Реферат: Costs and income of enterprises
1 Economicessence of costs and income of enterprises
Resources ofincome for enterprises
Types of costs
2 Main ways ofdecreasing the costs Main ways of increasing the income
The list ofused literature
Anycompany or organization, regardless of ownership (private or public) in theimplementation of its activities receives some income. The relevance of thistopic is that in conditions of market relations incomes of enterprises andorganizations have direct relevance to the budgetary system of the Republic ofKazakhstan.
Thepurpose of this paper is to explore the nature of income and costs.
Themethodological basis was: Internet information sources, the book of domesticauthor.
Kazakhstaneconomy is market type of economy. Kazakhstan was the first country among CISthat received a status of country having market economy from the Ministry ofTrade, USA. In 2000 this fact was confirmed also by EuropeanUnion.
The economy started to change since 1991 after the collapseof Soviet Union. In 1990s many banks gave loans to people and organizationswithout knowing how to receive them back and according to what conditions itshould be done. Today the situation is completely different: they know how todeal with loans business but there is no high demand especially after everybodyfelt the financial crisis and the crisis in construction sphere. Nowadays manyenterprises pay special attention to the analysis of income and expenditure andtheir comprehensive characterization as many of the business people understoodthe importance of making, keeping and proper spending of money. Considerationof this issue is essential for the proper functioning of enterprises andorganizations subordinated to the market laws. Right management decisions canbe made only on the basis of clear understanding of income and costs question.Making the right decisions will lead the enterprise to financial independenceand prosperity.
Thispaper gives information about resources of income, income allocation and typesof costs in the section of “Economic essence of costs and income ofenterprises”. It may be useful for entrepreneurs of small and mediumenterprises, students of economic and financial departments of universities andcolleges.
Theproblems of profit maximization and costs minimization are also considered inthis paper. These topics are always very topical, because the main target ofany enterprise is to maximize profit. How to do it? One of the ways isminimization of costs. Strive to minimize costs — not to act against theinterests of business for avoiding costs. This should be solved by finding thebest possible optimal ratio of revenues and expenses. The ways to minimizecosts are given in the “Main ways of decreasing the costs” section.
Anothertopicality of this paper is the fact that income and costs (besides thefinancial results such as profit and expenditures) are the most importantindexes of the enterprise’s activity and main elements in the report aboutfinancial results. Financial results of the enterprise are found by comparingincome and corresponded costs. That is why a proper understanding of incomeallocation and what types of costs there are, is crucial for the successfulmanagement of the enterprise.
1 Economic essence of costs and income of enterprises
Anyenterprise’s target is to make profit. In order to make it a company shouldunderstand where comes from the income and where goes out costs. Knowing theresources of income and types of costs will allow the enterprise to manage themsuccessfully, which means it will be able to make profits. Companies andenterprises in different fields are part of whole economy. Active andprofitable companies rise economic activity and contribute to the development ofnational economy. Big companies become bridges between countries and states.
Anyenterprise has to have a system of accounting, managing and planning of costsand resources to finance its activities. Systems are constructed on the basisof income and costs.
Resources of income for enterprises
Todefine resources of income for enterprise all activities should be dividedinto:
— main and operational activities (production and selling products and services);
— financial activity (taking loans and giving them to other enterprises;enterprises’ taking part in activities of other companies; operations ofenterprise on the financial markets, differences in exchange rates etc);
— extraordinary items (operations that are not usual to activities of theenterprise).
Thisdivision of activities is very important as it allows to define what part ofincome was received from main activity, what part was received from othersources such as those that are unusual for a particular enterprise’s activitiesand cannot be considered as some constant source of income.
So,in the system of financial management it is required to have following ratesindexes:
Incomeand profit indexes:
a)net income from selling of products (providing services) – is gross revenuefrom sales minus value added tax, excise tax, returned products and pricediscounts. This index is the real base for further counting of profit index andevaluation of profitability;
b)gross profit from sales – net income from sales minus production expendituresof sold goods.
