Management Consulting/please answer


Discuss the management aspects of the following assets whose pitfalls are commonly observed in the daily operations of a small business.
(a) Land and Building
(b) Trade Debts

4. Discuss the management aspects of the following assets whose pitfalls are commonly observed in the daily operations of a small business.

(a) Land and Building
(b) Trade Debts

management  of the  pitfalls are commonly observed in the daily operations of a land and building business.
Since companies strive for profitability through the efficient and economical use of resources and labor, they require financial road maps to show how they will allocate their resources to achieve their business objectives. In other words, companies require prudent budgeting to accomplish their goals. Companies practice budgeting—the estimation of probable expenditures and income for a specific period—to determine the most efficient and effective strategies for making money and expanding their assets. Budgeting allows companies to control their expenditures and to allocate resources to maximize profits, thus allowing them to demonstrate to banks,investors, and shareholders that they have a plan for where they are going.
Intelligent budgeting incorporates good business judgment in the review and analysis of past trends and data pertinent to the business enterprise. This information assists a company in determining the type of business organization needed, the amount of money to be invested, the type and number of employees to hire, and themarketing strategies required. In budgeting, a company devises both long-term and short-term plans to help implement its strategies and to conduct ongoing performance evaluations.
Businesses generally develop and execute their budgeting plans each year, in a five-step process called the planning cycle. First, companies develop a strategic plan that focuses on their long-term goals and how to achieve them. The strategic plan typically includes general financial projections and covers a five-year period. Second, businesses prepare an annual operating plan that provides a detailed outlook for the coming year. This plan contains very specific financial projections and often is what companies refer to by "budget." Third, since things change after the year actually starts, businesses revise their plans, yielding their adjusted plan. The adjusted plan takes sudden and unforeseen changes into consideration. Fourth, companies often make forecasts, or informal projections, throughout the year. For example, businesses frequently predict their annual sales at mid-year. Fifth, companies produce their business plans, which they use to apply for venture capital and other investments. The business plans also often contain detailed financial projections.
A host of management personnel participates in the budgeting process. In general these participants include "submitters" and "reviewers." The submitters are usually division managers who prepare and propose possible spending plans to achieve company goals, whereas the reviewers are often executives, controllers, or accountants who determine whether the proposed budgets and their objectives are affordable, realistic, and attainable. These roles, however, are not mutually exclusive: those who submit budget proposals often review other proposals and vice versa.
To engage in any profitable commercial enterprise, a company employs its resources to exploit various business opportunities. If the profits are consistent, a company may purchase more assets and, therefore, expand its base of wealth. To do this effectively, a company undertakes the budgeting process to assess the business opportunities available to it, the keys to successfully exploiting these opportunities, the strategies the historical data support as most likely to succeed, and the goals and objectives the company must establish. Companies also must plan long term strategies that define the overall plan to build market share, increase revenues, and decrease costs. In addition, companies require short-term strategies to increase profits, control costs, and invest for the future. Both long-term and short-term strategies must contain control mechanisms for implementing performance evaluations as well as control mechanisms for making modifications in the above strategies when and where necessary.
Although company leaders generally conceive of business opportunities and initially provide the impetus to pursue them, companies move beyond the embryonic stage by formulating their strategies in quantifiable terms, such as: the volume of units that the company expects it can sell, the percentage of market share the volume of units represents, the dollars of revenues it will receive from these sales, and the dollars of profit it will earn. Likewise, a company outlines its long-term goals and specifies its short-range plans in quantifiable terms that detail how it expects to accomplish its goals:
•   the dollars the company will spend in selling the units
•   the dollar costs of producing the units
•   the dollar costs of administering the company's operations
•   the dollars the company will invest in expanding and upgrading facilities and equipment
•   the flow of dollars into the company coffers
•   the financial position, expressed in dollars, at specific points in the future
To be successful, the budgeting process establishes criteria and control mechanisms for the systematic evaluation of the company's ability to effectively implement its plans. These controls are often detailed and complex. Therefore, the company includes in the budgeting process employees from each organizational level and from each department. The company marshals these resources in a coordinated effort in the following functions.
The company establishes long-term financial goals and operational objectives for the future size and activities of the company. These include products, product mix, services, markets, market share, volume of sales, quality of sales, level of debt and capitalization, number of employees, degree of horizontal and vertical integration,research and development , public or private ownership, advertising campaigns, training and development, and benefit packages.
The company clearly defines and assigns responsibility for the budgeting process itself, along with the level of detail required to formulate the business plan. The treasurer's office generally organizes and coordinates the budgetary process through a budget director, controller, or chief accountant. Budgeting hinges on accurate accounting of all activities, including machine use, manpower needs, employee turnover, inventory levels, supplier pricing, sales discounts, benefit costs, production schedules, selling costs, and the like. Therefore, the accounting staff plays a central role in collecting, analyzing, and processing the needed data. Contemporary approaches to budgeting, however, often emphasize the role of managers in the budgeting process.
