Archive for the ‘Business Management’ category

The Manager Accounting Performance

July 7th, 2011

The value of stock that can be carried, and the control of buying or manufacturing, has a foremost place in counsels of the management. If the working capital of a business remains at more or less the same figure, then, obviously, production (or, with a merchant, buying) must be regulated by sales. For the cash to pay for purchases, or production, comes from sales receipts. A balance between income from sales, and production expenditure (or, with a merchant, purchases), must be, therefore, maintained. The annual balance sheet will reveal the difference in amount between liquid assets (and assets that can be readily realized) and liabilities. But one cannot safely wait for the results of an annual balance sheet, and guesswork should be eliminated in every sphere of business.

Every manager should understand the fundamentals of accountancy, first in his own interest, that he may feel satisfied as to the staff or professional accountant methods; secondly, that he may thoroughly appreciate the significance of financial statements, the bearing of figures, and be able to draw correct conclusions.

Analyses will often reveal, hidden away somewhere in the details, something that had been forgotten, some special expense, transaction, or provision, which gives a different complexion to the year results change in the method of distributing establishment expenses, or in the bookkeeping treatment of certain ” transactions,” the creating of reserves for contingent losses, or the writing back of such reserves when no longer required, and other similar affairs should always be reckoned with in considering departmental results. Otherwise the operation of one year trading may appear to be better, or worse, than is in reality the case.

Departmental managers are very keen on their accounts showing the best results. They may dispute the accountant fairness in allocating establishment overhead expenses or other adjustments, and the manager is often called upon to decide what is strictly reasonable between contending parties; as the final court of appeal he may have to act in this quasi-judicial capacity. Some very nice points arise also on which there may be difference of opinion as to the differentiation of capital and revenue expenditure.

It is not easy to distinguish to what class such expenditure may belong. If it is capital expenditure the year profit and loss account is not affected. Revenue expenditure, on the other hand, decreases the profit. Again, as to the treatment of special expenses, as, for example, heavy advertising, or development expenses, in one year. Is the benefit of that expense worked out in one year, or two years. There are other kinds of expenditure in one year which, it may be argued, is properly chargeable against the profits of the following year.

Suspense accounts created to spread abnormal expenses over a period are justifiable, but, if not rigorously dealt with, dangerous. The item “Debtors and Debit Balances” in a balance sheet may cover a multitude of sins. So, likewise, the item, “Shares in Other Companies,” appearing among the assets in so many balance sheets, may represent either an under-valuation or an over-valuation.

Another point on which the manager may have to adjudicate is that of Depreciation. There is no one system of writing off depreciation that will apply to every business and to every kind of asset. Every well-conducted business will, of course, make ample provision for the depreciation of every wasting asset, whether securities, buildings, machinery, furniture or fittings, or merchandise. No haphazard method of dealing with depreciation should be tolerated, otherwise confusion will arise and the accounts will only be misleading. Provision for every kind of depreciation should be made each year by charging against the profit and loss account the estimated percentage of depreciation for the year.

All these things indicate the advantage to the manager of a large concern, or a modest one, for that matter, of being conversant with the principles of accountancy and finance. In appraising the standing of other businesses’ such knowledge is also valuable.

Posted in Business Management

A Successful Beginning In Management

July 2nd, 2011

The young man with a University education, or who has been too long at a Public School, enters an environment that is too often distasteful after the atmosphere he has breathed. He is mentally antagonistic to his surroundings, because his brain has been organized in other directions; he has formed a habit of mind that is frequently difficult to change. He has to learn to be quick-witted and self-reliant, and accustom himself to irksome routine. He is sometimes slow to learn that business discussions and decisions have no resemblance to argumentative school methods. Although life is a blend of thought and action, it is usually true that the abstract world of thought, and the business world of action, develop different types of mind. As Emerson said, “Commerce is a game of skill which every man cannot play.”

The mental faculties that are most in need of training, in nine cases out of ten, are those that tend to alertness of mind, to keen observation, to sustained concentration, to quick decision and a capacity for getting things done. To perform routine methods and follow in old lines is an easy thing; but to think out new lines which are essential from time to time, and to act independently on one’s own judgment and take the responsibility of the result, need special gifts. Influences calling for new methods and changes in policy are always at work; in fact, certain quickness in detecting such influences and changing conditions, and providing for them, has been the making of many a large enterprise.

There are some who would say that mental culture of a high order is incompatible with the business mind; in other words, that the habit of mind of the scholar is quite different from the habit of mind of the business man. Generally speaking, that may be true, but the point need not be discussed here. Undoubtedly in these days the conduct of a large business makes a serious demand on the mind and the time of the business man; it does not leave him much leisure to pursue academic studies. He has a definite object before him; it calls for unflagging pursuit, continual thought and reflection.

The majority of successful business men, although possessing highly organized brains, would not, in the academic sense, better “educated “by their scholastic friends. Nor would the business man claim that scholastic attainments are of much use to him so far as his business is concerned. He is content with his store of “worldly” knowledge-a clear brain, mental activity and abounding common sense. His school has been intercourse with his fellow-men; his wits pitted against theirs; he has no slavish dependence on books; he has experienced the truth of a saying:

“The original and proper sources of knowledge are not books, but life, experience, personal thinking, feeling and acting… Books are no doubt very useful helps to knowledge, and in some measure also to the practice of useful arts and accomplishments, but they are not, in any case, the primary and rational sources of culture, and in my opinion their virtue is not a little apt to be over-rated, even in those branches of acquirements where they seem most indispensable. They are not creative powers in any sense; they are merely helps, instruments, tools, and even as tools they are only artificial tools, superadded to those with which the wise prevision of Nature has equipped us.”

Posted in Business Management