CFAMN2 Set and monitor financial targets for your business

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1 Overview If you want to run a successful business you need to keep track of the money you use, save and spend. Setting financial targets and monitoring how well your business does against them will help you to this. You might do this if you are: 1. creating a business plan for a new business or a social enterprise 2. reviewing the financial plan of an established business or a social enterprise 3. seeking additional finance to expand your business or a social enterprise 4. changing the products or services that you are offering Set and monitor financial targets involves: 1. researching different ways to measure the success of your business 2. setting up systems to monitor the financial performance of your business 3. deciding what to do if what happens is different to what you expect CFAMN2 1

2 Performance criteria You must be able to: P1 make a realistic estimate of the financial state of your business P2 research different ways to measure the success of your business P3 decide what information you need to prepare a financial forecast to help plan your business and measure profit P4 produce accurate forecasts for particular accounting periods and present them in an appropriate way P5 make sure that the financial information you use for forecasting is based on valid and reliable information P6 use the forecasts in the financial planning and management of your business P7 accurately work out business income and spending and regularly check their effect on profit targets P8 identify differences between forecast profits and actual profits P9 investigate what is causing the difference between forecast and actual profits and what effect these have on your business P10 set financial targets in line with your financial plans for your business P11 prepare a clear financial plan and use it to assess and help improve the financial performance of your business P12 decide what financial management systems to use in your business P13 identify ways to keep your tax liabilities to a minimum within the law CFAMN2 2

3 Knowledge and understanding You need to know and understand: Setting targets K1 what financial targets are important to your business (for example, turnover, cash flow, profit, profit margins, borrowing, tax efficiency, investment and cost efficiency) K2 how to assess the impact of financial targets on productivity, sales and non-sales revenue, costs and spending K3 how to work out the important ratios that measure how successful different parts of your business are (for example, gross and net profit as a percentage of turnover or sales, or the return on capital used) K4 how to find out when income will match spending (break even analysis) Financial forecasting K5 what particular financial forecasts need to be done (for example profit and loss, cash flow, income, spending, movements in, assets and liabilities, budgeting and production, sales) K6 what problems are likely to affect business forecasting, such as market changes on products and ranges, resources and operating costs Increasing profitability K7 how to work out the difference between gross and net profit, basic profit and loss statements, high and low forecasts and simple ratios and how to use this information to analyse the profit margins for different products and markets K8 what the appropriate profit margins are for your business, how to monitor profitability and how often this should be done K9 how to decide what range of stock to offer by taking account of: K9.1 product life cycle (the way in which sales rise and fall introduction, growth, maturity and decline); K9.2 stock turn (the value of stock held against annual sales) K10 how to compare stock range and volume of sales with: K10.1 production (unit costs) K10.2 finance (stock costs); K10.3 purchase (volume discounts); K10.4 pricing policy (margins) Financial plan K11 what a financial plan should consist of, including: K11.1 an assessment of the financial state of your business and financial aims, with the important ratios of profit against turnover, sales or capital K11.2 cash flow, profit and loss statements and forecasts K11.3 a balance sheet CFAMN2 3

4 K11.4 information about the control systems and performance measures to be used K11.5 the break-even point K12 how to use contingency planning (ways of avoiding any potential problems) K13 what basic ways there are of keeping the amount of tax you pay to a minimum K14 what your liabilities are under current laws (for example for long-term planning and reporting duties and insolvency) Accounts management K15 how to select manual and computer-based systems (for example ledgers, journals, budgets, invoicing, receipts, payments, accounting periods, finance year and tax year K16 which financial statements and statutory returns are relevant to your business (for example, profit and lost, balance sheets, old debts, account journals or tax returns) in terms of your trading status (for example, sole trader, partnership, limited company) K17 how to use different accounting periods for planning K18 why your business needs financial information, such as keeping a check on customer payments (credit control), managing the amount of the money coming in and going out (cash flow management), monitoring the activity in your bank account and the charges made by the bank (bank monitoring) CFAMN2 4

5 Additional Information Links to other NOS 1. MN1 Decide on the financial needs of your business 2. MN3 Keep financial records for your business 3. MN4 Manage cash flow in your business 4. MN6 Invest capital in your business 5. MN7 Get finance for your business 6. MN8 Monitor borrowing for your business Links to other standards 7. If your business grows and develops a management team it may be appropriate to consider the following units from the Management and Leadership Standards. 8. B3 Develop a strategic business plan 9. E1 Manage a budget CFAMN2 5

6 Developed by CFA Business Work Version number 1 Date approved May 2008 Indicative review date Validity Status Originating organisation Original URN Relevant occupations Suite Key words May 2010 Current Original Sfedi MN2 Business, Administration and Law; Managers and Senior Officials; Farmer; Director; Farm Manager; Unit Manager Business Enterprise; Agricultural Management success, business, idea, social, enterprise, customers, products, service, support, creative, idea, skills, needs, suppliers, cash, flow, legislation, marketing, market, trends, competitors, health and safety, VAT, equipment, costs, profit, staff, product CFAMN2 6