Source of Funds Roads Implementation Program –Tied Work –Preferred Supplier –Open Market External Market –LGA –Other Government Departments –Utilities –Private Organisations

Place Order. Receive Shipment. Receive Invoice. Draw Check. Mail Check. Check Clears. Pay Suppliers Bill Customer Enter Contract. Deliver Service. Send Invoice. Receive Check. Deposit Check. Funds Available. CASHFLOW TIME LINE

Working Capital Amount of funds which are tied up in: –Debtors –Creditors –Time Value

Accounts Receivable Cash WIP Accrued Revenue

How to achieve timely payments Negotiate Terms of Trade up front. Reach agreement with customer on service due for payment (engage the customer). Prepare an invoice which clearly details the service received. Ensure quality service delivery. Resolve disputes quickly and affirmatively.

Value Adding Management Reduce Cash Cycle Times –Completing work –WIP –Accrued Revenue –Accounts Payable Minimise material on hand Reduce overheads and other costs Rationalise product range

Bad Debt Aged Debt Report is used to monitor debt. Grouped by Time –0 to 21 days outstanding –>21 to 30 days –>30 to 60 days –>60 to 90 days

You have a bad debt of $10,000 and have exhausted all options of recovering the debt and the debt is written off. What amount of additional revenue must be generated to break even and recover this loss. Assume your profit margin is 2%. Tip: Profit Margin = Profit Revenue Debt Recovery

ANSWER Revenue=Profit Profit Margin =$10, =$500,000

Creditor Management Creditor Strain –Negotiate one account at end of month –Negotiate increased Terms of Trade –Negotiate discount for timely payment Deal with value adding suppliers –Timely delivery –Quality product –Whole of life cycle service –Supply chain

External Trading Credit Checks for customer >$5,000 Assess the financial ability of an external customer to pay for the service. Cash/Cleared cheque when dealing with a potential credit risk customer.

Inventory Management Material On Hand Work In Progress Just In Time Management of Inventory

Cost of Doing Business….. Support Services –Business Development –Business Capability –PSO –Finance Corporatelink BS&S Central Corporate Services

How are Overheads Distributed….? CostDriver Finance Human Resource IT WH&S Payroll Total Expenditure Number of People Number of Computers Number of People

ExamplePrice increase = 5% Gross profit increase = 50% Maximise Margins Gross profit goes from $10  $15 Consider effect of price increase on number of sales Effect on Cash

Price Discounting Profit Discount 2%5%10% 1%50%25%11% 2%66%25% 3%150%43% 4%67% 5%100%

4 Levels of Internal Trading Level 1: Inter Company Level 2: Inter Business Group Level 3: Inter Business Unit Level 4: Inter Business Centre

Internal Trading Pricing Strategy Trading levelCOGSOverheadProfit Margin Inter Company Inter Business Group Inter Business Unit Inter Business Centre XXXXXXXX XXXXXXXX X N/A

Typical Family Balance Sheet Assets Bank 5,000 House250,000 Car 20,000 Total Assets275,000 Liabilities Home Loan175,000 Car Loan 5,000 Total Liabilities180,000 Equity Owners Equity 95,000 Total Equity 95,000 Total Liabilities and Equity275,000

Income Statement Revenue: Salaries120,000 Investment Income 1,000 Profit on Sales of Asset 2,000 Total Revenue123,000 Less Expenses: Interest Loans 13,000 Motor Vehicle Expenses 8,000 Family Living Expense 54,000 Taxation 36,000 Total Expenses111,000 Profit after Tax 12,000

Family Balance Sheet Assets Bank 5,000 House350,000 Car 20,000 Total Assets375,000 Liabilities Home Loan175,000 Car Loan 5,000 Total Liabilities180,000 Equity Owners Equity 195,000 Total Equity195,000 Total Liabilities and Equity375,000