ACCA FIA & Family Biz: Merging Valuable Insights

You won’t believe this… most people suck at managing their business, but are very skilled at their creative craft. They have trouble running the business, because to run a business effectively, you gotta know your numbers. 

I recently completed ACCA Foundation in Accountancy. It took me 2 years to get it done. There were 7 papers, FA1, FA2, MA1, MA2, FA, MA, BT. In these subjects I learned the foundation of doing accounting.

ACCA is a global accountancy body. It is widely recognized in over 180 countries including the Middle East, Europe, UK and Australia to name a few. It’s like being a CPA. You become a certified chartered accountant after completing this pedigree. There are 17 papers to complete this course for the study route I have taken and I have finished 7 foundation papers. 

Profit does not translate to actual cash in hand

You heard that right. Profit is essentially a balancing figure from sales – expense = profit. It is the result of applying the ‘matching concept’ in accounting principles. 

So let me explain what I mean by that…

Sales can happen in two forms. Credit sales and cash sales. 

In cash sales you get the money at the point of sale. For example in a check-out counter of a supermarket. 

Whereas in credit sales, you will get your cash at a delayed period after the sales invoice is raised and you haven’t gotten money for the sale. 

Imagine, a wholesaler selling 10,000pcs of Energypac to a retail store like Atlantic Superstore. 

So, you don’t really have your cash profits at the end of the month.

So, in the books you are making a profit but really you don’t have that profit in your pocket in $$$ at the end of the month.

Now, when I run my business, I look for the cash statement to see how much money I actually have in my pocket. 

Working Capital can MAKE or BREAK business

Working capital of a business is the flow of money being paid for purchases to money being received from sales. From the moment payment is made to supplier for goods to resale to selling the product to customer and receiving money from sale is known as the working capital cycle.

You may have a profitable business but if you don’t have cash from sales coming into your business on a consistent basis, you could end up closing shop. It could be the case that you have sold products in credit days longer than getting credit days from your supplier.

You have to make sure that a healthy amount of cash flow is coming into your business.

How will you do this?

Simple…

Apply ‘Leading and Lagging’ technique

Leading and lagging technique is a common technique used by accountants and CFOs. 

The basic idea is that you will pay cash to your suppliers later and you will take cash from customers earlier. 

This way you are ‘leading’ by receiving cash from sales earlier and ‘lagging’ payment to suppliers later. As a result, you will always have cash in your hand at the end of each month to make any payment obligations.

Budget… Budget… Flexible Budget

If you ever took an accounting module in your university or you watched accounting content on YouTube, you will find many videos that explain what a master budget is, but very few people talk about a vital budget, called the flexible budget.

Flexible budget… allows you to modify your budget to the changes in variation in a year.

Whereas a fixed (static) budget is set at the beginning of the year (or period) and compared with actual results at the end of the year (or period). 

This is a little bit of an advanced concept. But when applied correctly and consistently, you will have more control over the costs of your business. 

After learning about this in MA paper, I used flexible budgeting in my yarn manufacturing business and I was effectively able to reduce production wastage by 3%.

It doesn’t sound like much, but when you are producing over 13,000 metric tons of yarn a year, a 3% wastage saved allows you to produce an additional 390,000kgs of yarn from the same amount of input materials.

This additional output of 390 metric tons made me about $400,000 in additional sales for the year.

Understanding Financial statements

Learning to prepare financial statements has been tremendously instrumental in improving my business acumen and decision making abilities.

I was able to grasp the intricacies of the three key financial statements, which are the income statement, balance sheet and cash flow statement, giving me valuable insights into the financial health and performance of my businesses. 

Before, I used to be confused when my accountant would hand me the financial statements at the end of the year. I couldn’t make much sense out of the numbers. 

But Now…

After mastering the preparation of financial statements, I can confidently track my business’ revenues, expenses, assets and liabilities. I can find out trends, spot trouble areas and make sound strategic decisions to optimize the profitability and growth of my businesses.

Let me give you a list of things that ACCA has taught me to do better in my businesses:

• I can identify which products or services are driving the most revenue.
• I understand where my money is being spent and can identify areas for cost savings.
• I determine the overall profitability of my business and which aspects contribute most to my bottom line.
• I assess my business’s ability to meet short-term financial obligations.
• I evaluate my business’s long-term financial stability and ability to cover debts.
• I monitor the value and utilization of assets within my business.
• I get a holistic view of my business’s financial well-being and identify potential areas of improvement.
• I assess my business’s capacity for growth based on financial performance indicators.
• I make informed decisions about investments, expansions, and operational changes based on financial data.

In Closing

ACCA FIA has UPED my accounting game and business acumen. If my post inspired you. Check out ACCA site at accaglobal.com. You will get more details about this program here.