• Help reduce bankruptcy and business failure?
• Consistently add more value to the business community?
• Reduce fraud and irregularities
• Become better consultants and business advisors
• Meet the new business needs
• Restore credibility and public confidence to the accounting professional
• Safeguard our environment

The above question and many more are what kept coming to my mind in my quiet time. I always feel guilty that accountants and other information professionals are not living up to expectation. We seem to be widening the expectation gap on a continuous basis.

Take a look at the number of businesses that has failed and those on the verge of failure. The gross irregularities that took place in some sub sectors of the economy that triggered this global economic crisis that have taken so many lives and made a good number of family go bankrupt could in my own opinion been prevented if accountants, auditors and other information professionals had lived up to expectation.

The rule of business and investment has long changed and is still fast changing and what are we (accountants and auditors) are doing about it? Are we folding our hands wishing and praying that things get better or are we actively seeking solution to this problem?

Major indicators are pointing that more companies will collapse in 2010. What restructuring and repositioning are accountants, auditors and other information professionals taking to prevent what I see happening to businesses in 2010- especially Nigerian banking sector?

The whole world is clamouring for green activities that will help reduce the climatic change. Thank God for the concerted effort of ACCA towards enlightening accountants of the need to advice their company to ensure that all their activities are tending towards green activities and reporting same to the public.

If you are reading this and feel the same way that I feel, I encourage you to go ahead and drop your comment on this blog or better still join our forum to share your thoughts. Tell us what you think that accountants are to do in the face of these ever growing challenges.

In this article are those qualities that we must look out for before selecting an investment accountant.

His/ her knowledge of investment; anybody you must employ as your investment accountant must be a person that has knowledge of investment. Where possible, ask them to provide proof of such investment knowledge, you can for instance ask them to provide their investment portfolio.

Work experience; having experience in similar position in the past will help re-assure you that they will provide you and your investment the much needed result.

Qualification; it is a good practice to only engage highly qualified professional accountants as your investment accountants. Being a member of CIMA or ACCA will be sufficient to prove this.

Must be knowledgeable in the use of cutting edge technologies; in this world of today where every thing has gone digitalized, it will be a taboo to engage the service of anybody who is not technologically savvy as your investment accountant.

Must have a high credit score; there is no way a person who cannot manage his/her own finances can be the best person to handle your investment portfolios. Always search for accountants that have sound, high and clean credit score.

Must not be a person who has gone bankrupt in the past; this is in line with the previous point, if he/she was not good enough to avoid going bankrupt in the first place, how then do you think they will make a better investment accountant?

Finding and keeping good investment accountants has never been as important as it is now before. So do all that you can to keep your investment accountant motivated and energized at all times.

Good luck in your search for an investment accountant!

The terms to be explained are listed below followed by brief explanation of the term

IRR; IRR stands for Internal Rate of return. It is the rate at which investment equals cash inflows. It is calculated based on trial and error or interpolated after at least two trials.

NPV; NPV stands for Net Present Value. This is a term used to describe the difference between a project’s entire cash flow discounted to today’s value less the initial investment at today’s cost.

ROCE; This simply means return on capital employed. It can be calculated in various ways but the most popular one is based on average profit/average investment.

Present value. This is the cash equivalent now of the sum of money receivable or payable at a stated future date, discounted (stated in today’s term) at a specific rate of return.

Time value of money. One Naira today is definitely not the same one Naira that will be received in one year’s time.

Future value; the is the predicted value of one Naira that we have today. You calculate it using this formula FV= PV (1=r)ⁿ where r is the discount rate and n is the number of period

Discount rate; this is the rate that is used to calculate a projects present value. In other words, it is the cost of capital put differently.

Cost of capital/ target rate of return. This in common parlance is what the providers of fund expect you to give to them as compensation for their risk.

Discount factor; this is the figure that is used to bring an amount to today’s term.

Compounding; this simply means adding the interest from previous years to the capital in this year and recalculating the interest. This will obviously give a higher interest.

Discounting; Discounting is an attempt to get the today’s value of an expected future cash flow.

Simple Interest; This is interest that is based only on the capital (initial/ given amount) year-in-year-out.

