Business Accounts For Managers
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The whole point of running a business is to make a profit. But the only way to know if you are actually making a profit is to understand your management accounts. Most managers and business owners don't like to admit it, but business accounts can seem very confusing. So they leave it to their accountant to figure out how the business is doing.
They get their profit and loss account and file them away with that thing called a balance sheet without even understanding what those documents are telling them. Instead they just look at how much money is in the bank and hope that if they generate enough turnover then there must be some profit in their somewhere.
But how do you know which products or services are making you money and which are actually costing you money? I love gut feelings, but I trust the numbers and you should as well.
You see your business accounts are actually very simple. At the simplest level business involves money coming in - that's your revenues - and money going out - that's your costs. Your accounts simply show where the money came from and where it went. And more importantly how much money you have left!
To run a successful business it's vital that you know what your break even figures are for each revenue stream you operate. That way you will know which ones to promote more and which ones to ditch! To do that you first need to split up your costs into the right categories and apply them in a methodical way to your price calculations.
If you don't know the difference between your mark-up and your margin or think that depreciation is just about keeping track of what your assets are worth, then this course is for you. But I want to take you beyond the basics and show you how to read your accounts and how to work out the key financial ratios for your business.
You need to know how to construct your cash flow forecast, know what figures to leave out of your profit and loss statement - and which ones to put in - and how to demystify your balance sheet.
But once you know how to do it, that doesn't mean you need to do them. What it does mean is that you will be able to make better use of your accountant. They usually charge by the hour and if you are going to get your money's worth then you need to know which ratios you want them to give you and what they mean for your business.
Learn why terms such as ROCE and EBITDA are actually very simple and why you should know what they mean for your business. Learn why you need to stop looking at the numbers and get to know your financial ratios. Your business accounts contain huge amounts of information about how a business is performing - if you know how to read them. And understanding them can often mean the difference between bankruptcy and growing a prosperous business.
So now, for less than the cost of an hour with an average accountant you can have the knowledge you need to make sense of your accounts and have productive meetings with your accountant. In business, ignorance is never bliss. And that is especially true when it comes to your accounts. So sign up to this course today and learn how to use the numbers to build a better business.
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|Section 1: Creating A Solid Foundation|
|We will begin our exploration with the realisation that a business simply consists of money coming in and money going out. The purpose of Management Accounts, Financial Records and book keeping is therefore to determine where the money came from and where it went to.
The first stage in having accounts that help you run the business is to split up your costs into Fixed Costs, Variable Costs and Capital Costs. This lesson will explain what each of these are and what goes where.
|To help you understand your accounts you are going to need a business to practice with. So this lesson introduces you to Peter's Factory. We will use his factory to explain the concepts in the rest of the course, so make sure you get a good understanding of his business first - but don't panic, it's a very simple business.
|Section 2: Calculating Your Profitability|
|Depreciation is one subject that seems to confuse people. Most just see it as a recognition that over time things lose value. But in business it is more important than that. It could mean the difference between making a profit and going bust! Confused? Well there is no need. After this lesson you will understand exactly what depreciation really is and why it never shows up in your cash flow.
|It often seems that some people take pleasure in making business finance more complicated than it has to be. in fact, it is as simple as understanding which jam jar to keep your money in. If you think business finance is complicated you are in for a pleasant surprise.
Your Break Even figure is probably one of the most important numbers for the success of your business. This lesson will explain exactly what it is and how to calculate it. But if you don't know how to differentiate your costs, then you need to do that lesson first.
|In Contribution Costing we see each sale as making a contribution towards out fixed costs. So to calculate your Break Even point you just need to figure out the contribution made by the sale and how many contributions you will need. This lesson will show you exactly how to do that.
|In Total Absorption Costing we begin with the sales volume and calculate the price we need to charge to Break Even at that volume. It can seem a little more complicated, but don't worry, this lesson will explain exactly what you need to do.
This video explains how to use the attached spreadsheet to calculate your Break Even using Contribution Based or Total Absorption Costing. I was going to include an open Office version, but unfortunately Udemy does not support that file format. However the attached spreadsheet should just open in the latest version of Open Office . So if you need it in that format please drop me a support ticket at ericsutherland.biz/support and I will send you one - don't forget to give me an email address to send it to.
|Section 3: Demystifying Your Accounts|
In this lesson we are going to start to put Peter's business to work. So we are going to use our jam jar finance system to show how money moves around the business to buy some packaging and materials, make some saucepans, work out our operating profit, pay our capital expenses and ensure that we can balance the books. You will never look at a balance sheet the same way again after this lesson!
