Table of Contents
Preface xiii
Section I Preparing to Operate the Business 1
Chapter 1 Budgeting for Operations 3
Definition or Purpose of an Operating Budget 3
Signs of Budget Ineffectiveness 4
Improvements to the Budgeting System 6
Responsibility Accounting 9
Budget Tracking and Maintenance 21
The System of Interlocking Budgets 25
Need for Budget Updating 35
Summary 36
Chapter 2 Investing in Long-Term Assets and Capital Budgeting 39
Definitions 40
Overview and Use of Capital Budgeting 41
Life Cycles 42
Capital Budgeting Sequence 43
Producing Numbers to Get Dollars, the Use of Forms, and the Capital Budgeting Model 48
Miscellaneous Considerations 65
Product Discontinuance 66
Bailout 68
Summary 69
Appendix: Examples and Comparison of Calculations 70
Chapter 3 Basic Control Systems 77
The Need for Control Systems 77
Types of Fraud 79
Key Controls 81
When to Eliminate Controls 97
Summary 99
Section II Operating the Business 101
Chapter 4 Cash Flow Concerns 103
Cash 103
What to Do with Excess Cash 105
Cash Flows 108
Introduction to Cash Flow Budgets 112
Indications of Cash Flow Problems 112
Managing Cash 113
Preparation of the Cash Budget 126
Disbursements 127
Net Cash Flow and Cash Balances 130
Exceptions to Expected Cash Flows 131
Summary 132
Appendix: Cash Flow Example 133
Chapter 5 Financing 143
New Businesses 143
Zero Working Capital and Zero Fixed Assets 144
Types of Financing 148
Private Placement of Stock 157
Swapping Stock for Expenses 158
Stock Warrants 159
Stock Subscriptions 159
How to Obtain a Bank Loan 160
Sources of Debt Financing 167
Types of Loan Arrangements 168
Restrictions on Loans 171
Conditions That a Borrower Should Seek 173
Summary 175
Section III Evaluating the Operations of the Business 177
Chapter 6 Performance Measurement Systems 179
Financial Ratios 180
Types of Financial Ratios 182
Using Performance Measurements for Predictions 193
Operating Ratios 196
Other Ratios 202
The Balanced Scorecard 204
Summary 207
Chapter 7 Financial Analysis 209
Risk Analysis 209
Capacity Utilization 215
Breakeven Analysis 222
Summary 229
Chapter 8 Taxes and Risk Management 231
Controlling Tax Liabilities 232
Risk Management 237
Insurance 245
Types of Insurance Companies 249
Claims Administration 250
Summary 252
Chapter 9 Reporting 255
Federal Government Requirements 255
State Government Requirements 262
Local Government Requirements 267
Creditors 268
Equity Holders 269
Management Reports 269
Summary 286
Index 289
