLE COSTS
• Variable costs - cost items that vary in direct proportion to
changes in this volume of activity within a relevant range.
• Examples:
 Direct labor
 Direct materials
 Variable factory overhead assigned to the cost
of goods sold during the period
 Sales commissions in relation to sales levels
 Petrol costs in relation to miles travelled
 Labor costs in relation to hours worked
3. Semi-Variable Costs (mixed costs)
• Semi-variable costs (mixed costs) refer to items of cost
that are partly fixed and partly variable so that they vary in
amount but not in direct proportion to changes in the
level of activity.
• Mixed costs are of hybrid nature, being partly fixed and
partly variable.
• Examples:
 telephone charges – rental element is a fixed cost,
whereas charges for calls made are a variable cost
 charges for light and power cost and factory supplies
• Total cost at any level of operations is the sum of a
fixed cost component and a variable cost component.
TOTAL COST = Variable Cost + Fixed Cost
• Importance of separating variable costs from fixed
costs stems from the different behavior patterns of
each, which have a significant bearing on their
control.
• Variable Costs must be controlled in relation to the
level of activity.
• Fixed costs must be controlled in relation to time.
Importance of Cost Analysis
• Analysis of cost information reveals the performance of various
programs and activities.
• Basis for planning and controlling performance of activities.
• Cost analysis is useful in:
- making choices among alternatives and planning for optimum
utilization of resources;
- improving efficiency and effectiveness of present resources;
- evaluating performance of executives handling various
programs or activities, and controlling costs; and
- measuring value of output, for which a simple value may not
exist.
Contribution Margin
Contribution Margin (CM)
• Contribution margin is the amount of revenue
remaining after deducting variable costs.
Sales - Variable Costs = Contribution Margin
• CM is available to cover fixed costs and to
contribute income for the company.
Contribution Margin
Illustration:
Video Co. sells 1,000 VCRs in one month. USP is P500. UVC
is P300. Total monthly FC is P200,000. Compute for the ff.:
(a) Sales (b) Variable Costs (c) Contribution Margin
Formula: Sales - Variable Costs = Contribution Margin
- = Contribution
Sales Variable Costs
Margin
? - ? = ?
Unit Contribution Margin
Formula:
Contribution Margin per unit = Unit Selling Price – Unit Variable Cost
At Video Co., how much is the Contribution Margin per unit?
Unit Selling Unit Variable Contribution

Price - Cost
=
Margin per Unit
? - ? = ?
 CM per unit indicates that for every VCR sold, Video Co. will have P200
to cover fixed costs and contribute to income.
Contribution Margin Ratio
Formula:
CM Ratio = Contribution Margin per unit / Unit Selling Price
Contribution Unit Selling Contribution

Margin per Unit  Price
=
Margin Ratio
P200  P500 = 40%
 The CM ratio means that 40 cents of each sales pesos (P1 x 40%)
is available to apply to fixed costs and to contribute to income.
BREAK-EVEN ANALYSIS FORMULA
• Break-even formula below represents break-even point as

number of products/services needed to break even.
• Formula:
Breakeven point sales = Fixed Costs and Expenses
Contribution Margin%
Breakeven point sales volume = Fixed Costs and Expenses

Contribution Margin per Unit
Break-Even Analysis: CM Technique for Units
Since CM equals total revenues less variable costs, it follows that at
break-even point, contribution margin must equal total fixed
costs.
Formula to compute break-even point in units:
Break-Even Point in Units = Fixed Costs/Contribution Margin per unit
Contribution Break-even
Fixed Costs  Margin per Unit
=
Point in Units
P200,000  P200 = 1,000

Break-Even Analysis: CM Technique for Pesos
When the CM ratio is used, formula to compute
break-even point in pesos is shown below:
Example: CM ratio for Video Co. is 40%.
Contribution Break-even
Fixed Costs  Margin Ratio
=
Point in Pesos
P200,000  40% = P500,000

