Strategic financial management for small and medium sized companies introduction

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Emerald Group Publishing Limited

Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2015

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A catalogue record for this book is available from the British Library ISBN: 978-1-78560-775-2 Certificate Number 1985 ISO 14001 ISOQAR certified Management System, awarded to Emerald for adherence to Environmental standard ISO 14001:2004.

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Practices— SME Profitability Relationship 51

The Model of Strategic Financial Management in Small and

Medium Sized Businesses 53

4. Strategic Financial Planning and Forecasting in Small and

Choosing the Appropriate Legal Form for the Organization 66

Sole Proprietorship 67

Partnership 67

Limited-Liability Company 68

Corporation 68

Preparing a Business Plan 69

Executive Summary 72

Company Information 73

Industry Analysis 74

Top Management, Organizational Framework, and

Company Culture 75

Main Product/Service Lines 76

Marketing and Sales 76

Product/Service 77 Place 77 Promotion 77 Price 78 Major Suppliers 79 Financial Forecasts 79

Capital Budgeting (Fixed-asset Investment Analysis) 90

Payback Period Analysis 92

Net Present Value (NPV) Analysis 92

Tips for Budgeting Strategically 93

Critical Factors/Risks 94

Funding Request 95

Appendixes 97

Academic Studies on Financial Planning and Forecasting in SMEs 97 5. Strategic Working Capital Management in Small and

Strategic Cash Management 103

Strategic Accounts Receivables Management 108

Strategic Accounts Payable Management 116

Strategic Inventory Management 118

Academic Studies on Working Capital Management in SMEs 123

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6. Strategic Capital Structure Management in Small and

Capital Structuring Decisions 132

Equity Capital 132

Debt Capital 134

Determining an Optimal Capital Structure 136

The Decision to go Public 137

Choosing Between Bank Loans 139

Applying for a Bank Loan 142

Academic Studies on Capital Structuring in SMEs 144

7. Strategic Fixed-Asset Management (Capital Budgeting) in

Small and Medium Sized Businesses 151

What Is Capital Budgeting? 152

Net Present Value Analysis (NPV) 153

Internal Rate of Return (IRR) Analysis 154

Payback Period Analysis 154

Averaging Method 155

Subtraction Method 155

Profitability Index 155

Throughput Analysis 156

Academic Studies on Capital Budgeting in SMEs 157

8. Strategic International Trade Financing in Small and

Risks in International Trade 162

Political (Sovereign) Risk 163

Legal Risk 164

Exchange Rate Risk 165

Trading Partner and Fraud Risks 165

Non-Payment Risk 166

Basic Documents in International Trade 166

Commercial Invoice 167 Packing List 168 Transportation Documents 169 Certificates 171 Financial Documents 172 Incoterms®2010 Rules 173

Rules for All Modes of Transport 173

Rules for Sea and Inland Waterway Transport 175

Basic Payment Methods in International Trade 176

Advance Payment 177

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Open Account (Payment against Goods) 180

Open Account Process 181

International Trade Financing Tools for Minimizing

the Risks in Open Account Trading 181

Consignment 185

Key Features of Consignment Sales 186

Documentary Collections 187

Main Features of Documentary Collections 187

Documentary Collection Process 188

Letters of Credit 190

Letter of Credit Process 191

Main Features of Letters of Credit 193

Types of Letters of Credit 194

Forfaiting 198

Main Features of Forfaiting 198

Process of Forfaiting 199

Managing Currency Risk 199

Hedging Techniques for Currency Fluctuations 200

Currency Forwards 201

Currency Futures 201

Currency Options 202

Academic Studies on Internationalization of SMEs 203

9. Strategic Financial Reporting and Control in Small and

Measures for SME Performance 208

Using a Balanced Scorecard 210

Financial Reporting and Control in SMEs 211

Understanding the Basics of Financial Statements 213

Balance Sheet 213

Assets 215

Liabilities 219

Shareholders’ Equity 220

Income (Profit and Loss) Statement 221

Total Revenue (Total Sales) 222

Cost of Goods Sold (COGS) 223

Gross Profit 224

Operating Expenses 224

Operating Profit 225

Interest Income or Expense 225

Accumulated Depreciation 225

Net Profits 227

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Cash Flow Statement 227

Cash Flows from Operating Activities 227

Cash Flows from Investing Activities 228

Cash Flows from Financing Activities 228

Evaluating Financial Performance 228

Profitability Analysis 230

Vertical and Horizontal Analyses 231

Vertical Analysis 231

Horizontal Analysis 232

Financial Control 233

Building an Accounting Information System 235

Cash-based Accounting System 235

Accrual-based Accounting System 236

Selecting an Accountant 236

Academic Studies on Financial Reporting and Control in SMEs 238

10. Conclusion 243

Index 249

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