financial management - africa agribusiness academy · pdf file ·...

FINANCIAL MANAGEMENT 1

AFRICA AGRIBUSINESS ACADEMY

TOPIC: FINANCIAL MANAGEMENT SYSTEMS(FMS)

By: Simon Kimani

Business & Financial Analyst

Business Diagnosis Africa Ltd

MBA(Mkt),Bcom, CPA(K)

Objectives of Finance management

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To enable participants to improve their financial management knowledge and acquire best practices based on their current business environment

To define and understand the concept of financial management.

Objectives of Finance management

To understand the processes of financial management

To appreciate the basic tools of financial analysis and planning

To understand the key success factors for effective financial management

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Why financial management ? 4

The recognition that demand for funds is always more than its supply makes financial management essential {scarcity of funds}

Due to the stewardship and accountability concept (ownership versus management)

To sustain an organization’s activities

To comply with donor requirements

Sound financial management ensures that the organization’s funds are safeguarded and used prudently.

Why financial management 5

To maximize use of resources To ensure adequate liquidity for the

organization To ensure wise investments As a basis for making decisions As a basis for performance evaluation

Financial Reporting and Accountability

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Reporting and Accountability

Periodic reports {for internal and external use} should be prepared on a timely basis

Financial reports include the balance sheet, income and expenditure and cash flow statement.

Financial reports should be read together with the narrative reports

Financial Reports(cont’d) 7

Financial reports should be timely, relevant and accurate. The Accountant should be proactive in providing financial reports.

Monitoring & Evaluation

Key performance indicators are to be set

Comparison of actual versus projections

Financial Reports & Accountability

What are financial reports?

These are the generally accepted statements for presentation of accounting information.

There is an International Accounting Standards Committee (IASC) which harmonizes & regulates accounting standards and procedures relating to the preparation of financial reports.

Types of financial reports include:

Balance Sheet

Income & Expenditure Statement

Cash Flow Statement

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1. Balance Sheet

This reports on the financial worth of the organization, and how the same wealth has been financed

It indicates the financial standing of the entity

It shows the financial position of an organization

Key Elements include: Assets, Liabilities & Equity

Assets: Current Assets: Stocks, Debtors, Cash…

Liabilities: Creditors, Bank Overdraft….

Equity: Share Capital, Reserves, Retained Earnings

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2. Income & Expenditure Statement

This shows the results of operations of an organization

It indicates the viability of the organization to be a going-concern

The elements used in measuring performance in the I & E statement are income and expense

Key Elements:

a) Income items: Revenues, Fees, sales

b) Expenditure items: Rent, Salaries…….

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Cash Flow Statement

The sources and application of funds

Sources include: From operations, disposal of assets, loans, issue of shares

Application of funds include: Payment of dividends, purchase of assets, payment of interest,

In summary, the Cash flow statement includes all net income, changes in assets, liabilities, equity and how they are utilized

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Why do we need financial reports?

To assess the stewardship & accountability of the management

To assess the ability of the organization to pay benefits to it’s employees

To assess the security of funds loaned to the organization

To assess whether organizational objectives are being met

To ensure adherence to legal requirements

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Financial Reports & Account

Qualitative characteristics of financial statements:

Understandability

Must be understood

Users should have knowledge of business & economic activities

Willingness to study information with reasonable diligence

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Financial Reports & Account

ii) Relevance

Must assist decision makers to evaluate the past, present & future events

iii) Materiality

Information is material if it’s omission or misstatement could influence the decisions of users.

iv) Reliability

Reliability means free from material error and bias

v) Completeness

Information must be complete

An omission of information can cause reports to be misleading

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Financial Reports and Interpretation

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Interpretation of financial reports

This involves the analysis of financial information by management for decision making purposes

Financial reports are expected to assist management make informed decisions and to inform stakeholders of the state of the organization


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Financial Ratios

Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a organization’s financial statements.

The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment


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Financial Ratios (Examples)

Profitability ratios, e.g. Gross & Net profit

Liquidity ratios, e.g. Current assets ratio and quick ratio

Leverage/gearing ratios, e.g. Debt ratios

Asset turnover ratios: stock & fixed assets

Activity/Efficiency ratios, e.g. Av. Collection period


Specific Matters of consideration:

Profitability

Solvency

Ownership

Financial Strength

Trend

Gearing and Cover

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Financial Success Factors

Key success factors to effective financial management:

Policies and guidelines

Competent accounting staff

Conducive working environment

Timely, reliable, and narrative accurate financial reporting

Effective internal control system

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Financial Success Factors

Good stewardship of financial resources Competitive/quality services Involvement, ownership, and participation of all stakeholders

A written accounting policies and procedures manual exists.

Strong support and commitment from top management

Financial controls - proper authorization, monitoring and control of operations

Regular review of financial statements by Mgt.

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Financial Management Systems 21

Sound financial accounting system

Keeping books of account - There is need to keep all books of account and supporting documents for transparency and accountability of funds

Levels of authority - These should be established for authorization of expenses.

Financial Accounting Systems 22

The accounting system should consist of clear policies and procedures that describe how transactions are handled (authorized and recorded),

How information moves through the organization, and how/where accounting information is stored for ease of retrieval and provide audit trail.

