Managing Business Operations with Limited Resources

This assignment discusses the importance of management accounting in helping small business organizations manage their limited resources effectively. Despite earning a profit of £10 from their business operations, D'ecor Events is facing issues with short finances, which have resulted in adverse impacts such as less productivity, low morale and motivation among employees, and fewer customers. The assignment highlights the role of cash-flow forecasting in managing cash and reducing expenses, ultimately improving profitability and expanding business operations.

Managing Financial
Resources

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Scenario analysis....................................................................................................................1
Forecasted financial projection:.............................................................................................2
Source of finance....................................................................................................................4
Importance of financial planning............................................................................................5
Financial models.....................................................................................................................7
Accounting techniques.........................................................................................................10
Factors that influence the availability of financial resources...............................................12
Performance Indicator..........................................................................................................13
Rationale of the scenario......................................................................................................13
Assumption of the model......................................................................................................13
Limitations............................................................................................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Business needs sufficient amount of capital to run their operations in an effective manner.
Every organisation whether related to small and large requires to conduct their transactions with
proper finance. This will assist them to control and manage their everyday transactions in an
effective manner. There are various sources from which a company can gather funds such as
internal and external. This project report includes crucial aspects to help entrepreneurs to
determine the available amount of capital for the purpose of expanding their business operations.
This project assessment provides vital information by analysing the mentioned scenario.
Under this summative assessment most of the matter are explain about encouraging work based
issues those are associated with accounting techniques. There are certain financial models is
being discussed under this to enable third party to make use of it in more appropriate manner. On
the basis of financial model some specific problems and their effective solution to management
is been delivered to control their up coming losses. The overall project is providing crucial
analysis of various aspects those are associated with the financial models (Austin and Pinkleton,
2015).
Scenario analysis
According to the mentioned case scenario, it has been seen that D’ecorEnvents
Management is a perfect catering business which is trading since January, 2014. This company is
mainly dealing in freshly baked and event cakes. According to their mentioned business
description about their cake manufacturing operation, it has been seen that they do not have
sufficient amount of profit from their sale of baked cakes. The total cash balance they are having
at the end of the last year is just about 4.4500.
Incomes statement of D’ecor Envents Management
Particular Amount
Sales : 3600+500-350 3750
Less: Expense
Fixed cost expenditure :£50 550
Value of ingredients £800 800
Salary expense £70 770
Transportation cost expense 220
Interest charge 690.96
Total expense 3030.96
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Less: Tax 20% 750
Net profit of loss 19.04
Cash Flow for 2017
Cash in 3750
Other earnings 0
Total Cash in 3750
Cash flow out
Labour 770
Stock cost 800
Transportation expense 220
Fixed bills 550
Loan 690.96
Total Cash out 3030.96
Total Net cash flow 719.04
Cash flow budgeting 2017
Net cash flow 719.04
Opening Balance 500
Closing Balance 1219.04
Forecasted financial projection:
Incomes statement of D’ecor Envents
Management Plan for 2018
Sales 4090
Expense
Fixed cost expenditure : 550
Value of ingredients 400
Salary expense 840
Transportation cost expense 240
Interest charge 690.96
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Total expense 2720.96
Less: Tax 20% 818
Net profit of loss 551.04
Cash Flow improved for 2018
Cash in 3750
Other earnings 0
Total Cash in 3750
Cash flow out
Labour 770
Stock cost 400
Transportation expense 220
Fixed bills 550
Loan 0
Total Cash out 1940
Total Net cash flow 1810
Cash flow budgeting 2018
Net cash flow 1810
Opening Balance 1219.04
Closing Balance 3029.04
Incomes statement of D’ecor Envents
Management Plan for 2019
Sales : 4090
Expense
Fixed cost expenditure : 550
Value of ingredients 400
Salary expense 840
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Transportation cost expense 240
Interest charge 0
Total expense 2030
Less: Tax 20% 818
Net profit of loss 1242
Cash Flow improved for 2019
Cash in 4090
Other earnings 0
Total Cash in 4090
Cash flow out
Labour 840
Stock cost 436
Transportation expense 240
Fixed bills 550
Loan 0
Total Cash out 2066
Total Net cash flow 2024
Cash flow budgeting 2019
Net cash flow 2024
Opening Balance 3029.04
Closing Balance 5053.04
Interpretation: The company is playing to make future projection about there total
incomes by increasing August sales. The fixed cost are still charged even not being working. The
value of ingredients by reducing the cost of suppliers in 2018. The cash flow budgeting is
providing total opening balance of 1219.04. In 2019, again the sales of the company get
increases automatically in this year. Total expense will get reduce as all loan is paid off in 2019.