Thisindex allows to analyze the effectiveness of production activity of theenterprise;
c)profit (loss) from main activity (operational profit or operational loss) –gross profit from sales minus management costs and sales costs. This indexreflects the influence of management and sales costs to financial sales result;
d)profit from financial activity – balance of income and cost in hand byfinancial activity. This index is needed for defining the profit fromproduction and economic operations including such sources of profit asreceiving interest and dividends, operations with foreign currency etc.
e)profit from ordinary economic operations – sum of profits from main economicoperations and profit from financial activity;
g)profit (loss) before taxes. This index is the point from which the accountingprofit transmits into taxable profit.
Accounting(or reported) profit – is the profit, which was counted in accordance withrequirements of book keeping. Main target is to define the accounting profit – toshow the effectiveness of enterprise’s activities for reported period.
Bookkeeping is made for gathering and analyzing information about income and costsof the enterprise and about net result of activities for making managementdecisions in future periods. After the target was achieved the result (profitbefore taxes) should be adjusted in accordance with tax law of the country. So,the taxable profit is accounting profit, that was recounted in accordance withtax law requirements;
h)net profit (net loss) – profit after taxes. In conditions of market economy itis the most important index of enterprise’s activity. This index is always atthe center of attention for managers and financial markets. The existence ofthe enterprise, working places for its employees, paying the dividends aredepended on dynamics of net profit(http://www.bestreferat.ru/referat-68599.html).
The rights and opportunities of allocation and using of the incomeare very important for any enterprise because income is the main source offinancial, production and social development, financial development of itsemployees.
The system of income allocation and utilization should stimulatefurther development of current particular type of business and expansion to newdirections. It should also increase the interest for making more money
The order for income allocation and utilization for commercialenterprise are defined by the methodology of income that is accepted inparticular society at this stage of its development
Current order of income allocation corresponds to current stage ofmarket relations development, thus an enterprise should take part in formingthe state budget. The rest part of the income should be allocated betweenowners and investors of the enterprise. If there were other financial resourcesthe income should be allocated between them either in accordance with concludedagreements.
State influence on the choice of directions of net profits is madethrough taxes, tax exemptions, and economic sanctions.
Such system of income allocation began in 1964 in the Soviet Union. The system passed through three stages of development. The essence of thereform of income allocation is an ongoing decentralization of exemption ofenterprise income in favor of the state and reduction of financing enterprisesfrom the state budget. The current system of income distribution or allocation ofdomestic enterprises began to perform the same function as was adopted indeveloped countries in the West.
Thus, the transition to a market economy in Kazakhstan the systemof income assigning focuses on the current overseas system.
Common to all businesses regardless of ownership and types ofactivity is the distribution of profits in accordance with the statute and thecollective agreement for the following purposes:
1) payments to the budget;
2) contributions to the non-budgetary funds established by adecision of the Government or local authorities;
3) the formation of the accumulation fund;
4) establishment of a fund of consumption;
5) charitable purposes;
6) other purposes (saving for the purchase of property, etc.).
In Kazakhstan there are following taxes:
a) corporate tax
b)value added tax;
c) excises and other taxes.
The list and the method of calculating taxes is subject to changeby legislation.
Net income of the company after taxes and deductions(entrepreneurial income) is used to form:
Development Fund (accumulation fund), which corresponds to thegrowth of fixed and floating assets of the enterprise (capital gains);
Stock consumption (to increase the material interest of employeesto improve efficiency and profitability of the enterprise);
Contingency fund designed to finance unforeseen costs associatedwith the risk of economic activity, other funds, if any founding documents,laws and requirements of practice.
The size of the funds is not strictly regulated, except forcertain areas of their use.
Accumulation fund and the fund of consumption — a special purposefunds. They are formed, if foundation documents mention this. The accumulationfund is created to finance the production development of enterprises: financingof capital investments, expansion and reconstruction of enterprises, to financenew development, to pay off loans and interest thereon, for the maintenance offacilities for cultural and educational work and others. Thus, the accumulationfund is a source for entities, accumulating earnings and other sources tocreate a new property, the acquisition of fixed assets, working capital, etc.The accumulation fund indicates a growing wealth of the company, extending itsown funds.
Consumption fund — the source of funds that were saved forimplementation of social development (excluding capital expenditures) andfinancial incentives for personnel. The consumption fund is directed to thefollowing objectives:
— the payment of lump-sum compensation for work results at the endof the year;
— for benefits;
— to pay for transport;
— to grant interest-free loans;
— to establish entitlements to pensions of working pensioners;
— one-time incentives for employees;
— establishment of labor and social benefits;
— the payment of dividends on securities.