Compound interest; This is the interest calculated on compounding basis. It is the direct opposite of the simple interest.

Cash flows. This is the inflow or outflow of monetary resources that our business experiences as a result of our investment decisions.

Sensitivity analysis; this is a term used to describe one of the methods of measuring risk. It measures the volatility of NPV to other variables.

Profitability index. It is used to make investment decision in time where there is capital rationing.

Uncertainty; This is the term used to describe a situation where decisions are made without reference to past record. The outcome of the investment is known and cannot be predicted from past record.

Risk. This is when the outcome of an investment is not known but can be reasonably predicted based on past records.

Project specific rate. This is the rate that is used to evaluate a project that has different characteristic from the company as a whole.

CAPM; this is a method of calculating the cost of capital. It is an attempt to correct the weakness of dividend growth valuation model, risk factors are included into the calculation.

Relevant cash flows. these are cash flows that will be incurred or avoided as a result of either taking up an investment opportunity or not.

Beta. This is a tool used to measure the risk factor of a stock/ project in relation the overall prevailing situation. If for example a stock has a beta of 1.5, any movement in the market will be magnified by 1.5

If you need a detailed explanation on any of the terms here, just feel free to log on to this forum and post your question.

Accounting is the only language that businesses all over the world understand. And for you to be a better business person, you have to know how to speak, write, read, and understand this language of business.  There are many people that rely on accounting as a profession to provide them with much needed information to make an informed economic decision.

Users of accounting information system

The following are the users of accounting information system;

Shareholders of a company: Company’s shareholders are the real owners of a business and needs information from those that manage the business on their behalf.

Government: It is the duty of government to protect lives and property and in so doing will need information concerning every facet of her jurisdiction. Information from businesses in the form of financial report will help government properly formulate her strategic plan.

Suppliers/ Creditors: Suppliers and creditors of a company need information concerning the financial position of a company. They need to be convinced that the company is liquid enough to meet with her obligations upon maturity.

General public: The general publics will some time need information about the finance of a company in order to protect their interest.

Students: students need information about company’s finance to take some decisions that relates to courtesy visit and demand for bursary

Employees: Employees and lower cadre managers are only interested in a company’s financial statements because they want the safety of their daily bread. They may also want increase in wages and salaries.

Management: Management in this are the top level managers and they have similar interest with ordinary managers. The only difference is that management also need this information to make economic decision that concerns the running of the business.

Tax authority: They are only concerned about the returns that comes to them in the form of tax revenue.

Trade union: Their concern is to seek a fair wage for their members. Knowing what a company is making will give them an insight of what to agitate for as fair wage

Professional bodies: Professional bodies need accounting information as a tool that will be used to educate her members.

Potential investors: For potential investors to be in a position to make investment decision some analysis has to be made and this can only be made from accounting information.

What exactly do these groups of people do with this information when it is at their disposal? The simple answer is to make an informed economic decision.

Now tell me, will the need of all people be met if there is no form of system in place to help gather this information and put it in a format that is consumable by the end user?

Hence, the use and the need of accounting information system in business community is therefore to provide accounting information that can meet informational needs of the stakeholders of a business.

If you have any question that is not answered by this post, feel free to post your question in this forum.

Traditionally, accountants were seen as business and audit specialist whose only duty is to keep records of things that has already happened in the past.

Accounting in those days was classified into; cost accounting, financial accounting and management accounting. People see accountants then as stale people who routinely carry out one function- recode keeping.

Today as I write this article, the role of accountants in organizations have changed. They are now known as and addressed as ‘information and business measurement professionals/ specialists’

This new role was necessitated by the fact that the world we live in today has moved from industrial age when record keeping was the ultimate to information age where information analysis gives upper advantage and is now set to move to the internet/ google age where measurement of information relevance is the key to every business success.

Accountants quickly realized that their relevance in companies will diminish if nothing is done to address the new business requirement of information relevance and business measurement and created the fouth realm of accounting- Accounting Information System (AIS). AIS is a course that broadened the accounting curricular to help accountants become more prepared for the future challenges of the business world.

