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The report consists of a new business and the environment is also not seen as very promising and the client wants proper financial decisions and opinions. The client wants to sustain the business from a long term perspective and wants to appoint an experienced person to analyze its financial data and entries. He is also trying to analyze the short term goals of the organization and also the client is looking for a logical answer to its questions and problems later in this report. It has also shown the ratios which are of utmost importance for a business to grow in future.
Sustainability is a broad concept and is a term that is used to meet our needs without disturbing the needs of the future generation. In other terms, it can be said that it is the ability which one has to maintain him/her or the way business looks itself in the future ahead. It also ensures proper maintenance of balance between the ecological, Financial, Social demands so that there is not any depletion of natural resources. Here, in this case, some aspects can be taken into account in respect of sustainability such as:
Before setting up this business it should also think about the competitive advantage gap which will lead to the increased profitability and sustainability.( Schaltegger and Wagner ,2017).
There are certain things that the client needs to consider financially in making this investment decision(Virlics, 2013). It is of due importance because by that the profit and the revenue cannot be determined and the business which faces a lot of challenges and problem in the future to grow and move ahead. Some major decisions are discussed below, which are:
The short-term goals of this start-up in terms of financial management are:
Since the client is in the manufacturing business, yes I think he/she should make the products to be sold to the retailers and not the consumers because it will take necessary steps to make it more convincing to the retailers to buy it. It tries to make modifications in the product according to the need of the retailers which are in direct contact with the consumers or the customers. The manufacturing business tries to make a whole or a larger lot which can be up to the expectations and maybe not, so somehow the manufacturer is trying to sell its products to the retailers and earn profit. The distributors or the retailers are in contact with the manufacturers and they purchase from them, so he should try to clear or sell the maximum amount of products he has. Apart from this, it should also think about the alternatives that what the profit margin is if he is in direct contact with the consumers eliminating the middlemen. This is also helping the manufacturers the cost reduction and increased profit with the help of the internet these days. The consumers are also getting inclined over the online shopping so the manufacturers can mark their products their also by reducing retailers (Jones et al, 2016)
Yes, the client has been preparing the budget for his new startup and a financial analyst can help in preparing the budget for the same because he is that person who has a piece of particular knowledge about this and the expertise he holds from years is also great. Generally, the Chief Financial Officer is the go-to person here always because he is the one who handles the budget-making process (Reilly and Brown, 2011). He bears the responsibility of drafting a sound and clear budget analyzing all the aspects and trying to allocate the money in every field resulting in major profitability in the future ahead. He is the person who is responsible for a sound budget allocation because it will certainly determine the areas of spending and the areas where the business can reduce its spending to grow initially. He also helps in continuously tracking the areas of spending and receiving the money which will help in making the goals accordingly and then making changes too. The departmental managers or some senior officers also sometimes get involved in the budget-making in the case if the business has not sufficient funds to hire a well-experienced person when compared to these persons (Habib and Hossain, 2013).
The gathering of financial data plays a vital role in the organisation, which plays various roles also. It should be gathered from various sources such as journals, magazines, Annual Report and various other sources. The financial data must include all the Tax reports, Balance sheet, and Income statement of all the other type of manufacturing companies which will give a fair idea as to work in the future. He should make a budget or a financial plan which will include bill receivables, bills payables, cash flow statement so that it can determine the amount received and spend. It will also keep track of the various operating incomes so that it can maximise revenues. The financial data from various departments should also be tracked, monitored and collected so that the business gets a fair idea about the profitability of the enterprise as a whole(Liao,2020).
Costs are the foremost thing that cannot be ignored when it comes down to the long term view of the business. These costs are incurred by the business from the day of commencement only. Some costs are fixed in nature and some are variable. The costs which are fixed cannot be reduced or eliminated but yes which are variable can be reduced up to some extent such as the cost of registering the business is the one time cost and is not beard by the company later on. Some costs such as equipment costs, professional membership costs, one-time major advertisement costs are one-time costs that are also not borne by the business in the future months. The costs such as area upon which the business will run are also the major cost which will also not be there after the commencement. The costs certainly are more in the initial months such as the raw material, the office supplies, the wages, etc because the owner is new in this and certainly need some time to find alternatives for the raw material supplied to reduce the costs. So, these are those costs that are decreased up to a great level after some months have passed by(Kocakulah et al, 2016).