Because there are a lot of numbers in this lesson I have also included the slides so that you can print them off and follow along.
Businesses fail because they run out of cash - it's that simple. It doesn't matter how profitable the business is on paper if it isn't generating the cash it needs to finance its operations, then it will break. You need to generate a cash flow forecast for your business so that you have a clear idea how much working capital you will need to keep the business afloat. This is your business budget. It will indicate how much money you expect to get in as well as how much you will have to spend, and also when you will need the money and the impact on your bank balance.
download the spreadsheet for Peter's Factory so that you can follow through the examples and descriptions. You can even convert the spreadsheet to use in your own business!
|Your Profit and Loss account is one of the most important documents in your business. It tracks the profitability of the business over its entire life and shouldn't be confused with the Profit and Loss statement, which tracks profitability over a given period. It tells you where your profit came from and more importantly where your profits went!
|In this lesson we will take a step back and have a look at a proper Balance Sheet. Please watch the other videos first though as this one will tie them together to show you that you have been looking at a Balance Sheet all along, I just disguised it as a bunch of jam jars!
Whether you use Cash Based or Accrual Based accounting usually depends on the size of your business. In any case, it's vital that you understand the difference between the two as both are actually used when preparing your statutory accounts or your regular management accounts. so in this lesson we will look at the differences and show why you should be using Accruals Based accounting when calculating your profit.
|Section 4: Managing Your Business Through The Numbers|
Staring at a set of accounts will not tell you very much. The art of reading accounts is to convert the figures into various ratios. This lesson will introduce you to the ratios and explain why you need to know them if you are going to successfully manage your business. To make life easier I have included a copy of the 3 main financial documents as a downloadable pdf.
I have also included a handout explaining the 8 key financial indicators that you have to know about. download it and check you know what they are for your business.
|Every business needs to invest money in itself in order to make money. But it's important that the business makes a good return from that investment, so ROCE evaluates the return from all the resources used in the business. This lesson will explain what ROCE is and what numbers you put into the calculation to find your ROCE.
|In business it's vital that you don't confuse your mark up with your margin and yet incredibly many people seem to think they are the same thing. This lesson will explain the difference between the two.
|Liquidity is all about checking that the business is not over-trading and can manage its debts OK. In this lesson we will explain what the liquidity ratio is (sometimes known as the Working Capital Ratio) but will also look at the "Acid Test" and Creditor and Debtor Days. Knowing these numbers will give a great indication of whether the business is actually sustainable.
|When we talk about profitability we could mean our gross profit, our operating profit or our net profit. This lesson will walk you through the differences between them and show you how to calculate yours. But if you have some costs in the wrong categories then your figures will never be right. So please ensure you know how to differentiate your costs before taking this lesson.
|Business have two basic structures. The one that you choose has a big impact on your management accounts and how you get your profits out of the business. In this lesson I will explain the two types and the consequences of choosing each.
|Why is it that a profitable business can run out of cash? It occurs when your sales volume outstrips your available working capital to service those sales. It's known as over trading and should be avoided at all costs. This lesson will explain exactly what over trading is, the warning signs to look out for and how to correct an over trading position.
|Section 5: Checking Your Understanding|
|Lecture 22||3 pages|
This is a short quiz to test your knowledge. Once you have completed the course download the quiz to check your understanding. The answers are on a different download, so no cheating!
|Section 6: Your Financial IQ Bonus|
|Lecture 23||13 pages|
|As a special bonus you can download a copy of "Your Financial IQ". It is a short ebook on what money really is and how to look after the money that you have.
Eric is a professional business coach and trainer. He has assisted all types of businesses to start and grow. Fundamental to every business is innovation and marketing and that's what Eric can bring to your business. In the UK, he has delivered start up training for new businesses on behalf of the Welsh Assembly Government.
He has assisted one company to grow their turnover from £150k to over £7M and another from just 3 people to over 20. He is the author of the Sutherland Matrix, the model that demonstrates why there are only 6 viable business models in the world.
Although he has an MBA and other management qualifications, his expertise is in getting rid of the management jargon and explaining business in terms that anyone can understand.