Gone are the days when you only need technical accounting knowledge to excel. You have to be more information specialist than ‘figure cruncher’ to succeed in the modern accounting profession. To be relevant as an accountant today and in the future, you need to be comfortable with the use of; computers, accounting softwares, information gathering, processing and analyzing tools. You also need to have a broad knowledge of e-business and e-commerce.

It will interest you to know that some universities now run a full fledge course on AIS and e-business strategy. That is to let you appreciate how important these skills are in today’s business world.

If you are an accountant or a finance professional reading this, I have good news for you. You don’t need to go wild looking for resource to help you acquire these skills as I have done the research and come up with these two useful links to softwares and books you need to enhance your career.

Software

Books

If by chance you have other questions, simply register with this forum and post your question. To your success as an accountant!

If you have piled up a huge amount of credit card debt and want to know how long it would take to become debt free by making a specific monthly payment, you need to use a credit card payment calculator.   

Nobody wants to be in debt. Unfortunately, everyone in his or her life experiences debt at some point in time. At present, many people in America are head over heels in debt due to a number of reasons and one of the most significant reasons is irresponsible credit card usage. Credit card is the simplest form of credit available and one can buy as many things as he wants subject to the credit limit of his card. The problem arises when credit card debt piles up. Since no cash payment is necessary at the time of buying something with a plastic card, people go on spending spree before realizing that they have accumulated a huge amount of credit card debt. Subsequently, they try to look for options to pay off their credit card debts.

When you need to pay off your credit cards, you should be planned and disciplined in your approach. You can use a credit card payment calculator to work out how long it would take to pay off your credit card debt. To find out the answer to this question, you need the following inputs:

• How much you owe on your credit card (your card balance)
• The yearly interest rate on your card
• The monthly payment you want to make

When you enter these figures into a credit card payment calculator, it would give you the number of months you require to pay off your card. An example would give you a better understanding. Suppose you have run up $10,000 in credit card debt. If the interest rate is 18% and you can only manage to pay $300 each month, then how many months would it require to pay off your credit card debt in full? If you input these numbers into a credit card payment calculator, you would find out that it would require nearly 4 years or 47 months to eliminate your credit card debt.

Payback period

Payback period of a project involves rough estimate of the period of time it will take to recoup the initial investment made in that project. There are two variants of it. The simple payback period and discounted payback period.

Both variants are calculated based on the incremental cash flows of a project. The number of years calculated based on this rough estimate is compared with the company’s already defined accepted period.

If the payback period is less than that already defined by the company as acceptable, and provided that there are no other constraints- e.g. capital rationing (both soft and hard), then the project will be accepted.

This method of investment appraisal has a number of drawbacks which include the following: 

• It ignores the timing of cash flows. It places the same weight on the cash flows that are generated at the beginning of the project with those that are generated at the middle end of the project.
• It ignores the time value of money. It does not recognize the fact that N1 (One Naira) today is not the same as N1 in the future.
• Decision based on it is biased. Projects with short-term outlook are favoured over projects that has long-term prospect.
• Managers find it difficult to make decision when there are projects with similar payback period.
• It only takes care of the risks associated with the timing of cash-flows but not the risks associated with the variability of cash-flows.

Payback method of investment seems to have more popularity in practice despite the above drawbacks for the following reason:

• Simplicity. It is simple to calculate and understand. In a world of limited resources, this feature is invaluable. Managers with non-finance or accounting background end not to have difficulty understanding and communicating payback information.
• Usefulness in early stage of projects. Payback is highly valuable in screening projects at the initial stage. This helps to filter out projects that would other wise waste useful resources in the form of further analysis.
• Reduce risk. The fact that it tend to favour short-term projects makes it really helpful in eliminating risk that is associated with long-term projects.
• It is handy in time of capital rationing. Payback quickly identifies those projects that generate cash-flow in the immediate future. This helps to alleviate the harsh effects of capital rationing – especially soft capital rationing.

Return On Capital Employed (ROCE) method

This method is also called the accounting rate of return (ARR) or Return On Investment (ROI) method. ROCE method of investment appraisal is to estimate the accounting rate of return that a project should yield. If it exceeds the target rate of return, the project will be undertaken.

