Source of Funds

• Roads Implementation Program– Tied Work

– Preferred Supplier

– Open Market

• External Market– LGA

– Other Government Departments

– Utilities

– Private Organisations

Place Order.Receive Shipment.

Receive Invoice. Draw Check.

Mail Check.

Check Clears.

Pay Suppliers

Bill CustomerEnter Contract.

Deliver Service.

Send Invoice.

Receive Check.

Deposit Check.

Funds Available.

CASHFLOW TIME LINE

Working Capital

• Amount of funds which are tied up in:– Debtors– Creditors– Time Value

Accounts Receivable

Cash

WIP

Accrued Revenue

How to achieve timely payments

• Negotiate Terms of Trade up front.• Reach agreement with customer on service

due for payment (engage the customer).• Prepare an invoice which clearly details the

service received.• Ensure quality service delivery.• Resolve disputes quickly and affirmatively.

Value Adding Management• Reduce Cash Cycle Times

– Completing work– WIP– Accrued Revenue– Accounts Payable

• Minimise material on hand• Reduce overheads and other costs• Rationalise product range

Bad Debt

• Aged Debt Report is used to monitor debt.

• Grouped by Time– 0 to 21 days outstanding– >21 to 30 days– >30 to 60 days– >60 to 90 days

 

You have a bad debt of $10,000 and have exhausted all options of recovering the debt and the debt is written off.

 

What amount of additional revenue must be generated to break even and recover this loss.

 

Assume your profit margin is 2%.

Tip: Profit Margin = Profit

Revenue

Debt Recovery

Debt Recovery

ANSWERANSWER

Revenue = Profit

Profit Margin

 

= $10,000

0.02

= $500,000

Creditor Management

• Creditor Strain– Negotiate one account at end of month

– Negotiate increased Terms of Trade

– Negotiate discount for timely payment

• Deal with value adding suppliers– Timely delivery

– Quality product

– Whole of life cycle service

– Supply chain

External Trading

• Credit Checks for customer >$5,000

• Assess the financial ability of an external customer to pay for the service.

• Cash/Cleared cheque when dealing with a potential credit risk customer.

Inventory Management

• Material On Hand

• Work In Progress

• Just In Time Management of Inventory

Cost of Doing Business…..

• Support Services– Business Development– Business Capability– PSO– Finance

• Corporatelink• BS&S• Central Corporate Services

How are Overheads Distributed….?

Cost Driver

Finance

Human Resource

IT

WH&S

Payroll

Total Expenditure

Number of People

Number of Computers

Number of People

Number of People

Example Price increase = 5%Gross profit increase = 50%

Maximise Margins

Gross profit goes from $10 $15

•Consider effect of price increase on number of sales

•Effect on Cash0102030405060708090

100110120130

Gross Profit $10 Gross Profit $15

Val

ue

$ Gross Profit

COGS $90

Price Discounting Profit

Discount2% 5% 10%

1% 50% 25% 11%

2% 66% 25%

3% 150% 43%

4% 67%

5% 100%

4 Levels of Internal Trading

• Level 1: Inter Company

• Level 2: Inter Business Group

• Level 3: Inter Business Unit

• Level 4: Inter Business Centre

Internal Trading Pricing Strategy

Trading level COGS Overhead Profit Margin

Inter Company

Inter Business Group

Inter Business Unit

Inter Business Centre

X

X

X

X

X

X

X

X

X

X

X

N/A

Typical Family Balance SheetAssets

Cash @ Bank 5,000House 250,000Car 20,000

Total Assets 275,000

LiabilitiesHome Loan 175,000Car Loan 5,000Total Liabilities 180,000

EquityOwners Equity 95,000Total Equity 95,000

Total Liabilities and Equity 275,000

Income StatementRevenue:

Salaries 120,000Investment Income 1,000Profit on Sales of Asset 2,000Total Revenue 123,000

Less Expenses:Interest Loans 13,000Motor Vehicle Expenses 8,000Family Living Expense 54,000Taxation 36,000Total Expenses 111,000

Profit after Tax 12,000

Family Balance SheetAssets

Cash @ Bank 5,000House 350,000Car 20,000

Total Assets 375,000

LiabilitiesHome Loan 175,000Car Loan 5,000

Total Liabilities 180,000

EquityOwners Equity 195,000Total Equity 195,000

Total Liabilities and Equity 375,000