Operator CPC Training
This week concludes our three part look at business and financial management. Before we move on to our final topics, let’s have a quick recap on the most important financial reports a company needs to focus on:
The Balance Sheet
You should recall that the balance sheet is an essential tool when it comes to business management. The balance sheet reports on the worth of a company at any given time by showing a company’s assets (owned by a company) and liabilities (owed by a company).
The Trading and Profit and Loss Account
Meanwhile, the trading account informs managers of the gross profit a company has made. This is achieved by deducting direct costs from the total turnover.
The profit and loss account then subtracts all indirect running costs or overheads such as rent, rates, office salaries, telephone, etc to return the net profit figure.
It’s worth remembering that a business can only be profitable if it has good management. The basic functions of business and financial management include planning, organising, directing and controlling.
Let’s move on to this week’s article which includes a handy summary of the terminology we’ve discussed and learned over the past fortnight:
Purchasing and Stock Control
In order to ensure that a healthy supply of stocks are purchased in order to meet daily demands, an effective method of purchasing and stock control needs to be maintained.
Just as it’s important to ensure there is enough stock on hand, it’s essential for procedures to be in place to safeguard against the over-ordering of stock. If too many funds are tied up in un-necessary stock purchases, there could be a potential cash flow problem which could have been easily avoided.
Frequent stock checks are vital and any discrepancies should be investigated. A lead time should always be considered when re-ordering fast-moving stock. This is the time from ordering the stock to the time of delivery.
The simple calculation for stock reconciliation is as follows:
Opening stock + Plus Deliveries – Stock used = Closing stock.
Let’s look at the following worked example:
Stock Reconciliation Report:
Opening fuel stock – 1,200 gallons
Deliveries – 22,000 gallons
Fuel issued – 18,000 gallons
Closing stock – 5,200 gallons
Statement of Accounts
It is good practice for a company to issue a statement of account to their customers, informing them of the total amount that is owed.
It is usual for the supplier to issue a monthly statement to customers listing all the invoices which remain outstanding under debits and acknowledge receipt of payments under credits. The final balance shows the amount that’s currently due from the customer.
Statement of accounts can also be issued on the demand of the customer or produced at more frequent intervals if required. Most computerised accounting software can accommodate this.
Another essential element of business management is business continuity planning. Businesses can be unexpectedly compromised by events they have not allowed for.
These events could be commercial, for example the sudden loss of a major contract, or they could be non-commercial events such as a fire, a flood, a terrorist event and so on.
It is therefore important that a business impact analysis be carried out examining and documenting the potential damage to a business should an event or incidents occur.
Key Performance Indicators (KPI)
KPIs help organisations achieve company goals through the definition and measurement of progress.
A business will agree upon the key indicators. These indicators can be measured to reflect success factors.
The KPIs selected must reflect an organisation’s goals. They must be relevant to its success, and they must be measurable. KPIs usually are long-term considerations for an organisation.
To conclude, a vehicle operator must have a good knowledge of business and financial management to enable them to judge the profitability of their operations.
An operator with a poor financial structure is almost certain to run into long or short term difficulties such as cash flow problems.
Financial Terms Summarised
Lists the liabilities and assets of a company which shows the worth of a company but does not show the income and expenditure of a business.
Total Capital Employed
The long term funds available for the business. Remember the calculation:
Fixed assets + current assets – current liabilities
The amount of money left should a company decide to pay all of its short term liabilities out of its current assets. Remember the calculation:
Current assets – current liabilities
Return on Capital
The profitability of a company. Remember the calculation:
Net profit x 100 divided by the capital employed
Shows the liquid assets to the current liabilities. Remember the calculation:
Current assets – stock value divided by current liabilities
(liquid assets are readily liquefiable current assets that don’t include stock)
Shows the gross profit of a company by deducting the direct costs from the turnover.
Profit and Loss Account
Gives the net profit of a company by deducting the direct costs from the gross profit (obtained from the trading account).
Increases in the direct costs will increase expenditure in the trading account, reducing both gross & net profits.
Increases in indirect costs will increase expenditure in the profit and loss account reducing the net profit only.
Debtor Sales Ratio
The ratio of total sales to debt outstanding on those sales.