To get the ROCE, you divide average annual accounting profit by average investment. Notice that profit and not cash-flow is used here. One aspect of ROCE that accountants don’t so much like is the absence of an accepted definition of ‘Return on Investment’.

However, being consistent in which ever definition you choose takes care of this worrying situation.

Advantages of ROCE

• It is a quick and simple calculation to make. This is one of its strongest hold – especially for non-finance managers.
• Returns from entire project are taken care of. Even though this is fairly an estimate.
• Its interpretation in not a problem as it is based on a familiar concept of percentage.

Disadvantages of ROCE

• It is based on accounting profit instead of cash-flow. Accounting profit suffers from the problem of treating the same item differently by different accountants.
• It takes account of the size of the investment. This is because it is a relative measure and not an absolute measure.
• The length of the project is not taken into account.
• It ignores the concept of time value of money just like the payback period.

Additionally, ROCE suffers a serious of drawback of not taking into account the timing of the profits from an investment.

Managers using this method of appraisal technique should know that monies tied up in an investment could still be invested in other investment opportunities. This is one area where payback period method of investment appraisal is good at.

 Nevertheless, payback period and ROCE still enjoy the largest number of vote from the non-financial managers.

You will agree with me that finance is the life blood of every business; big or small. Debt and equity finance are two main categories of sources finance that a company can use.

While big and established firms find it relatively easy to raise finance, small firms find it more difficult to raise fund/finance for their activities.

So many factors are responsible for this rather disturbing situation that small businesses find themselves into. Explained below are some of the difficulties faced by small businesses while trying to raise fund and their possible solutions.

Debt finance

• Uncertainty. The main trouble that small businesses face while accessing funds/finance is the problem of uncertainty. A small business is seriously handicapped by lack of past record that potential lenders can analyse to determine whether or not to furnish the small business with the required fund needed for expansion.
• Lack of credit scoring. Small businesses are often time neglected by credit scoring agencies. This singular act of the scoring agencies created a vacuum in one of the most important criteria required by banks and other financial institutions. And because of the uncertainties involved, banks always insist that their small business clients must provide an acceptable credit scoring and base their decision on this system so as to control exposure.
• Lack of adequate press coverage. Because banks and other financial institutions cannot get useful information that will give them insight into the activities of these small businesses, they force the small businesses to provide a detailed business plan, list of the firm’s assets, details of the experience of directors and managers and show how they intend to provide security for the sums advanced- you can imagine the stress.
• Entangled position. Entangled position is used to describe a situation where banks are unwilling o increase credit facility without a corresponding increment in security (collateral) from the part of the small business that in turn may be unwilling or unable to make such increment. Some banks even require that the owners’ equity in the business be increased before further credit line be given. You get the point now? They are a kind of entangled.
• Maturity gap. It is particularly difficult for small companies to obtain medium term loans due to a mismatching of the maturity of assets and liabilities. Longer term loans are easier to obtain than the medium and short term loans. The reason is because longer term loans are secured with mortgages against property.
• Interest rate discrimination. In general, banks and other financial institutions tend to ask for personal guarantees from owners of small businesses and will set interest rates at higher levels than those charged to big and established companies.

Equity finance

• Lack of market trust. The stock market may not have confidence in small businesses’ offer. Even when they have, they tend to lay or attach little value to it and this will make the firm to issue out more number of shares (just to raise little amount) that will in turn further dilute the small company’s earnings.
• Equity gap. It is difficult to find any wealthy person that will be sincerely willing to invest in small company (though is possible) when they are likely to be more attractive investment opportunities from bigger and more attractive firms.
• LACK OF EXIT ROUTE. A major problem with obtaining equity finance can be the inability of the small firm to offer an easy exit route for any investor who wishes to sell their stock.

POSSIBLE SOLUTIONS

There are a range of solutions which have been created to help with these problems.

I a bid to keep this article manageable, I have split this article, read up a free comprehensive work on sources of finance here. But, below are just few points that are not included in that work

A business angel network can bring potential investors and small companies together, with the added bonus that the business angel may have relevant experience and expertise to offer that could be useful in small company situations.