Certain profitability ratios can be used to assess the profitability of the business and help in the growth of the business. The main ratios such as Current ratio, Quick ratio, EPS and many others. These ratios tell the financial performance and determine the profitability also. The main ratio that determines the profit of a business is Gross Profit Margin and Net Profit Margin which tells how the enterprise is running. The ratios are always calculated for financial analysis so that it becomes easy to grow and expand in the future. The ratio also shows the tax amount which the company needs to pay before determining the net profit and how much it should earn to differentiate itself from others(Rutkowska, 2015). Every time a company is preparing the books of account it needs to maintain the profitability ratio of the enterprise so that a lot of investors find potential in the company.
I. Options available for investment-NPV
No, the person should think of investing the money by himself only and not propose the idea to the investors to invest in the startup proposal but rather he should think that once it stabilizes then he should go for the more investors to invest in. Yes, the Net Present Value is more acceptable and reliable in this startup because it will show that cash flows are more than the initial value and it will also let us determine the Internal Rate of Return also which will tell the cash flows too. It is also known that the amount of money a business holds in the present scenario has more worth than the same money it holds in the future. The firm or the business can also think about the discounted rate by which the company can get close to the customers in the first place. It also indicates whether the cash flows are positive or negative and also try to increase the cash flows (Marchioni and Magni, 2018).
This report gives a fair idea as to why financial management advice is necessary for a new business and client to grow and how critically a consultant looks into the matter of the client. It also shows that how the profitability ratio determines the performance in the organization and what all measures it should take under the financial planning officer to increase sustainability and growth in the future ahead. So, it a foremost report for a new start-up and enterprise containing all the factors which are essential to know before going ahead.
Eccles, R.G. and Krzus, M.P., 2010. Integrated reporting for a sustainable strategy: One Report has the potential to significantly change how companies operate and investors think, shifting the focus from that of meeting short-term financial goals to developing a long-term business strategy that not only commits to corporate social responsibility but also a sustainable society. Financial executive, 26(2), pp.28-33.
Habib, A. and Hossain, M., 2013. CEO/CFO characteristics and financial reporting quality: A review. Research in Accounting Regulation, 25(1), pp.88-100.
Jones, P., Hillier, D. and Comfort, D., 2016. The sustainable development goals and business. International Journal of Sales, Retailing and Marketing, 5(2), pp.38-48.
Kocakulah, M.C., Kelley, A.G., Mitchell, K.M. and Ruggieri, M.P., 2016. Absenteeism problems and costs: causes, effects and cures. International Business & Economics Research Journal (IBER), 15(3), pp.89-96.
Liao, Y., 2020, January. Analysis of the Influence of the Quality of Financial Accounting on the Enterprise. In 2019 International Conference on Management Science and Industrial Economy (MSIE 2019). Atlantis Press.
Marchioni, A. and Magni, C.A., 2018. Investment decisions and sensitivity analysis: NPV-consistency of rates of return. European Journal of Operational Research, 268(1), pp.361-372.
Reilly, F.K. and Brown, K.C., 2011. Investment Analysis and Portfolio Management (Text Only). Cengage Learning.
Rutkowska-Ziarko, A., 2015. The Influence of Profitability Ratios and company size on profitability and investment risk in the capital market. Folia Oeconomica Stetinensia, 15(1), pp.151-161.
Schaltegger, S. and Wagner, M. eds., 2017. Managing the business case for sustainability: The integration of social, environmental and economic performance. Routledge
Virlics, A., 2013. Investment decision making and risk. Procedia Economics and Finance, 6, pp.169-177.
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