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Total income they are getting during that year is about 1242. Total net cash flow incurred during
that time is about 2024.
Source of finance
Finance is an essential part of every business organisation. Without having proper
amount of fund, they cannot be able to deal with any operations. It is the utmost need for every
developing business concern. It is vital for the development and growth of cake business to
increase their level of productivity. There are various sources of finance available for
D’ecorEnvents Management business organisation. For the purpose of increasing their market
base in every part of the country. The managers are mainly responsible for selecting crucial kind
of source. This will assist in creating positive outcomes and limitation to the company in very
quick time. In any unincorporated business entity mostly determine valuable outcomes for the
sole traders and partnership organisation (Brigham and Ehrhardt, 2013).
They can raise their capital through selling their baked cakes. They have positive option
to borrow from outside members and friends. By the help of company’s total gains which is very
low after deducting various expenses those are incurred during the time of manufacturing of
cakes (Different sources of finance, 2017). Through using personal savings and gains owners of
an organisation can be essentially helpful for the development of increasing their business
operations. Some effective internal source of finance are mentioned underneath:
Owner’s capital: It is an essential aspect of collecting finance which is invested by the
owners by their own resources. There are no any other parties which are associated with sharing
gains or capital occur during the time.
Personal savings: As this happens to be the primary sources of capital as they do not have
any other party involvement. Any impacts related with profit and losses are directly faced by the
owner at their own.
External sources: These sources are mainly collected from outside the department. All the
factors are directly or indirectly affecting profitability of the company. Some of the basic
elements are discussed underneath:
Grants: These are said to be one of the crucial aspects of collecting capital for
unincorporated business. The amount is supported from the government side to the small scale
business to grow their standards (Chandra, 2011).
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Short term loan: This can be helpful for company to collect short term loan from any
financial institution to manage their cake business. A planned promotion and events can be
spending positively in order to create a corporate image for bakery businesses.
Importance of financial planning
Financial planning is a tool that allocates monetary resources with required expenses in
order to gain high returns and outcomes. Financial planning is helpful in setting short term and
long term goals related to money that ultimately helps in meeting all desired objectives in a
related period of time.
There are some points which state financial planning more clearly and elaboration of
these aspects is described as below:
 Income: This could be managed more effectively through financial planning. A planning
for income tells that how much money is required for tax, monthly expenditures and
savings. It makes clear utilization of financial resources.
 Cash Flow: If incoming of cash flow increases then by effective monitoring, it can be
managed in the best profitable manner so that all activities will keep continue and do not
get affected by less financial resources. This kind of planning comprises tax, prudent
spending and budgeting that will help in earning more cash and profits (Cotton and
Autoalert Inc, 2013).
 Capital: Increment in cash flow is a reason of improvement in capital. Financial planning
allows the manager to consider all factors that are related with investments to improvise
overall financial well-being.
 Investment: An adequate financial planning considers personal situations, goals and risk
tolerance capacity of an individual. It works as a guideline in making choices upon right
investment decisions which should be fit to as per the owner needs, personality and
objectives.
 Financial Understanding: Good financial comprehending can be gained by setting
SMART objectives. It means sustainable, measurable, attainable, rarity and time duration
in which goal would be accomplished.
 Assets: There are some assets which is come with liabilities and it is an effective tool of
financial planning that those assets should enter in association which consist least
liability.
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There is various costs which are required to be managed during the time of production of
cake to earn maximum profit. It is because; cost is anything which will be paid to get something
in return. Some of them are helpful in controlling extra costs that are affecting the profitability of
an organisation. These are mentioned as:
Types of Costs:
Several types of costs associated with finance are as follows: Fixed costs: The cost which cannot vary with the changes in output. For example: plant
rent, loan interest amount, insurance as well as legal bills and many more. Variable costs: This cost are varies with the outcomes. For example, raw material,
machine maintenance, quantity of product and many more. Semi variable cost: Labour are called semi variable because they receive fixed salary
plus compensation or bonus. If company produces more products, they need more
employees. This is a variable cost. Each employee receives fix salary this called fixed
cost (Cusworth and Franks, 2013). Marginal cost: This is a cost of producing extra units by company. For example, if total
cost of produce 4 unit is 200 and 7 units is 350 so that marginal cost for producing extra 3
units is 150.
