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‘ABC’ Strategies to Sustain Growth of Small Businesses in The Least Developing Countries (LDC)
As the World Economic Forum opens in Cape Town, South Africa, this article suggests simple ways for small businesses in the world’s poorest countries to keep their businesses afloat.
I. Keeping proper financial records.
The numbers that a business generates are indicators of its health and growth. However, many small business managers are positively afraid of them and therefore do not regularly control or update them.
Monitoring the health of a business using annual accounts is not enough. This is usually not available until next year which is a long time away to know the financial position of the business.
There are good reasons why an owner should ensure that good business records are kept, for example, to provide information to Inland Revenue, Customs and Excise (for VAT) and bank managers. The most important reason, however, is that properly kept accounts, summarized at the end of each month and combined with a stock take or estimate of stock value, will give the owner-manager up-to-date information. Information about business. By doing so, it will enable owner-managers to detect danger signs and react with enough time to take corrective action and plan further for the future.
II. Development of modern financial management methods.
It is essential to assess the working capital requirements of the business. Discounted cash flow analysis can be used to support investment decisions (ie import and export of goods). Financial management methods such as discounted cash flow analysis can be incorporated into the Ghanaian primary school curriculum in the early school years as most small businesses or small medium enterprises (SMEs) employ many school leavers. In a situation where the majority of products are imported from overseas suppliers, proper management of currency is essential. As mentioned earlier, foreign exchange hedging can be used to lower or lower the purchase price of imported products. This does not mean that a small business should grow overnight but introducing modern financial management practices to small businesses at an early stage of development is essential if they are to sustain rapid growth.
III. A sound financial management strategy
How to use the available funds to achieve the desired goals. In other words, setting objectives so that various financial obligations can be met with the best available financial practices including working capital and current asset management. This would include keeping good records of assets owned by individuals used by the business. Periodic estimates of the market value of these assets would be more appropriate. It is knowing the true value of a business at any given time.
Introduction of proper financial and investment strategy will provide steady and sustainable growth to the company in future. Dependence on overdrafts as a form of working capital can be reduced by the owner-manager arranging fixed term loan agreements with his bankers. Other sources of finance should be explored such as having business relationships with multiple banks and engaging business angels. He should have a strategy.
The company should take advantage of some of the existing government schemes such as the Business Assistance Fund (BAF) and ask a financial management consultant to assist in the formulation and implementation of a strategic financial management plan. Following the above, it is imperative that business managers are involved in the management of the organization. This provides the company with the opportunity to achieve its goal of penetrating the wider economy and the ability to sustain profitability.
IV. Negotiations and dealings with bankers
Bankers should be negotiated, not just to discuss rates and loan maturities, but to protect the owner-manager’s personal wealth. -ie by getting the bank to agree to new terms so that it no longer acts as a personal guarantor for the business. Also, the owner may agree to pay a percentage or higher interest to make it possible to separate the assets he owns and the business owns. V. Set up a proper Management Information System (MIS).
The use and introduction of information technology in business can serve as a powerful competitive weapon to facilitate accurate information or data collection and business record keeping. That means introduction to computer hardware and related financial management software, EPOS (Electronic Point of Sales) machines, accounting software etc. It should be based on financial planning and forecasting.
Sixth. Developing Financial Management Benchmarks for SMEs
However, the company’s growth is hampered to some extent by structural weaknesses inherent in the particular industry. These include, for example, fragmentation, limited distribution channels, lack of concerted efforts and coordination, and above all, no standard economic policy. According to standard financial policy, small business owner-managers have a benchmark for incorporating a financial management discipline. For example, a strict code of avoidance in over trading, overstocking and understocking needs to be designed and implemented.
VII. Introduce more differentiated products and become cost effective
Since the market is young and still growing, a strategy of increasing market share should be pursued continuously so that stock turnover increases and slow moving items decrease. Market share in export markets can be gained through a more proactive and targeted-marketing orientation. This system will be more efficient than the current shot-run method of random selection of clients.
Being a small company, it is an advantage because it can be more flexible to meet the demands of its customers. Areas where it can be used include, for example, delivery time, quality, order processing and new product launches, and customer service. It can sustain the business by strengthening and maintaining the quality at a high level. If people are aware of product quality, the business will be able to generate more sales through product knowledge, training and development programs.
A very rare tactic in Ghanaian business circles, the company can retain market share and grow it by providing efficient after-sales service to its distribution channels. It is possible to differentiate products through improved customer service, faster delivery, order taking and processing, quick response to inquiries, product availability.
remember Creating a new organizational structure.
Some financial institutions consider the ability of the employees dealing with them to broker transactions. Employment of skilled workers outside the family or motivated employees. For example, a finance manager, accounting clerk, financial administrator who can double as a secretary. Small companies’ limited financial resources often make it difficult for them to attract high-quality people in the early stages. However, as the company grows, its managerial requirements will outgrow the capabilities of the original workforce. Additional workload is usually transferred to the owner who may not be able to handle all the tasks at hand. If a company’s survival and growth depends on sound judgment, it is imperative to have the best possible decision makers with adequate financial backgrounds.
IX. Development of a new management style to fit the company’s vision.
In small companies, the owner often has the vision of the company and takes care of every detail. Unfortunately, this 100% manipulative style of management usually does not allow employees to develop their talents and skills. Employees are not encouraged to think that the boss doesn’t have all the answers. Inadvertently, the employer takes away the responsibilities of the employee. There is a risk that employees will not be able to exercise their initiative when the owner is away. For this, it is proposed that the owner should develop an organizational style of leadership. This will enable employees to fulfill their potential and expectations from them. This can be achieved through training so that they can perform their roles and responsibilities effectively.
X. Develop a financial plan to:
Sales and distribution is the system used to get products and services to customers, – ie the company’s own sales force should be used for direct marketing. Alternatively, other distributors and retailers can be used or set up their own retail outlets. It is envisaged to promote distribution which is found to be a problem for most SMEs.
Pricing and Discount Policy- Current practice in business is for owners and employees to charge different prices to different customers based on their judgment of the customer’s ability to pay. This creates confusion among some customers. While the actual price list is not critical, the general price structure and the rationale behind this structure should be provided. Consideration should be given to policies regarding discounts and price changes, as well as the impact of pricing policies on gross profit (revenues less cost of goods sold). Homestretch Ventures, for example, has proposed charging indirectly for hairdressing services by offering free drinks to customers on peak days, including Sundays, when competition in the hairdressing business is fierce.
Future marketing activities and related budgets are intended to show how the overall marketing effort will be organized and how business resources will be allocated among the various marketing tools. A sales strategy should be developed in each market to sustain future growth. E.g. Establishing agencies in other parts of the country and increasing contact with suppliers etc. This strategy will be a copy-cat of large retail and manufacturing firms in Ghana that have been successful using such a strategy. It will play a vital role in the company’s efforts to generate sales – advertising, public relations and promotions. In this context the purpose of the business should be briefly stated in basic terms. One way to accomplish this is to focus on communication campaign concepts and creative content. For example, equipment to be used and vehicles to be used, such as electronic media, print media or direct mail.
Seek the services of an outside agency to help with advertising and promotion. Although FM stations are popular, SMEs need to explore other mediums to build their corporate image. Local media outlets that write or broadcast information on businesses in the community should also be contacted – ie newspapers, radio and television. This is believed to reduce costs but generate the necessary sales and returns, thereby providing the necessary cash flow.
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