Reserve fund is created by an enterprise in case of termination ofits activities to cover accounts payable. It is mandatory for joint stockcompanies, cooperatives, associations, enterprises with foreign investment. Thecompany in addition to the reserve fund shall transfer the share premium, ie,the amount of the difference between the sale and the nominal value of shares,the proceeds of their implementation at a price higher than face value. Thisamount is not subject to the use and distribution, except the cases when sharesare sold at a price below face value.
Contingency fund of joint stock company is used to pay interest onbonds, dividends on preferred shares, in case of insufficient net income forthese purposes.
Planning the distribution of profits is carried out in two stages:
On the first the need of profit is determined by the following directionsof its use:
a) to finance the development of material and technical base — theadvance of capital. The need for profit in this area is determined on the basisof expert evaluation of requirements for equipment modernization, taking intoaccount other sources of funding
b) to finance the growth of own revolving funds — advancing itsown working capital. Calculation of the need for additional working capital maybe made by technical and economic calculations or by direct calculation on thebasis of data on the availability of working capital at the beginning of theplanning period, projected growth rates of turnover, taking into accountchanges in the participation of its own funds to pay for goods and trade inshares credited to total value.
c) for the establishment of financial reserves. The need forfinancial reserves is defined in two ways: either as a percentage of net profitspecified in the constituent documents, or on the basis of financial need dueto growth and expansion of business activity.
d) for repayment of long-term and medium-term bank loans and payinginterest on them. The need for these resources is determined by the contractand terms of obtaining and repayment of these loans;
e) to pay off other types of credit obligations of the enterprise(bonds) and interest payments on them;
f) use the profit for the acquisition of credit obligations,shares of other companies is mainly determined by an expert selected by thelight of targets in the development of the enterprise (flow of capital intoother forms of economy, market expansion, etc.);
g) for financing of unions, associations, corporations and otherhorizontal structures, which is a member of the enterprise. The need forprofits for these purposes is determined by the contract and the charter of allthese structures, either as a percentage of profits or volume of goodsturnover, either in absolute amount;
h) for social enterprise development and improving materialincentives, taking into account the needs of social, cultural, housing eventsand its cost. Increase of material incentives is possible by adopting theprinciple of participation in profits;
i) to ensure compliance with tax obligations to the state;
j) to pay dividends (if such costs are mentioned in the foundationdocuments). The economic basis for this payment of dividends on stocks andbonds, except shares of a joint stock company, according to many experts, isthat owners play roles of creditors of the of the enterprise and should receivea portion of profits as dividends, which corresponds to the cost of debtcapital on the markets of production factors (the lower limit ) or equal to theadditional profits earned by the enterprise-borrower from the use of additionalcapital in the planning period in proportion to the share capital in the totalamount of the funds (upper limit).
The second step compares the amount of demand for income in allareas of its use with a capacity of enterprises to receive it.
Total demand for profits by the above mentioned directions of itsuse is one of the variants of the value of the target company's profit.
Final decisions on the planned uses of profits made after theprofit plan taking into account the potential to receive it.
Each company produces an annual plan and budget estimates of theactual use of the accumulation fund and the consumption fund. Each of theseestimates show balance the flow of funds in the financial year, expenditure onspecific areas, the balance at the beginning of a future period. The actualperformance of the estimates is analyzed with planned developments.
Retained earnings of previous years may be directed towardsreplenishment of the reserve fund, to increase the authorized capital, toincrease funds for special purposes (to purchase the property, etc.) (http://www.xserver.ru/user/pkpri/5.shtml).
Types of costs
Production of any commodity is a cost ofeconomic resources — raw materials, fuel, energy, labor, transportation andother services. Payment for all of these resources represents a cost ofproduction. Due to the fact that not all of these resources are actually paid,that is, some of which the company can use as a free, economists distinguishbetween explicit and implicit costs.
Explicit costs (external accounting) — acash payment for the resources obtained from (wages, payment for the supply ofraw materials, transportation, legal, consulting and other services).