 Opportunity cost: This is the next best alternative cost which is foregone by an
organisation. For example, company has invested their money in stock market and
receive 5% outcomes but they have an opportunity to invest their money in government
bond which has 6% fixed outcomes. So that 1% is the opportunity cost for the company.
Financial models
Balance Sheet:
This is a statement that records assets and liabilities with capital of a business at a
specific point of time. It is a detail explanation of income and expenditure in a year. If stated in
different words, then balance sheet is a representative of association's net worth. There are three
financial statements, their names are profit and loss account, trading account and balance sheet.
Out of all three financial accounts balance sheet are most important as it presents actual
condition of a firm in marketplace (Higgins, 2012). The liabilities and assets side of balance
sheets are equal that is why it was called as balance sheet because it maintains balance between
all assets and liability sides. It comprises several factors like assets, liabilities, capital, reserves,
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surplus, reserves, bills payables, receivables etc. Long term and short term both transactions
related to assets and liabilities are recorded in balance sheet.
Cash Flow:
This statement records cash transactions only like incoming and outgoing of financial
resources. This statement is a representative of movement of cash. Negative balance of cash flow
shows that business is going in trouble. There are some aspects, described below:
 Incoming of cash from customers who are buying company's product and services. There
are many consumers who do not pay at the time of making purchases then this amount
will come from collection of account receivables.
 When cash is going out of association in the form of payments and expenses then it is
called as outgoing of cash or money (Ilinski and FUSION INVESTMENT ADVISERS
Ltd, 2011).
 Money or cash can be real or virtual.
 This statement does not record long term transactions like purchase of machinery etc.
 It is a statement of recording day to day transactions.
Above are some features of cash flow statement that describes nature of this account.
This kind of recorded data is helpful in getting all information related to cash that whether it is
not putting in wrong way otherwise it will enhance overall cost associated with product for
company.
Profit & Loss Forecasting:
A company does not know that how much profit it will earn in next year. Managers could
not get right answer but they can estimate it by taking help of profit and loss account. It records
whole year transactions and measures them finely then he is able in estimating future profits.
This section finds overall profits in respect to entire expenses that are occurring in life. Profit and
loss is a just next step after break-even point which is no profit no loss situation for company. It
is not a compulsion that this record must be kept on year on year basis but it can be prepared for
month on month basis as well. It comprises all forecasting methods like past performance,
competitor’s analysis, etc. (Rainer and et.al., 2013).
Flexible Budgeting:
This is a budget that is fully affected by changes that occurs in volume of activity. It is
more useful than static budget. As there are so many changes that are arising in marketplace on
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sudden basis but static budget does not allow them to get in record. On the other hand, flexible
budget allows to record all sudden changes and shows actual condition of future forecasting. It is
understood by an example, assume that a producer determines some costs like electricity,
supplies etc. but if any changes occurs in these situations then budget is ready to record and gets
updated.
A flexible budgeting is a forecasting of percentage of revenue in respect to all costs. It
includes all kind of costs whether fix, variable and semi-variable. This budget has wide
importance in financial accounting and described as below:
 Performance of employees and level f incomes can be measured on a given range of
scale. It has been recorded the effect of alterations in sales and marketing department on
outcomes, expenses and mainly on overall income of association.
 This budget makes manager able in accurate assessment of managerial and organisational
functionality.
There are some steps in preparing flexible budget:1. Specific time period for budget.2. Classification of all costs into fix, variable and semi-variable.3. Setting standards that will be use in performance evaluation.4. Analysis of cost behaviour patterns in response to past activities and levels.5. Building of flexible budget for particular levels of activity.
Cash flow forecasting:
Cash is a life blood of all business activities, so that it’s very important for an
organisation to manage their cash flow in an effective manner. Forecasting is a method to
understanding the future needs of funds (Rees and French, 2016). Cash flow forecast is an
estimate of fund which expected to flow in and out of business. It includes all projected expenses
and incomes. Mostly, forecast is done for 12 months but some companies do this according to
their needs. Forecasting report can help to predict future cash surpluses or shortages which
provide assistance to management in their decision. This can help in planning, develop strategies,
tax preparation, operation activities and identify need to secure business loan. For prepare cash
flow forecasting some important points are estimate overall sales and their payment time, cost of
production and then forecasts. Some important forecasting method are distribution method,
Regression analysis and time series trends and seasonal variances.