Computerized Accounting Packages

Criteria for selecting appropriate Package:

Company expectations

Size of the company

Identify the nature of reports

After Sales Support

Availability of genuine license

User friendliness of the package

Cost of the package

Flexibility in terms of customization

Competence of finance team.

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What to look for in any Package

Basics Reports to expect from any accounting package:

Balance sheet

Profit and Loss Account

Cash flow statement

Creditors aged analysis

Debtors aged analysis

Cash book

Inventory valuation report

Detailed general Ledger

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Overview of Pastel Package

Sales, purchases

cash and bank,

Debtors and Creditors ,

Inventory modules,

payroll,

Fixed asset modules.

Other non finance modules are available covering every other part of the business like customer care etc.

Reports and Ratio Analysis

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Overview of Tally Package

Sales,

purchases,

cash and bank,

Debtors and Creditors subsidiary ledgers

Inventory modules, can track stocks in separate locations , multiple warehouse

fixed asset modules

Can customized to accommodate simple manufacturing processes.

Reports

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Overview of QuickBooks

Sales,

purchases,

cash and bank,

Debtors and Creditors subsidiary ledgers

Inventory module is limited unless supported by pos

Have provision for budgets but limited reports on variance analysis

Basic Reports

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Basic Accounting transactions.

Revenue cycle:

In all the three packages, Pastel, Tally and Quickbooks, Invoicing module is key. The system automatically updates sales ledger and Debtors ledger.

Once the payment is received from a customer, the system updates cash book with receipts of cash and debtors ledger to clear debtors balance.

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If manual receipt is issued, the receipt must be attached to banking slip and process the manual receipt into the system.

Payment Cycle:

This cycle begins with purchases, all the suppliers invoices are entered into the system and all the systems, purchases and creditors ledgers are updated automatically.

On payment, the systems updates cash book with payments and creditors respectively.

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On purchase of fixed assets, the systems updates fixed asset register and cash book respectively.

Payroll modules are purchased separately and thus not integrated into the system, but manual adjustments in form of recurring journals is passed in the system.

For regular bills that are not received on time, the expenses are accrued into the systems whereby the expenses are updated and accrual in creditors is updated.

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Its important to note that all the source documents that forms the basis for processing data into the system must be authorized. For example, all supplies must be backed by an invoice and delivery note that is duly signed.

All source documents must be clearly be stamped posted and date and filled in a well labeled files foe ease of access and trail.

All the three packages have the provision of budgets but not all have the ability to do variance analysis

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Sage Pastel Evolution

Back ground information

Sage Pastel is a leading developer of financial solutions for small and mid-sized firms.

It was founded in 1989 in South Africa, and was acquired by Sage Group plc in 2003.

Sage Pastel has a thorough understanding of the needs of international SMEs, based on a client based of over 180,000 businesses that use their software daily.

Sage Pastel products are sold and serviced in over 52 countries in Africa, Europe, the UK, Middle East, Australia, New Zealand and Asia through a network of over 500 business partners

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Pastel Accounting Package

Who uses Sage Pastel Evolution?

Sage Pastel Evolution is particularly well suited to big and mid-sized businesses who are looking for more than just an accounting system – they want a cost-effective ERP system that gives an integrated view of their entire business.

It comes in a couple of versions: Sage Pastel Evolution Professional for small & mid-sized firms, and Sage Pastel Evolution Enterprise for medium to larger sized businesses.

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Pastel Accounting Packages

How can Sage Pastel Evolution help your business?

As a business grows, it needs to stay on top of a more complex and sophisticated operation.

Key Features include: Software customization as per specific business needs, Onsite and offsite technical support, to serve you better, License upgrade and Annual Maintenance cover.

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Benefits that Sage Pastel Evolution can deliver for your business include:

Integrated view of your financials and all aspects of your operating environment

A more cost-effective ERP system than many alternatives

Better insights into what drives your performance

Streamlined and easily managed business processes

Specialized functionality to suit particular industries

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What capabilities does Sage Pastel Evolution offer?

Sage Pastel Evolution covers all aspects of your business operations, including:

Manufacturing & Warehousing: Manage the procurement of inventory or raw materials, tracking inventory by location right through the manufacturing process, whether in a single operation or more complex environments. Supports multi-warehouse operations, bills of materials, etc.

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Purchasing, Inventory & Job Costing: Control your inventory closely, including management of serial numbers and lot numbers, and tracking all costs associated against jobs.

Customer Orders & Distribution: Stay on top of customer orders, and ensuring that specific orders are handled and delivered as expected. Includes functionality for outstanding orders, back orders, multi-currency transactions, point of sales (POS), pricing matrices, etc.

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Financials, Asset Management, Banking, Payroll & HR: The robust financial core plus a variety of add-on modules give you what you need to manage your transactions, keep track of assets, pay your employees, manage banking and cash facilities, credit risk management, etc

Marketing & CRM: Basic contact management and incident tracking is included in the Evolution core, with more advanced functionality available via add-on modules including sales force automation, calendar, contract invoicing,

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Why choose Sage Pastel Evolution as your ERP?

