Last edited 17 May 2016

Financial management glossary


[edit] Working capital

  • Working capital is the everyday working money available to run the business.
  • Current assets - current liabilities = working capital.
  • The amount of working capital required can be reduced by accelerating the rate at which money circulates through the business (for example prompt billing).

[edit] Working capital turnover rate

[edit] Profit and loss account

  • Annual statement of income and expenditure that shows if a company has made an overall gain on trading performance.

[edit] Balance sheet

  • A picture of the business as it stands, providing a statement of total assets and liabilities at a given point in time (usually the year end).

[edit] Monthly 'flash' profit & loss report

Actual vs budget information based on:

  • Net Income (after paying others) (work in progress not included).
  • Resources.
  • Overheads.
  • Gives an indication which area might be responsible for a loss or profit.
  • Useful over a longer period of time to spot trends and blips.

[edit] Key performance indicators (KPI's)

Profit/ loss based KPI's:

Liquidity KPI's (liquid assets=cash):

  • Analyses ability to pay bills as they become due.
  • Current ratio = current assets (including work in progress) / current liabilities.
  • Quick ratio (acid test) - quick assets (cash+bank balance+debts) / current liabilities'
  • Ratios over 1 are deemed satisfactory. The higher the better.

Financial Performance plan:

  • Sstablish costs for employing the employee / number of working hours = cost rate per hour.

[edit] Project resource plan

  • Shows hours of each grade of person required monthly.
  • Hours translated into cost x by rate per hour of each grade.
  • Projected fees vs projected cost - plotted on graph.
  • Compare projected with actual to monitor performance.
  • Share information to give a sense of involvement and responsibility. This will allow them to align their actions with the best interests of the company.

[edit] Fee forecasting

Fee forecasting is crucial to running a business as it allows the future financial position to be assessed and ensures that records of potential fees are maintained.

Captive fee forecasting:

  • Fees are agreed, fully documented, contractually binding and scheduled for current projects.
  • An indicator of how busy a company is likely to be in short to medium term.
  • Avoid the cliff edge - when a project is delivered fees reduce so it is important to win more work to maintain cash-flow through fees.

Future possible fee forecasting:

  • All possible fees hoped to be earned. Anything but certain.
  • Quantify probability of winning them with a success probability factor %.
  • The aim is to attempt to predict the medium to long term.

Resources forecast:

  • Establish whether the right number of people are available to deliver the work lined up in the captive fees forecast.
  • Keep a rolling weekly forecast of people required vs people available.
  • Plan for flexibility so there is always some resource available for general work.
  • It is most efficient to use those with recent experience on similar projects to achieve good results quickly.

[edit] Cashflow forecasting

  • Cashflow = total money in and out of a business affecting liquidity.
  • The most accurate way of predicting the financial health of a company in the short - medium term.
  • Gives an idea of when cash shortage problems may be approaching.
  • Rolling 6 monthly.
  • If seeking a loan / overdraft, a 2/3 year forecast may be needed.


  • Fees.
  • VAT collection.
  • Opening balance.


[edit] Credit Control

  • Good organisation is the key to good credit control.
  • Invoice for fees in a regular and determined way.
  • Chase up when they are not paid on time.
  • Agree payment terms.
  • Keep a record of all correspondence regarding fees.

Late payments:

  1. Remind them of agreed terms in invoices.
  2. If over due send reminder email with copy of invoice.
  3. Further 1 or 2 weeks… phone call.
  4. Last resort: Dispute resolution.