Implicit (internal) costs — are costs associated with the useof enterprise’s own resources. In contrast to the explicit, these costs are notpaid, are not reflected in financial statements, they are hidden, ie, they arefirm's own resources used in its manufacture. The magnitude of these costs isdetermined by income, which could bring these resources in their mostprofitable alternative use. The existence of implicit costs can be illustratedby the activities of the firm or enterprise, which uses owned and rentedproduction facilities, equipment, machines. The company pays for the use offoreign capital rent, which includes interest and depreciation. Since thealternative use of company-owned capital, such as giving it for rent, wouldhave brought in revenue as interest, then the firm must take into account thecost of using own capital. They represent the interest on capital.
There is another point from which costs may be considered.Part of used economic resources may be owned by a firm, owned by theirrespective owners. Another part of the resources the firm acquires fromsuppliers who are not owners of the firm. Thus, firm may have productionfacilities and equipment, vehicles, etc. At the same time, the company buys rawmaterials, fuel, energy, labor services, etc. Using any resource entails costs.Costs for use of own land is called rent, or internal rent, the costs of usingentrepreneurial skills of company owner are called the normal profit, costs foruse of company-owned industrial buildings, equipment and other items of realcapital is called interest.
Thus, economists include into the economic costs ofproduction all costs — internal and external, including rent into internalcosts, normal profit and interest in order to attract and use resources in thecompetitive enterprise. Accounting costs are equal to the total external costs.From these definitions it follows that the economic costs are bigger thanaccounting costs for the amount of internal costs of the firm.
Accounting department registers production costs. Theaccountant records the actual costs that have occurred in the last period,determines the actual total costs in cash. If the production costs include onlyexplicit costs, then their sum can be understated, and the difference betweenthe proceeds from sales and explicit costs will be overstated.
Sunk costs (may be also referred as Fixed costs). There arealso so-called sunk costs, which the company has spent, but won’t be able torecover. Sunk costs do not influence the firm’s decision-making on actions infuture. But we can estimate the previous decisions that led to the emergence ofsunk costs.
The volume of total cost of firm varies depending on theoutput Q. If the output increases, then total costs increase also. Ifproduction reduces, company’s costs also reduce.
Theamount of some types of costs remains constant, independent of productionvolume. Fee for leased space, equipment, other costs remain constant, no matterhow varies the production volume. The firm’s costs, the amount of which doesnot depend on the volume of output, called the fixed costs (FC).
At the same time, the costs of materials, fuel, energy,salaries and other change along with the output. If the production output stops,then such costs reduce almost to zero. With the growth of production variablecosts increase, while the total value of fixed costs remains unchanged. Costsof production, the magnitude of which depends on the volume of output, calledthe variable (VC) cost of the firm. Total (TC), or gross, the cost to thecompany equal to the sum of fixed and variable costs: TC = FC + VC. Fig. 1shows the line of fixed costs, variable costs and total costs curves. Theseforms of curves have most of the firms.
Fig. 1. Constant, variable and total costs of firm
So, there are:
Costs that don't change over a period of time and don't vary withoutput. E.g. salaries, rent, tax, insurance, heating and lighting. Fixed costscan also be called indirect costs as they are not directly associated with thefinal product. Fixed costs have to be paid even if the company is not producingany goods.
Costs that vary directly with output so when output increases,variable costs also increase. E.g. raw materials, electricity. Variable costscan also be called direct costs as they are directly associated withproduction.
These costs have fixed and variable elements. E.g. a personworking for the company may have a fixed salary but may also earn commission onsales.
Total costs are calculated by adding together fixed, variable andsemi-variable costs.
2 Main ways of decreasing the costs
Production costs depend on the effective use of economic resourcesand are determined by the cost of unit of production.
In order to minimize costs, the company shall take the followingaction:
• what is the best way to organize the production of existingproduction facilities
• which new production capacities to choose taking into account scientificand technological progress;
• what is the best way to adapt to discoveries and inventions.
Correct solution of these problems should lead to profits.
Fig.2 Graph showing the number of products in the function of minimum productioncosts
Isocost- is a graphic representation of the production function with a straight line,which shows all the combinations of factors of production, the use of whichrequires the same cost.
