Effective ways to financially prepare for expansion yrc your retail coach

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Effective Ways to Financially Prepare for Expansion | YRC | Your Retail Coach

E ective Ways to Financially Prepare for Expansion | YRC Jun 26, 2017

Financial preparation is a critical part of any business expansion project.

Talking about nancial preparation, three aspects that come to the forefront are the nancial liability that will arise from a new project, nancial ability to execute the project and nancial feasibility of carrying out the project. Â A business expansion project shall increase the

nancial liabilities (increased

costs) which have to be sourced internally and/or externally (revenue generation, loans and borrowings) re ecting the nancial ability of the business enterprise to support expansion. The third aspect is determining the

nancial feasibility

(pro tability, healthy ROI) of executing an expansion project. The three nancial pillars (liability, ability and feasibility) and project

nancial management are

elaborately discussed here to help businesses e ectively prepare on the nancial front for us their expansion projects.

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Financial Liability http://www.yourretailcoach.in/blog/effective-ways-to-financially-prepare-for-expansion/

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Costs of business expansion are of two types – capital expenditure and direct and operating costs. The capital expenditure includes investments in machinery, equipment, furniture, space, set-up and establishment costs etc. The direct and operating costs include the expenditures to run the new project. This includes the purchase of inventory and raw materials, wages and salaries, rent and bills, repair and maintenance, insurance and legal expenses etc. Capital expenditure and direct and operating costs associated with a project constitute its

nancial

liabilities and have a direct bearing on its pro tability. Therefore, it becomes important that a business enterprise makes a detailed assessment of these costs.

These costs have to be recovered to create surpluses. While the investment in capital assets may be recovered in a phased and indirect manner, the direct and operating costs have to be covered on the go. Through cost accounting, a business enterprise can get a clear picture of the nancial liabilities of a proposed project based on approximate gures and prices.

Financial Ability The nancial ability of a business re ects its knack to procure additional capital funds required to establish a new project and generate su cient revenue to cover the direct costs and operating expenses. Some of the pertinent questions that arise in capital funding decisions are – What is the amount of fresh capital required (cost of new assets, other longterm establishment costs) What will be the composition of capital (debt-equity ratio, proportion of selffunding etc) What the potential sources of capital (loans, credit, angel investors, mortgage etc) What are the costs associated with procuring capital from various sources (interest rates, collateral, ease of acquiring funds etc) The second part is revenue generation from the new project to cover its direct costs and operating expenses. A business enterprise needs to prepare realistic revenue projections which will re ect the quantum and frequency of cash ow.

Liquidity is a crucial element of

nancial management in business. Businesses

need to maintain a healthy working capital ratio to ensure smooth

ow of

operations in any of its projects or business units. In the event of liquidity crunch, which may happen because of poor revenue collection resulting from poor sales, credit policies, bad debts etc, operations may come to a halt leading to further revenue losses.

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nancial ability of a business re ects its knack to procure additional capital funds

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required to establish a new project and generate su cient revenue to cover the direct costs and operating expenses.

Financial Feasibility The

nancial motive behind every business venture or a project is to generate

pro ts. After ascertaining the costs and revenue generation capabilities of a project, a business enterprise would be in a suitable position to determine the nancial feasibility of a proposed project. Financial feasibility of a project determines its fate as to whether it should be executed or not. If a project is not able to able to generate a healthy and steady ow of revenue, it would not be able to cover its costs. ROI also indicates as to how soon the project will be able to reach its breakeven point. There are hosts of

nancial metrics used in the

nancial analysis which includes pro t margins, return on equity, returns on assets etc. Ascertaining the

nancial feasibility involves preparation of various

nancial statements like pro t and loss account, income and expenditure account, balance sheet, statement of sources and application of funds etc based on approximate gures and prices.

Financial feasibility of a project determines its fate as to whether it should be executed or not Project Financial Management Once a project is nancially approved, the next step is laying down the base of its nancial management. Financial planning has been broadly discussed above. The other important areas are identifying the key nancial processes, structuring of the nance department/team and design for control measures.

For a new project, the primary

nancial processes are procurement and

investment or allocation of capital funds, regulatory compliances, accounting record keeping and information system, processing of receivables and payables, cash ow and credit management, liaisoning with other departments and audit.

Each of these processes comprises of several operations and activities which have to be streamlined and documented. This can be done by developing Standard Operating Procedures or SOPs that serves as a guide map for employees to execute their routine duties while maintaining the rules and standards.

Finance is a sensitive area for any organization or project. Apart from prudence and professionalism trustworthiness and integrity are essential competencies in the members of the nance and accounts team.Adequate control measures are crucial to the functioning of the nance department. Authority, accountability and responsibilities must be clearly de ned leaving no room for any sort of Message us Along with nance SOPs, periodical audits must be conducted to ambiguities. ensure that rules and regulations pertaining to accounting, reporting and other http://www.yourretailcoach.in/blog/effective-ways-to-financially-prepare-for-expansion/

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processes like regulatory compliance and cash handling are being diligently followed.

Authority, accountability and responsibilities must be clearly de ned leaving no room for any sort of ambiguities.

Financial preparedness and vision are vital for any economic venture. Without the nancial ability, a business enterprise will not be able to establish a new project and cover its nancial liabilities. And even if they can, doing so without sound nancial feasibility will render the whole project unworthy or loss-making causing it to become a nancial burden on the existing business and operations.

To know more about “Financially Prepare for Business Expansion” get in touch with our Retail Experts on consult@mindamend.net

Author Bio Varun Shah Chief Finance O cer

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