There may be other government initiatives designed to help small businesses which could also be investigated.

I hope the link above is useful but if by chance your question is not yet answered, then move straight to this forum and post your question, so that other members could proffer solution

In as much as businesses try their best to live with these situations, care needs to be taken in order to avoid the often fatal consequences that come with high level of gearing.

Before I go on pointing out the dangers of having high level of gearing, I would like to explain these terms in a common language: Business risk and financial risk Business risks are those risks that are inseparable from business. They are inherent by nature. This refers to the risk of making low profits, or even losses, due to the nature of the business that the company is involved in. One way of measuring business risk is by calculating a company’s operating gearing or operational gearing. The formula is contribution/PBIT (profit before interest and tax).

Financial risks are those risks created by having debt in a company’s capital structure. This is the risk of a company not being able to meet other obligations as a result of the need to make huge interest payments.

Dangers of high level of gearing

Operating gearing measures the effects of fixed cost on PBIT and therefore, indirectly measures the impact of high fixed cost on the going concern of a business (i.e. the business ability to survive for yet another year).

 • Risk of loosing sales revenue. Companies that have fixed cost that are too high may tend to increase sales price so as to have more contribution that will in turn help reduce fixed cost, and this may drive their customers to their competitors.

• Risk of incurring the wrath of the law. If a company fails to pay its necessary/obligatory dues, concerned parties may institute a court case against them. And if not handled well, may result to the company being forced to liquidation.

Financial gearing measures the effect of interest payment associated with debt on the continued existence of a company. Some of its dangers are:

• Having a park of unsatisfied shareholders. Since the primary objective of every company is to maximize its shareholders return, a company that have little or nothing left to distribute to her shareholders will be having issues with them. And this can be frustrating.

• Low credit rating. Credit rating agencies always work in collaboration with those that associate with a company. They may give low credit rating to companies that are not being viewed favourably by those that have been in contact with them.

 • Unsettled payables. Having too much unsettled payables is not a good sign in the right direction of business growth.

• Ultimate closure of a company. The effects of all the above points may ultimately culminate into the closure of a business.

 A good way of escaping these dangers of being either over geared or under geared is to engage the service of business and financial risk managers. Their price/fee may be a little bit on the high side but, the result you get is worth the price a thousand times.

Know what your credit score is in order to be on the safer side.

 If you need more clarification, simply joining this forum and make your post

The problem is that many managers of small and medium sized companies lack the knowledge of the variety of ways that funds can be raised to finance its non-current assets. Find below eleven ways to raise finance for your fixed assets.

1. Retained Earnings. Companies can finance their project(s) through funds that have been withheld from previous periods’ earnings.
2. Leasing and Hire Purchase. These can be considered for small assets. It could either be finance or operating lease.
3. Secured Loans. Depending on the nature of the asset, it may be possible to secure a loan tied to that asset(s). This is the direct opposite of floating loans.
4. Personal Savings. Certain fixed assets like computers and cars can be financed from personal savings.
5. Grants by government. Grant is a sum of money given to an individual for a specific project or purpose. Some conditions have to be met for this grant to be obtained.
6. Venture capitalists. Venture capitalists are companies that set out some money periodically to invest in risky but promising ventures. Google and some other big shots have recently joined the league.
7. Business Angels. This is usually a group of wealthy individuals that specialize in investing in start-ups and small businesses
8. Mortgage. Non-current assets like buildings can be financed through this method.
9. Alternative Investment Market (AIM)/ Second Tier Market floatation.
10. Enterprise Capital Funds (ECF). This body was launched in the UK in 2005. this is equivalent to the Small Business Investment Company (SBIC) of the US that has been around for about 47 years now. The SBIC has supported the early growth of companies like; AOL, Intel, Fedex, Apple etc.
11. Funds from informal networks of; friends and family members. Informal network of friends may include some weak-ties that can come from our friend friends. This is an often neglected source of fund/finance for small and medium sized companies, yet so powerful that investments up to £500,000.00 can be financed through this medium if well harnessed.

You can get your UK loan without hassle by simply following the link below
PaydayUK

If you have problem understanding any of the above points, kindly log onto this forum and post your question.