BREAK-EVEN CHART
• From a decision-making point of view, it is also important
to know whether or not a particular cost will vary as a
result of a given decision.
• By adding graphically variable cost to the fixed cost for
different levels of activity (e.g. number of goods
produced), a total cost curve can be drawn.
• If a revenue curve is super-imposed on the same graph
(Fig. 18.2) the result is the break-even chart which depicts
the profits/loss picture for several possible cost-revenue
situations at different levels of activity.
BREAK-EVEN CHART
Traditional versus CVP Income Statement
VARGO VIDEO COMPANY
Income Statement
For the Month Ended June 30, 1999
Traditional Format CVP Format
Sales P 800,000 Sales P800,000
Cost of goods sold 520,000 Variable expenses
Gross profit 280,000 Cost of goods sold P 400,000
Operating expenses Selling expenses 60,000
Selling expenses P100,000 Administrative expenses 20,000
Administrative expenses 60,000 Total variable expenses 480,000
Total operating expenses 160,000 Contribution margin 320,000
Net income P 120,000 Fixed expenses
Cost of goods sold 120,000
Selling expenses 40,000
Administrative expenses 40,000
Total fixed expenses 200,000
Net income P 120,000
2. MARGIN VS MARK-UP
Margin vs Mark Up
• These two calculations are often confused and used
interchangeably, but it's vital you know the difference.
• Confusing your mark up and margin figures could result in
you seriously undervaluing your products/services and
risking not making enough profit to cover all of your costs.
• The easiest way of working out the difference is by
calculating both figures and putting them side by side.
• You will notice that mark up percentage is always higher
than margin.
MARGIN
A. Margin
• A margin shows you percentage of each sale that is profit.
• Used to determine your business' profitability and can help
you make budgeting and pricing decisions.
• Also a key calculation lenders and investors use to
determine whether you're a good candidate for finance.
• Formula:
Margin = (Sales - Cost of Goods Sold)/Sales x 100
MARK-UP
B. Mark up
• Mark up is percentage amount added to cost price of goods,
to arrive at a selling price.
• Generally used to select a price for your products/ services so
that your prices aren't too high or too low.
• When calculating mark up, it is useful to take into
consideration margin percentage as a starting point.
• Formula
Mark up = (Sales - Cost of Goods Sold)/Cost of Goods Sold x 100
MARGIN VS MARK-UP
Example:
Mark sells a product for P15 which costs him P10 to
produce. Mark wants to know what percentage of his
product is profit (margin) and what percentage is mark up.
As you can see in the example below, while Mark has a
mark up of 50%, his margin or his profit on the product is
only 33%.
Margin = (P15 - P10) / P15 x 100 = 33%

Mark up = (P15 - P10) / P10 x 100 = 50%
3. MARK DOWN
Mark down
• A mark down is a percentage discount applied to a product.
Generally, a markdown is used during a promotion or sale for
the purposes of attracting sales and also useful for shifting
surplus or discontinued inventory.
Mark down price = Original price – (Original price x
Markdown)
• Example:
Mary wants to shift her least profitable stock and has decided to
to sell her goods at half price. Here is Mary's calculation:
Mark down price = P20 – (P20 x 50%) = P10
PROFIT RATIOS
Profit Ratios
1. Gross Profit Margin Ratio
• Gross profit margin ratio shows proportion of profit for
each sales pesos before expenses have been paid.
• An acceptable gross profit margin ratio varies from
industry to industry but in general the higher the margin
the better.
• Formula:
Gross Profit Margin = Gross Profit/Sales : 1.0
NET PROFIT MARGIN RATIO
2. Net Profit Margin Ratio

• A net profit margin ratio shows the proportion of
profit for each sales dollar after expenses have
been paid. An acceptable net profit margin ratio
varies from industry to industry but generally the
higher the margin the better.
• Formula:
Net Profit Margin = Net Profit/Sales : 1.0
GROSS PROFIT VS NET PROFIT
3. Gross Profit vs Net Profit