K- volume of production;
C0,C1, C2, C3 — isocosts;
Q= B * (K * L) – firm’s production function in the long run.
Thecurve of Q determines the volume of production, in which the enterprise shouldcarry minimal level of costs.
Companycan not select C0 isocost, as there is no such combination of factors thatwould provide the output Q when their value is equal to C0. Given volume ofproduction can be achieved at a cost of C2, where the cost of capital and laborare, respectively: K2L2 at point A and K3L3 at point B, but in this case thecosts will be minimal, so the chart shows that the most effective solution — the point N ( K1L1), which ensures minimization of production costs. Since priceson the factors of production change, C1 changes its slope to C3. Since thespeed of capital increases, the best option would be the point M (K4L4), whichensures minimization of costs.
The equilibrium is determined by the terms of achievingmaximization of profits. To achieve this, the firm must use variable resourcesin such quantities, that ratio of norms of technological substitution of oneresource to another, equal to the ratio of prices of these resources.
Constant effect of production scale growth is characterized by thefact that the volume of production increases in the same proportion as the costof resources.
P — price realization.
Negative effect of production scale growth is characterized by thefact that the output increases less than the cost of resources.
Positive effect of production scale is characterized by the factthat the volume of production increases in the proportion that exceeds theproportion of the increased costs of resources.
Main directions of reducing the costs of production:
1. The use of scientific and technological progress;
2. Improving the organization of production on the basis ofproductivity increase through reduction of working time wastes;
3. State regulation of economic processes(http://zubolom.ru/lectures/economy/28.shtml)
Thereis another essence of costs decreasing. Costs can be decreased if in thecompany was created the system of effective control over costs. Such systeminvolves classification of costs, depending on how easily they can be adjustedusing the alternative solutions, and consists of the following elements:
Sometimesyou can reduce costs by simply starting counting them systematically. It wasnoticed, for example, that when the company begins to record outgoing longdistance and international calls to their staff on the date, time and purpose,the total number of calls is reduced due to a decrease of personal calls.
Staff’ssupport of cost accounting system.
Employeesshould be attracted to follow the cost accounting system. If there is a strongstaff resistance to change cost accounting system the leader should explain theneed to reduce costs, make staff understand that their proposals regarding savingsare of high importance and will be valued in future (maybe financially).
Analysisof the causes of costs in the company.
Suchanalysis allows to take the necessary steps immediately to eliminate the causesof an undesirable increase in cost. Thus, if the entertainment expendituresrise, it is useful to determine why employees are spending company’s money inexpensive restaurants. Company actively expands its clients base and the numberof signed contracts grows? Or because the control over the entertainmentexpenditures became weak?
Tipsto reduce costs could be as follows:
1.Categorization of expenses by clearly defined categories. For example, the costof raw materials, labor, all direct production and general business
2.Focusing on the most significant costs, determine which of them should beadjusted.
3.Planning and implementation of cost reduction.
Nineapproaches to reduce costs
Thisis general recommendation, the applicability of which is listed in the table. 1(asterisks shows the relevance of activities from the list for those or othercosts)
1.Know the measure. Do not spend more than necessary to your business now.
2.New or old partners. Try to negotiate more favorable terms with suppliers,contractors and other partners with whom you have worked before the crisis. If itis not possible to agree with old partners, find new partners, which may offermore favorable terms for you.
3.Horizontal integration. Develop horizontal integration, which involves jointpurchases together with other buyer from one supplier. For example, twocommercial companies can join to get discounts for large volume purchases.
4.Vertical integration. Develop vertical integration, which involves thedevelopment of close relationships with suppliers to control and possiblyreduce the cost of materials and services.
5.To buy or produce. Check what components (materials, raw materials, etc.) yourcompany may produce, and which are cheaper to purchase from othermanufacturers.
6.Rent or own. Check what is cheaper: to rent a room (equipment, etc.) or buy itto use on the rights of the owner.
7.Forms of payment. Look for new payment options.
8.Tighter control. Simply create better control: consider the costs and they willbe less.