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Cost analysis:
Cost analysis is a process to evaluate the value of money on particular project or
investment. In order to conduct this, a firm uses costs ratio and many indicators that determine
the same. For such a procedure, all negatives and positive points of an assignment are quantified
first in monetary terms. Some step for cost profit analysis are as follows:
 Define all cost in business unit like direct and indirect cost, intangible, opportunity,
potential risk cost etc.
 Itemize tangible cost of intended project.
 Explain all intangible costs in an effective manner.
 Itemize all projected and work benefits in a systematic manner.
 Compare all project cost and benefits and prepare report which help in decision making
process of an organisation's management.
 Estimating payback period time for venture and project in order to know future
requirements.
By using this cash benefit analysis managers can make valuable decision about whether
pursue that project or not.
Management accounting system evaluation:
It is the process which includes identification, analysis, recording and presentation of
financial information which is used by the internal management of organisation regarding
planning, decision making and control of the different functions of company. This includes the
preparation of different accounts with the help of different accounting techniques which provides
both financial and non-financial information.
Financial accounting is different concept which includes the preparation of profit and loss
account and income statement which provides the information regarding the financial position of
organisation. Such information is used by the external stakeholders to enhance their decision
making.
Accounting techniques
There are different kind of accounting concepts which are used regarding overall
development of all the areas of business. The different kind of techniques are mentioned below:
 Planning and budgeting
 Short and long term project decision making
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 operational measurement of performance
All three techniques have their different functions and importance in organisation which
are defined below:
Planning and budgeting: It is important aspect which includes the process regarding
planning of the future activities and preparation of the budgets which provide goals and
objectives which are required to achieve while performing their functions. It helps in
determination of the funds which are required by company to complete their operation and their
effective allocation. It also helps in ascertainment of all the cost which going to incur for future
performance of their functions and ascertainment of the profit margin (Zapantis and et. al.,
2014).
Short and long term project decision making: It another important accounting
technique which helps in taking of important decisions. Through the use of such technique cost
and benefits which are associated with project is ascertained effectively.
Performance measurement: It is effective accounting technique which helps in
comparing the actual results with the budgeted. Standard costing is important costing method
which is used for comparison of standard and actual cost.
Importance of accounting techniques
There are large number of benefits are gathered by management of D'ecor events through
adoption of accounting techniques. Such different benefits are mentioned below:
 Keeping records: There is huge role is played by the accounting methods regarding
keeping of the records of different activities. Such records are further evaluated and
important information is interpreted which is communicated to end users to improve their
decision making ability. It has positive impact upon the productivity of the employees of
company.
 Decision making: The financial statements which are prepared by the management of
D'ecor events helps in taking effective economic decision. Without such information
sound decisions are not taken and making impossible to achieve organisational
objectives.
 Reporting profits: The main objective of every business is to earn large number of
profits. Adopting of effective accounting system helps in ascertaining the amount which
is earned by company during the given period of time.
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 Management of cash flow: These accounting systems helps in proper take care of the
working capital and other cash requirements in business. This will have huge importance
for organisation regarding reduction of their expenses and improve their profitability.
Planning and budgeting is the most important accounting technique for D'ecor events in
current scenario. It is observed that, company is suffering from the lack of financial resources.
This problem has large number of adverse effect upon the business operations of D'ecor events.
The drawbacks which are faced by the owner of event company is decreased efficiency in
departmental functions, less variation in facilities etc. This situation also affects the profit
capacity of company. Planning and budgeting plays an important role to overcome from this
situation. Planning of future issues and operations helps in preparation of the budgets and
standards which provides the direction to staff members regarding performance of their functions
and accomplishment of their targets (Woods and et. al., 2012).
It is observed that, extra costs are incurred by bakery company while proving their
services such as carrying cost, insurance expenses, rent charges, storage cost. All such expenses
have great impact upon the profitability of D'ecor events. Due to such expenses only 10 pound of
net profit is earned by the D'ecor during financial year and the amount which is laying their bank
account is only 4 Pound. All such issues are arising in event company due to ineffective
management. To remove such problem, need to forecast about the future operations and
preparation of plans regarding the extra expenses. Planning helps in identification of the
alternatives which helps in reduction of their expenses and improve their profitability. It
contributes in saving of the extra cost and optimum utilisation of given resources. It also
provides the opportunity regarding ascertainment of the demand of their cakes in market and
according to which appoints new staff members. It helps in proper use of their funds which
contributes in improvement of their productivity and profitability.