• Difference between gross profit and net profit can
easily be seen on profit and loss statement.
• Gross profit is sales minus cost of goods sold, but does
not factor in business operating expenses.
• Net profit is a truer indication of profit, as it factors in
both cost of goods sold and operating expenses.
Gross Profit vs. Net Profit
• Example:
For May, Jeff has sold 30 products at P15 each. Each product costs him
P10 to produce and his overall operating costs for the month are P80.
Gross and Net Profits for the month are:
Sales P450.00
Less: Cost of Goods Sold 300.00
Gross Profit P150.00
Less: Operating Costs 80.00
Net Profit P 70.00
========
4. RETURN ON INVESTMENT (ROI)
Return on Investment (ROI)

• ROI shows how efficient your business is at
generating profit from the original investment
(equity) provided by the owners/shareholders.
• Lenders will also be interested in your ROI to help
them determine the financial strength of your
business.
• Formula:
ROI = Net Profit / Owner's Equity
LIQUIDITY RATIOS
1. Current Ratio/Working Capital Ratio

• The current or working capital ratio works out your
business' liquidity — which is how quickly your
business can convert assets into cash for the
purpose of paying your current bills/liabilities.
• This ratio is a good measure of the financial
strength of your business.
Liquidity Ratios
• Example:
 A ratio of 1:1 means you have no working capital left
after paying bills.
 So generally, the higher the ratio, the better off your
business will be.
• Lenders will also be interested in your current ratio to help them
determine your capacity to repay a potential loan.
• Formula:
Current ratio = Current assets/Current liabilities: 1.0
Liquidity Ratios
2. Quick Ratio
• Quick ratio or acid test ratio is similar to current ratio
except that it excludes inventory, which can
sometimes be slow moving.
• This ratio provides a much more conservative
measure of liquidity of a business.
• Example: Ratio of 1:1 means you have no working
capital left after paying bills. So generally, the higher
the ratio, the better off your business will be.
Quick Ratio
• Lenders will also be interested in your quick ratio to

help them determine your capacity to repay a
potential loan.
• Formula:
Quick ratio = (Current assets – Inventory)/
Current liabilities : 1.0
FINANCE RATIOS
1. Debt to Equity Ratio
• Debt to equity ratio shows you what type of financing your
business is more reliant on – debt or equity (private
investment).
• Ratio of 1:1 means you have an equal proportion of both
debt and equity.
• In general you want a mid-to-low level ratio. The higher
the ratio, the higher risk your business is to lenders.
• Debt to equity ratio = Total liabilities /Total
equity : 1.0
Finance Ratios
2. Loan to Value Ratio
• Loan to Value Ratio (LVR) is loan amount shown as
percentage of market value of property or asset that will be
purchased.
• Ratio helps a lender work out if loan amount can be
recouped in the event loan goes into default. LVR will vary
but the lower the LVR, the better.
• Formula:
LVR = (Loan amount/Property or asset value) x 100
EFFICIENCY RATIOS
1. Accounts Receivable Turnover Ratio

• This ratio measures your effectiveness at collecting
debts from your customers.
• A low ratio can indicate that you need to do more
work to collect your debts.
• Formula:
Accounts receivable turnover =
Total sales/Accounts receivable : 1.0
Efficiency Ratios
• B. Accounts Payable Turnover Ratio

