Question

Recommend how :

1) Projected financial statements could be used by a company to evaluate its activities and processes.(350words)

2) Other measures of business performance could be used by a company to evaluate its activities and processes(350words).

Answer 1

Benefits of Projected Financial Statements:

Provides better control over cash flow

Since cash is the first thing that a company wants to manage, a financial forecast becomes extremely useful for businesses. It allows you to allocate money to different tasks in a more efficient manner and helps you channel your cash in the right direction.

Shows financial viability of new ventures

A financial forecast is a representation of how financially viable a new business venture is expected to be. By estimating the projected income and projected expenses, you will be able to know whether it’s a sound idea or not. It allows you to form a model that will help you figure out how a business will perform when certain plans and strategies are carried out.

Measures financial performance

One crucial aspect of financial forecasting is that it allows you to measure your future financial performance against set standards. It acts as a benchmark against which you can match your performance, identify loopholes, and take necessary corrective actions.

Lowers financial risks

Financial forecasting helps you identify processes that are the most money-consuming. You can lower your financial risks by pumping money from such processes and channeling it towards more profitable ones. It gives you a clear picture of potential risks and helps you devise necessary avoidance strategies.

Determine future cash requirements

By getting a clear idea of projected expenses, you will be able to determine how much money your business will need. It helps you make sound financial decisions by specifying whether or not your business needs private equity or borrowings.

Acquiring finance

Last, but certainly not least, you need financial forecasting to get necessary investment from lenders. A sound financial forecast presented before the lender makes you look more credible and trustworthy. You can leverage that goodwill to secure required financing for business expansion and operation.

2. other measure:

Assess your core activities

A good starting point for your review is to evaluate what you actually do - your core activities, the products that you make, or services that you provide. Ask yourself what makes them successful, how they could be improved and whether you could launch new or complementary products or services.

Key questions about your products or services

It's useful to address these questions:

• How effectively are you matching your goods and services to your customers' needs? If you're not quite sure what those needs are, you could carry out further market or customer analysis. See the page in this guide on how to conduct a customer and market analysis.
• Which of your products and services are succeeding? Which aren't performing as planned? Decide which products and services offer both a high percentage of sales and high profit margins.
• What's really behind the problems of a product or service? Consider areas such as pricing, marketing, sales and after-sales service, design, packaging and systems during your review. Look for "quick wins" that give you the breathing space to make more fundamental improvements.
• Are you reviewing costs frequently? Are you keeping a close enough eye on your direct costs, your overheads and your assets? Are there different ways of doing things or new materials you could use that would lower your costs? Consider ways in which you can negotiate better deals with your suppliers.

Answering these questions will give you the basis on which to improve performance and profitability.

Assess your business efficiency

Many new businesses work in a short-term, reactive way. This offers flexibility - but can cost time and money as you move from getting the business going to concentrating on growing and developing it.

The best option is to balance your ability to respond rapidly with a clear overall strategy. This will help you decide whether the actions you take are appropriate or not.

At this stage you should ask yourself if there are any internal factors holding the business back, and if so, what can you do about them?

Consider the various aspects of your business in turn.

Premises

• What are your long-term commitments to the property?
• What are the advantages and disadvantages of your current location?
• Do you have room to grow, or the flexibility to cut back if necessary?
• If you move premises, what will be the cost? Will there be long-term cost savings and improvements in efficiency?

Facilities

• If you manufacture products, how modern is your equipment?
• What is the capacity of your current facility compared to existing and forecast demand?
• How will you fund any improvements?
• How do you compare with your competition?

Information technology

• What management information and other IT systems do you have in place?
• Will these systems cater for any proposed expansion?
• Will they really make a difference to the quality of product or service your business provides? If they don't, can you change them to make sure they do?
• Do you make best use of technology such as wireless networking and mobile telephony to allow for more flexible working?

People and skills

• Do you have the right people to achieve your objectives?
• Do they know what is expected of them?
• Do you operate a training and development plan?
• Do you pay as well as the competition?
• Do you suffer from high staff turnover? Are staff motivated and satisfied?

Professional skills

• Do you have the right management team in place for growth?
• Do you have the skills available that you need in areas such as human resources, sales and IT?
• Do your staff need new or improved skills or to be retrained?

Review your financial position

Businesses often fail because of poor financial management or a lack of planning. Often the business plan that was used to help raise finance is put on a shelf to gather dust.

When it comes to your business' success, therefore, developing and implementing sound financial and management systems (or paying someone to do it for you) is vital.

Updating your original business plan is a good place to start.

When reviewing your finances, you might want to consider the following:

• Cash flow - this is the balance of all of the money flowing in and out of your business. Make sure that your forecast is regularly reviewed and updated.
• Working capital - have your requirements changed? If so, explain the reasons for any movement. Compare this to the industry norm. If necessary, take steps to source additional capital.
• Cost base - keep your costs under constant review. Make sure that your costs are covered in your sale price - but don't expect your customers to pay for any business inefficiencies.
• Borrowing - what is the position of any lines of credit or loans? Are there more appropriate or cheaper forms of finance you could use?
• Growth - do you have plans in place to adapt your financing to accommodate your business' changing needs and growth?

Conduct a competitor analysis

Now that you have been running your business for a while, you will probably have a clearer idea of your competitors. Gathering more information may cost time, money and effort, but there are many benefits to knowing more about what your competition is doing.