Cost effective for growing firms that need a feature-rich ERP on a limited budget

Scalable, with optional modules you can add over time and a Microsoft SQL Server database at its core

Ease of use that reflects Sage Pastel’s extensive experience with over 180,000 businesses

Strong focus on the needs of small and mid-sized businesses, with industry specific modules available

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Key Limitations:

Multi- User License is limited to the no of users applied for. Incase of expansion, additional licenses has to be acquired at additional cost

Pastel is relatively expensive compared to Tally and Quick Books

Pastel is more of over the counter package and flexibility interms of customization may be limited

Limited remote access of data while out of the company premises.

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Tally Accounting Package

Tally is a financial accounting software package designed by Tally Solutions mainly for small businesses and shops. It is estimated that Tally is used by over 2 million users, in over 90 countries

The language used to build Tally.ERP 9 is called TDL - Tally Definition Language, briefly touched upon in Internal Architecture & Design. Tally.ERP 9 – the latest evolution of the Tally series-took 3 years and the dedicated efforts of 200 developers to create. It has grown from a basic accounting package into a simple-yet-sophisticated business management software product.

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Comprehensive capabilities allow Tally.ERP 9 to meet the needs of small to large businesses with dispersed operations. And traditional functions of a business are handled as capably as the more advanced

Minimal technical demands, standard operating systems: Windows, LINUX, Unix.... Simplicity and speed of installation (15 to 60 days) Simple training and good adaptation of applications for work...

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Every growing business definitely has an aspiration to reach newer heights, but it means connecting with an extended enterprise which is beyond the realms of existing business systems.

It is inevitable to have the right software's and solutions to help you connect with your extended enterprise.

We understand the power you will have when you can build solutions to suit to your unique business needs, exactly the way you want..

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Every feature of Tally.ERP 9 can be customized, extended and integrated to great lengths to help you achieve higher efficiencies by precisely addressing your needs.

Tally take immense pride in the 'Power of Simplicity'®. This philosophy drives our product design - bringing you an unmatched ease of use

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Tally Solutions has engaged with the Institute of Chartered Accountants of India (ICAI) to bring various measures into play to help industry and accelerate the opportunities for CAs to develop professionally.

As one of the leading product and technology companies-specifically in the space of Accounting, Finance and ERP-Tally is keen to engage both with renowned professionals and high-quality practitioners like yourself - as well as industry - to bring you the latest developments.

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Video Clip

Connect to Tally YouTube via internet for a video clip on Tally.

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This is a partial list of the services on offer: • ERP Implementation Services • Training Services on product usage • Deployment Services across Locations • Software Assurance Services - getting regular updates & upgrades • Data Migration Services - from other products • Business Advisory Services • Integration Services with other products and devices • Extending the product functionality to suit specific needs

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Customizing Synchronization and data transformation

Invoice & PO customization - and other document modifications

Building specific controls and constraints

Annual Maintenance Contracts

On site support - when you need someone to visit your office to fix something

Tally has a vast network of highly competent Tally Services and Integrator personnel are within your immediate reach.

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Other Key Features of Tally Include:

Multi-User, Multi Company, Multi Currency, Multi Goodown.

Stock management and Inventory control

Financial Accounting, budgets and controls

Multiple cost Centre and cost categories

Purchase Cycle/sale cycle

Grouping of accounts, bills of material. Batch No, Manufacturing Date, Expiry Date, drill down display

Remote Access, Consolidation of companies.

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The advantages of Tally software is:

It eliminates the use of hardcopy ledgers, cash book etc

It gives access to any account directly by opening the file.

Entries can be deleted ,edited or new entries made without redoing the complete account.

Immediate up to date account such as daily , monthly ,quarterly statements.

Additional Tax calculations can be updated eg: VAT, Sales Tax etc.

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Additional benefits include:

Multi User License that is unlimited to no of users

Cost of purchase is pocked friendly less than usd 2000

Tally license does not expire while the other two annual renewal of the license is required

Tally is user friendly, can make corrections easily

Tally easily me customized to suite customers needs

Excellent after sales support and readily avaialble

Remote access to tally data online.

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Limitations:

Requires competent finance team to make use of the features optimally

Security features are weak, but enhanced securities solutions are available at additional fee

Pirated copies are readily available in market and can easily buy the wrong software.

http://www.youtube.com/watch

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Quick Books

Video clip

Quickbook.intuit/ accounting standard features

Quick books is the most an entry point financial management system most suitable for small firms.

Its easy to use and user friendly

Its readily available within the east Africa region but beware of pirated copy

It’s a standard package that is fairly stable.

The controls in QuickBooks is weak and thus for medium enterprises, its not advisable.

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Quick Books

Main Limitations

majority of cases, its pirated copies.

Quick books has a very poor security controls

The Licenses is specific to the no of users applied

License is renewable on yearly basis.

There are very few authorized dealers of quick books

After sales support

Data can easily be manipulated.

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FINANCIAL MANAGEMENT 55

Q&A

END

Tel +254720 919 631

+256774 296534

Email: [email protected]

THANK YOU

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