Factors that influence the availability of financial resources
There are many financial resources which are used by the organisations to finance their
business activities. The different sources are banks loans, government grants, owners profit,
debenture, retained earnings etc. But still there are many internal and external factors which
affects the capability of Company to use such available source of finance. So, the different
factors which affects the ability of the management of D'ecor events are mentioned below:
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6. Availability of investment opportunities: D'ecor events is small company which
provides only 48 orders. It doesn't provide their services in the month of August. It also
affects the capability of bake cake company to grab the opportunities which are available
in market. Due to having their less amount of business functions, the investment
opportunities are also very low which has direct impact upon their profitability and
finance.7. Capacity of management: As we know, D'ecor events is small company as the capacity
of management is not good regarding taking effective and timely decisions. This will also
influence the availability of the financial resources.8. Accounting techniques: The accounting techniques which are used in D'ecor events are
obsolete and not helpful in interpretation of effective results. This will also affect the
decision making power regarding the adoption of effective financial resources. Due to
lack of accounting knowledge, the information is not properly gathered from the different
sources which affects their grabbing power regarding the opportunities which are
available in future period of time.
Performance Indicator
It is an indicator which is used by the organisations regarding measurement of their
performances. It is used by the management regarding evaluation of success of organisation. It
can be of two kinds financial and non-financial. Financial indicators are ratios, income
statements, profit and loss account etc. Non-financial indicators are customer relationship,
employee relation, etc. (Wang and Hussain, 2010).
Ratio: It is quantitative method which helps in evaluation of the information which is
contained in financial statements. It helps in analysis of different aspects of company like
operating and financial performance such as its efficiency, liquidity, profitability and solvency.
Current ratio: It is also known as liquidity ratio which helps in measurement of the
ability of company regarding pay their short and long term debts.
Profitability ratio: This ratio is mainly helpful in determining class of financial metrics
that are helpful in order to assess a business ability to generate maximum earning by comparing
its expenditure and other costs.
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Rationale of the scenario
The primary purpose of this research study helps to provide compelling rational which said
to be an important aspects of any financial research. It enables the work to be set as per the
mentioned case of cake business. They are not having sufficient amount of capital to make
expansion planning for increasing total revenues. It must be required as specific and ideally, it
would be related to crucial aspects such as D’ecorEnvents Management need to contribute in
order to reduce gap in the literature. It is set of various reasons that is offered by a researcher for
conducting more effective survey into a specific subject matter. The financial aspects those are
crucial in determine profitability position of the company needs to be maintained in more
effective manner.
Assumption of the model
Financial model is a set of various important assumption regarding use of fiancé in future
time in order to manage their conditions. It drives estimation of a company’s total earning,
revenues, cash flows and balance sheet accounts. It is crucial elements of every business plans.
There are mainly three financial forecasting which is expected in this particular scenario. This
will be helpful in analysing projected income statement, balance sheet and total cash flows for
the upcoming time (Schaltegger and Wagner, 2017). Few of them are mentioned underneath;
Accrual basis: The financial statements are mainly prepared on the accrual basis. The
effects of transaction and other activity need to be recorded on cash basis.
Financial modelling consists of various assumption regarding a company’s financial
position to forecast statement which is based on expected regarding future environment.
Limitations
There is certain disadvantage which has been seen in the scenario. It is mainly related with
the capital as they are not having appropriate amount of cash to increase more sales during the
time. The production capacity is more limited which lead to create expansion plan in coming
time. Because of low cash availability they are not able to perform their business in best and
suitable manner. To enhance their productivity they need to collected financial from various
sources. Some other disadvantage seen in the case scenario is labour shortage which is also a big
issues which is been faced by the company. This will be not easy for small business organisation
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to operate in best suitable manner with limited resources. They don't have proper control over
their operations as they are perform their role in their limited area.
CONCLUSION
It has been concluded form the above report that D'ecor events is earning profit of £10
from their business operations but facing the problems regarding short finance. Due to which
large number of adverse impacts are seen on the business operations like less productivity, low
morale and motivation of employee, less number of customers etc. To overcome from this
situation, management accounting plays an important role. It includes different accounting
techniques and methods which provide their contribution in expansion of business functions.
Cash-flow’s forecasting is an important tool which helps in managing the cash and reduction of
expenses. It provides an opportunity to improve their profitability and expand their business
operations.
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