• Ratio measures your effectiveness at paying your
debts.
• The lower the ratio, the more you need to
reassess your cash flow situation.
• Formula:
Accounts payable turnover = Cost of goods
sold/Accounts payable : 1.0
Efficiency Ratios
C. Stock/Inventory Turnover Ratio
• This ratio measures your effectiveness at turning over
your stock.
• A low ratio can indicate that your stock is either naturally
slow moving or that you need to increase your rate of
sales so that your stock spends less time in storage.
• Formula
Stock/Inventory turnover = Cost of goods sold/ 0.5 x
(Opening inventory + Closing inventory) : 1.0
References
https://courses.lumenlearning.com/tcc-managacct/chapter/introduction-to-budgeting-and-
budgeting-processes/
http://www.dummies.com/business/operations-management/benefitsof-budgeting-that-relate-to-
business-management/. Accessed on June 20, 2018.
https://extension.psu.edu/partial-budgeting-for-agricultural-businesses. Accessed January 7,
2018
http://www.fao.org/docrep/w7507e/w7507e05.htm. Accessed on June 20, 2018.
http://www.pagba.com/wp-content/uploads/2016/07/GOVERNMENT-ACCOUNTING-MANUAL-
for-NATIONAL-GOVERNMENT-AGENCIES.pdf. Accessed on June 17, 2018.
https://www.sba.gov/sites/default/files/files/PARTICIPANT_GUIDE_FINANCIAL_MANAGEMEN
T.pdf. Accessed on June 17, 2018.
211
References
• Business Net Online. BNET Business Dictionary.
• Evans, Edward A. June 2008. Primer for Developing a Farm Business Plan. UF/FAS
Extension. Original publication date June 2008. Reviewed October 2017.
http:/edis.ifas.uft.edu.
• Kay, R. D., and W. M. Edwards. 1994. Farm Management. 3rd ed. New York: McGraw-Hill.
New Farmers, U.S. Department of Agriculture - https:// newfarmers.usda.gov/. O’Brien, D.,
N. D. Hamilton, and R. Luedeman. 2005. “Risk Management.” In The Farmer’s Legal Guide
to Producer Marketing Associations, 67-82. Des Moines, IA: Drake University Agricultural
Law Center. http:// nationalaglawcenter.org/wp-content/uploads/assets/
articles/obrien_producermarketing_ch6.pdf. Risk management resources, U.S. Department
of Agriculture Economic Research Service - www.ers. usda.gov/topics/farm-practices-
management/riskmanagement.aspx.
• SARE, 2003. Building a Sustainable Business: A Guide to Developing a Business Plan for
Farms and Rural Businesses. Sustainable Agriculture Research and Education (SARE),
Washington D.C.
• "Tools for Success: doing the right things and doing them right", published in October 2008.
COURSE OUTPUT
Prelim Exams
1. What is the best financial management system? Discuss your
reasons extensively.
2. Explain the various principles that should be observed in order to
achieve a good financial management system.
3. Why is there a need to monitor cash flow?
4. Discuss the benefits of good financial management.
5. Define financial management.
6. Give the objectives of financial management.
7. What are the three major financial statements?
8. Prepare a simple income statement; balance sheet; and cash flow
statement.
Mid-term
1. Discuss the importance of budget for planning and control.
2. Why is budgeting important to business management?
3. Cite the benefits of budgeting to business management.
4. Why is there a need to conduct performance evaluation? Discuss.
5. Explain participatory budgeting. Why is it important to management?
6. What is a business plan? Why do you need a business plan?
7. What are the components of a business plan? Give a brief description of
each component.
8. What is farm plan budgeting? Explain the importance of farm plan
budgeting.
9. What are the four types of farm plan budgets? Explain each.
10. What are the conditions to be considered in budgeting?
Final Examinations - March 12, 2019
1. Identify the five major key performance indicators (KPI). Discuss the
importance of each KPI. (10 points)
2. What is the importance of break-even analysis? (10 points)
3. What are the types of costs important to the determination of break
even point? Give at least three examples for each type of cost. (15
points)
4. Why do some agribusinesses fail while others succeed? Discuss the
facilitating factors which contribute to the success of an agri
business and the hindering factors which cause the failure of some
agribusinesses. (15 points)
5. Juan Company has assets of P5 Million and liabilities of P2 Million. Current
assets is P 1.0 Million while current liabilities is P1.5 Million. Juan Company
would like to avail of loan from the bank in the amount of P2 Million. If you are
the banker, are you going to approve the loan application of Juan Company?
If yes, cite reasons for approving the loan. If no, give your reasons. (10 points)
6. Juan has sold 500 products at P50 each for the whole year. Each product
costs him P15 to produce and his overall operating costs for the year is
P15,000. Total amount of investment of Juan in the business representing
owner’s equity is P30,000. (20 points)
a. How much is the gross profit?
b. What is the gross profit margin?
c. How much is the net profit?
d. What is the net profit margin?
e. Compute for the ROI.
f. Interpret the results of your computation as to the profitability and
efficiency in generating profits.
7. Pen Co. sells 50,000 pieces of ball pens in one month. Unit selling price
is P50. Unit variable cost is P30. Total monthly fixed cost is 150, 000.
Compute the following: (20 points)
a. sales
b. variable costs
c. contribution margin
d. contribution margin ratio
e. break-even point in pesos
f. break-even point in units
-Good luck-
Part II – Business Planning
 Prepare a Business Plan
Deadline submission: During the final exam
Part III - Analysis of the Financial Management System of a