9.Optimization of technological processes. Check whether it is possible toachieve savings through improved technological processes and work organization,for example, spending less raw materials per unit of output.Activities or items that incur costs 1 2 3 4 5 6 7 8 9 The cost of raw materials * * * * * * * * * Rent payments * * * * * Utilities * * * * Maintenance of equipment * * * Total economic costs (accounting, purchasing department, sales, training, etc.) * * * Other costs: delivery * storage * loading and unloading, etc. * Marketing and advertising *
Fig. 3 Table of activities and items that incur costs
3 Main ways of increasing the income
Directed to production at lowest costs, the firm typicallysees the problem not as a whole target but as means of solving much moregeneral problem — the maximization of profit. This is the main goal for anycompany, even if it is not formulated as a leading motive for its activities.
In some cases, firms can aim not at maximizing profits, but othertasks, such as increased sales, achieving social recognition and forimplementation of those tasks it sacrifices some part of its profits. Suchmotivation of firm’s behavior is called satisfactory behavior. However, even inthis case one is in need of maximizing profits, at least in the long run,because only the desire for profit will rationally allocate resources, ensurehigh efficiency and, consequently, will allow successful implementation of theselected goal.
Profitmaximization for the firm means finding ways to obtain maximum economic profit,thus the difference between total income and overall costs.
Pm= TR — TC
Pm- total or net economic gains;
TR- total revenue, defined as the product of the number of goods sold by itsprice;
TC- total costs, including both direct and indirect.
Ifthe production and sales will be increased, then at constant prices the totalrevenue and total costs will increase: revenue — due to increased amount ofgoods sold, cost – due to the law of diminishing returns. Profits will occur aslong as income growth will exceed the increase in costs, and its size willdepend on the ratio of these quantities. Therefore, to solve the problem ofprofit maximization, it is important to consider not common, but limit valuesof the indices considered.
Theamount added to the total revenue from each additional unit of output, would bea marginal revenue. And marginal costs are those costs that are added to thetotal costs with each unit of output.
Aslong as marginal revenue exceeds marginal cost, the firm makes a profit and,hence, it makes sense to increase output. But when the increase in income fromthe last unit of output equals the growth in production costs of this unit, thegrowth of production should be halted, because the increment to profits will bezero.
Itis possible to formulate a general rule of profit maximization: The firm willincrease output until the moment when additional costs of producing anadditional unit of output equals the marginal revenue from its sale. This iscalled the rule MC = MR.
Thedifference between the MC and MR will be a marginal profit (PM) which wasreceived from the sale of each additional unit of output. If MR> MC, PMindicator will be positive, indicating that each additional unit of output addsa part to the total profit. When the MR and MC equals to each other it willmean that PM = 0, and the total profit at this point reaches its maximum.Further growth of production would exceed the MC over the MR and PM takesnegative values. In this case, when the marginal profit becomes negative, thefirm can increase its overall profit by reducing the level of output.
Makingdecision about investing capital and about output of production, the firm canalso focus on the average profit rate, which expresses the amount of profit perunit of output (Pm) / Q However, it should be borne in mind that the maximumaverage profit and the maximum total return does not match (http://revolution./economy/00006603_0.html).
Whatare other ways of increasing income for an enterprise?
Veryoften small business owners devote all their time working with every aspect ofthe company. Such deep involvement has its advantages, but if they do notinterrupt and do not focus on the factors affecting the profitability of thecompany as a whole and in detail the result can be lower rates of profit.
Thechallenge to increase profitability requires the owner of the company towithdraw from daily activities and analyze the activities and financialstatements of the company with an independent point of view, or in other words,as a third party. In this regard, accounting records are very important, aswell as financial statements for evaluation of company’s history of commercialactivities.
Ifthe company's financial statements did not reflect the latest data, thefinancial records must be updated. This can be done either manually or usingappropriate accounting software. This problem is often takes place in smallbusinesses, because statements usually are prepared at the last moment andsolely for tax purposes. Small businesses may be limited to simple accountingspreadsheets, while medium-sized businesses are encouraged to adapt morecomplex software.
Oneshould make a list of strengths and weaknesses of the company by examiningevery aspect of its activities, including sales and procurement, costmanagement, personnel and financial control. Using financial records, evaluationunder these various aspects by elements should be made. The list should be asdetailed and exhaustive as possible, since based on this list the program ofactions will be created on which, in turn, will be built the business
Pastand current turnover, divided by product, by sales volume and sales prices areamong those elements. Analysis of costs is carried by the type and breakdown ofdirect purchases, operating expenses and ongoing overhead expenses such ascosts for rent.