What you need to know

The type of competitor information that will be really useful to you depends on the type of business you are and the market you're operating in. Questions to ask about your competitors include:

• who they are
• what they offer
• how they price their products
• what the profile and numbers of their customers are compared to yours
• what their competitive advantages and disadvantages are compared to yours
• what their reaction to your entry into the market or any product or price changes might be

You will probably find it useful to do a SWOT (strengths, weaknesses, opportunities, threats) analysis. This will show you how you are doing in relation to the market in general and specifically your closest competitors. See the page in this guide on models for your strategic analysis.

How to find out more

There are three main ways to find out more about your competitors:

• What they say about themselves - sales literature, advertisements, press releases, shared suppliers, exhibitions, websites, competitor visits, company accounts.
• What other people say about them - your sales people, customers, local directories, the Internet, newspapers, analysts' reports, market research companies.
• Commissioned market research - if you need more detailed information, you might want to commission specific market research.

Conduct a customer and market analysis

When you started your business, you probably devised a marketing plan as part of your overall business plan. This would have defined the market in which you intended to sell and targeted the nature and geographical distribution of your customers.

From that strategy you would have been able to produce a marketing plan to help you meet your objectives. When you're reviewing your business' performance, you'll need to assess your customer base and market positioning as a key part of the process. You should update your marketing plan at least as often as your business plan.

Revisiting your markets

A business review offers you the opportunity to stand back from the activity outlined in your plan and look again at factors such as:

• changes in your market
• new and emerging services
• changes in your customers' needs
• external factors such as the economy, imports and new technology
• changes in competitive activity

Asking your customers for feedback on your business' performance will help to identify where improvements can be made to your products or services, your staffing levels or your business procedures.

At the same time, it is important to remember that while reviews of this kind can be very effective - they can give your business the flexibility it needs to beat off stiff competition at short notice - it is important to think through the implications of any changes. In the new phase of your business you'll need to plan your finances and resourcing carefully at all times.

Use your review to redefine your business goals

To remain successful it's vital that you regularly set time aside to ask the following key strategic questions:

• Where is the business now?
• Where is it going?
• How is it going to get there?

Often businesses are able to work out where they want to go but don't draw up a roadmap of how to get there. If this happens, a business will lack the direction needed to turn even carefully laid plans into reality.

At the end of any review process, therefore, it's vital that work plans are prepared to put the new ideas into place and that a timetable is set. Regularly reviewing how the new plan is working and allowing for any teething problems or necessary adjustments is important too. Today's business environment is exceptionally dynamic and it is likely that you will need regular reviews, updates and revisions to your business plan in order to maintain business success.

Continuous improvement

In addition, a simple planning cycle can greatly enhance your ability to make changes in your business routine if necessary. Good planning helps you anticipate problems and adapt to change more easily.

Expert input

You may find at this stage in your business' development that you need external skills to help you with the changes you have to make. In this case you might consider:

• employing skilled consultants in areas where you cannot afford to develop inhouse skills
• appointing an experienced non-executive director who can provide a regular, impartial assessment of what you are doing
• using a management consultant to help you identify how you can strengthen or change your management structure to grow the business

Models for your strategic analysis

There are a number of useful business-analysis models that may help you think more strategically about your business.

The SWOT analysis (strengths, weaknesses, opportunities, threats) is one of the most popular. This involves looking at the strengths and weaknesses of your business' capabilities, and any opportunities and threats to your business. Once you've identified all of these, you can assess how to capitalise on your strengths, minimise the effects of your weaknesses, make the most of any opportunities and reduce the impact of any threats.

Opportunities and threats in the external environment

It's important to remember that opportunities can also be threats - for example, new markets could be dominated by competitors, undermining your position. Equally, threats can also be opportunities -for example, a competitor growing quickly and opening a new market for your product or service could mean that your market expands too.

A SWOT analysis can provide a clear basis for examining your business performance and prospects. It can be used as part of a regular review process or in preparation for raising finance or bringing in consultants for a review.

Once you have collected information on your organisation's internal strengths and weaknesses, and external opportunities and threats, enter this data into a simple table.

	Positive	Negative
Internal	Strengths	Weaknesses
External	Opportunities	Threats

Other tools include:

STEEPLE analysis - a technique for understanding the various external influences on a business – Social, Technological, Economic, Environmental, Political, Legal and Ethical.

Scenario planning - a technique that builds various plausible views of possible futures for a business.

Critical success factor analysis - a technique to identify the areas in which a business must succeed in order to achieve its objectives.

The Five Forces - the theory that there are five defined factors that influence the development of markets and businesses - potential entrants, existing competitors, buyers, suppliers and alternative products/services. Using this model you build a strategy to keep ahead of these influences.

Breaking down your strategic review

As owner-manager of your business or as a member of its management team, you should stand back once in a while and review your business' performance.

The areas you need to look at are:

• Your market performance and direction - how well you are performing through your sales results, which markets to aim for next and how to improve your performance.
• Your products and services - how long your existing products will meet your customers' needs and any plans for renewal.
• Operational matters - your premises, your methods, technologies used, your processes, IT and quality. Are there any internal issues that are holding your business back?
• Financial matters - how your business is financed, levels of retained profit, the sales income generated and your cash flow.
• Your organisation and your people - your structures, people planning issues, training and development.