Rural-Based Enterprise
 Analyze the financial management system of any rural-based
enterprise.
Format:
• Introduction/Background
• Vision/Mission
• Goals/Objectives
• Enterprise Profile
• Analysis of the Financial Management System
 Organizational Structure/Chart
 Financial Planning/Budgeting System
 Accounting System
 Financial Performance
- Profitability
- Solvency
- Liquidity
- Sustainability
 Controlling and Monitoring System
• Results and Discussions
• Summary, Conclusion, Recommendations
• References
Deadline of submission: DURING THE FINAL EXAMS.
You may work in group.
- GOOD LUCK!
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FINANCIAL MANAGEMENT

JOYCE S. WENDAM, CESO IV

• Economic growth and development

• Estimation of capital requirements

• Determination of capital composition: Once the estimation have

 clear finance strategy

• There is no one model of a financial management

• It is helpful to identify certain principles when

• Are we satisfied with our budgeting process and

• How do our staff respond to the system? Do people

• Budgeting is the process of creating a plan to spend

• Do you know why a budget is so important?

• Set a timeline for achieving each goal and track your

• One of the reasons people fail when they begin to

• Once you have decided what you want your budget to

• After the first month you will need to evaluate your

• A complete farm financial system is composed of a set

• Four planning budgets to record financial details:

(a) To estimate profitability of plan; and,

(b) To estimate impact of any proposed change to

Cash Flow from Operating Activities:

Loans & transfers 0 0 0 0 0

Total Cash In 6,650 11,400 9,500 9,500 14,250

• Whole Farm Budget - summary of available resources

Present farm program Alt1 Alt 2

Take, for example, the choice to hire custom crop

• Farm enterprise budget is organization of revenues,

• Under the revenue section, all items produced by the

• In addition, a properly prepared budget allows

• If these assumptions change during budget period,

2. Budgeting motivates managers and employees by

• Budgeting involves the coordination of financial and

1. Top management support

• Participatory budgeting means that all levels of

• Management should frequently compare accounting data

1. Discuss the importance of budget for planning and

• Basic objective of any control system is to provide

• To make control system more effective, organization

Audit process - broadly speaking - has four elements:

A. Financial audit examines financial records and controls with

C. Operational audit examines efficiency of operations and

• Problem identification may sometimes indicate that

1. Discuss the importance of auditing. Why is there a need

• Components of business plan can vary considerably:

• Amount of detail in a business plan will vary depending on

• KPI is a blanket term for the types of markers that

• Financing is also a possibility to help smooth out

Net Profit Margin

• Cash flow can be defined two ways:

• Moving cash in or out of a business

• The second section, Operating Uses of Cash contains

• The third section, Non-Operating Uses of Cash, show

• Subtract your Uses of Cash from your Total Cash

Cash Flow from Operating Activities:

• Increase the number of items sold

• Reduce or change the timing of your owner’s draw

• Research vendor options for buying inventory at lower

• Establish policies to get paid sooner from customers

• It is recommended that entrepreneurs benchmark

• Financial or benchmarking ratios are useful to help

Formula: Sales - Variable Costs = Contribution Margin

At Video Co., how much is the Contribution Margin per unit?

Unit Selling Unit Variable Contribution