Anotherimportant element is the assets and liabilities of the company. One should makea list of major long-term assets and their relevance and importance to thecompany. Working capital is — the difference between current assets, such as:cash, bank accounts, inventories and accounts receivable — and currentliabilities, such as: accounts payable, borrowings
Afteranalyzing the operational and financial aspects, and by listing the strengthsand weaknesses, one is able to begin learning how on the basis of pastfinancial indicators derived from accounting records can be formed futurefinancial plan.
Company’smanagement should examine turnover, defined as sales of existing products andrelated products, as well as potential new products; examine the sales pricesand the relationship with key customers and how you can attract new customers.Based on the analysis, create a plan to increase sales, preferably directed tothose products and product groups, which will give the highest gross profit
Importantrole is played by sales channels. While the company may already have multiplesales channels in the past, perhaps this potential was not fully utilized. Oneshould explore the strengths and weaknesses of each existing and otherpotential sales channels.
Otherareas that require attention include: selling prices, maybe there is anopportunity to raise some prices. Studying of existing customers can point outwhere and how you can increase sales.
Anotherimportant element is costs management. Examine the database of suppliers andthe possibility to find cheaper and better suppliers. Most small and bigcompanies always have the opportunity to reduce the costs associated with thepurchase.
Itis required to consider and financially assess the actions of management,prepare financial projections of the budget business plan, supported by thedescription of the measures to be taken to improve profitability, regularlycheck progress and its influence on the rate of return. With the passage oftime and with the emergence of new opportunities may become necessary to adjustor revise the current actions or program of actions (http://business.damotvet.ru/small-business/1012838.htm).
Resourcesof income for enterprises are: net income from selling of products (providingservices), profit from financial and ordinary economic activities,extraordinary profit.
The rights and opportunities of allocation and using the incomeare very important for any enterprise because income is the main source offinancial, production and social development, financial development of itsemployees. The order for income allocation and utilization for commercialenterprise are defined by the methodology of income that is accepted inparticular society at this stage of its development. Current order of incomeallocation corresponds to current stage of market relations development. Theincome should be allocated between owners, investors of the enterprise andgovernment (as taxes). Common to all businesses regardless of ownership andtypes of activity is the distribution of profits in accordance with the statuteand the collective agreement for the following purposes: payments to thebudget, contributions to the non-budgetary funds, the formation of theaccumulation fund, establishment of a fund of consumption, charitable purposes,other purposes (saving for the purchase of property, etc.).
There are several types of costs:explicit costs, implicit costs, fixed, variable and semi-variable costs.
One of the ways to decrease the costs is reducing the costsof production by the use of scientific and technological progress;
improving the organization of production on the basis ofproductivity increase through reduction of working time wastes; stateregulation of economic processes. Another way is creation of the system ofeffective control over costs, which is consisted of cost accounting, staff’ssupport of cost accounting system, analysis of the causes of costs in thecompany. There are also some tips to reduce costs like categorization ofexpenses by clearly defined categories, focusing on the most significant costs,planning and implementation of cost reduction. Besides ways and tips forreducing the costs one can use special approaches to do it: 1. Know themeasure, 2. New or old partners, 3. Horizontal integration, 4. Verticalintegration, 5. To buy or produce, 6. Rent or own, 7. Forms of payment, 8.Tighter control, 9. Optimization of technological processes.
To increase the income one can use the general rule of profitmaximization: The firm will increase output until the moment when additionalcosts of producing an additional unit of output equals the marginal revenuefrom its sale. This is called the rule MC = MR.
More general ways are focusing on the factors affecting theprofitability of the company; evaluation of financial statements; the financialrecords must be updated; making a list of strengths and weaknesses of thecompany by examining every aspect of its activities and a list of majorlong-term assets and their relevance and importance to the company; company’smanagement should examine turnover and sales channels.
List of used literature
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3. Business Ideas. Typical Contract. (no date). Расходы предприятия.Классификация расходов. Retrieved October 11, 2009, from www.tvoydohod.ru/fin_11.php
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