In planning for profits the staff needs to organize for action. They provide standardized reporting directives. The staff distributes familiar and "user-friendly" forms for collecting, organizing, evaluating, and disseminating information. They propose procedures to form a comprehensive plan for each activity and for the company as a whole.
The budgetary process establishes lines of reporting and accountability for the execution of the plan. Besides spelling out the various responsibilities of the managers, it also places limits on their authority. The budgeting process involves all levels of managerial responsibility: office, department, division, and corporation. To maximize the benefits of the budgeting process, managers must not only be responsible and accountable, but also need to be in agreement with overall goals and objectives.
The budgetary process sets up the reporting procedures and techniques for evaluating both short-term and long-term outcomes. Since the budget program is an instrument of organizational control, a company's accounting and its chart of accounts will reflect clear lines of responsibility for each of its divisions. Not all control activity, however, emanates from the accounting office. Line supervisors and individual employees keep their own logs. Consequently, the accounting/budgeting staff sets up schedules for the collection, processing, and analysis of data and its subsequent distribution to the appropriate managers. The managers use this information to evaluate their own performance with an eye toward making modifications where necessary.
The end product of this process is the creation of the financial forecast. It projects where the company wants to be in three, five, or ten years. The financial forecast quantifies future sales, expenses, and earnings according to certain assumptions adopted by the company. Since projecting company sales, expenditures, etc., involves uncertainty, a company must consider how changes in the business climate could affect the outcomes projected. A company presents this analysis in the pro forma statement, which displays, over a time continuum, a comparison of the financial plan to "best case" and "worst case" scenarios. The pro forma statement acts as a guide for meeting goals and objectives, as well as an evaluative tool for assessing progress and profitability.
A budget delineates the expected month-to-month route a company will take in achieving its goals. It summarizes the expected outcomes of production and marketing efforts, and provides management benchmarks against which to compare actual outcomes. A budget acts as a control mechanism by pointing out soft spots in the planning process or in the execution of the plans. Consequently, a budget, used as an evaluative tool, augments a company's ability to make necessary alterations more quickly.
In a world of limited resources, a company must ration its own resources by setting goals that are reasonably attainable. Realism engenders loyalty and commitment among employees, motivating them to their highest performance. In addition, wide discrepancies, caused by unrealistic projections, have a negative effect on the creditworthiness of a company and may dissuade lenders.
A company evaluates each potential business activity to determine which will help the company achieve its goals the most. A company accomplishes this through the quantification of the costs and benefits of the activities.
The budget reflects a clear understanding of past results and a keen sense of expected future changes. While past results cannot be a perfect predictor, they flag important events and benchmarks.
The budget period must be of reasonable length. The shorter the period, the greater the need for detail and control mechanisms. The length of the budget period dictates the time limitations for introducing effective modifications. Although plans and projects differ in length and scope, a company formulates each of its budgets on a 12-month basis.
To facilitate the budgeting process, managers should use standardized forms, formulas, and research techniques. This increases the efficiency and consistency of the input and the quality of the planning. Computer aided accounting, analyzing, and reporting not only furnish managers with comprehensive, current "real time" results, but also afford them the flexibility to test new models, and to include relevant and high-powered charts and tables with relatively little effort.
Efficient companies decentralize the budget process down to the smallest, logical level of responsibility, i.e., the responsibility center. Responsibility centers often include the revenue center, the cost center, and the profit center. Those responsible for the results take part in the development of their budgets, and learn how their activities are interrelated with the other segments of the company. Each has a hand in creating a budget and setting its goals. Participants from the various organizational segments meet to exchange ideas and objectives, to discover new ideas, and to minimize redundancies and counterproductive programs. This way, those accountable buy into the process, cooperate more, work harder, and, therefore, have more potential for success.
Decentralization does not exclude the thorough review of budget proposals at successive management levels. Management review assures a proper fit within the overall "master budget."
Top management formally adopts the budgets and communicates their decisions to the responsible personnel. When top management has assembled the master budget and formally accepted it as the operating plan for the company, it distributes it in a timely manner.
Responsible parties use the master budget and their responsibility center budgets for information and guidance. On a regular basis, according to a schedule and in a standardized manner, they compare actual results with their budgets. For an annual budget, managers usually report monthly, quarterly, and semiannually. Since considerable detail is needed, the accountant plays a vital role in the reporting function.
A company uses a well-designed budget program as an effective mechanism for forecasting realizable results over a specific period, planning and coordinating its various operations, and controlling the implementation of the budget plans.
Budgeting has two primary functions: planning and control. The planning process expresses all the ideas and plans in quantifiable terms. Careful planning in the initial stages creates the framework for control, which a company initiates when it includes each responsibility center in the budgeting process, standardizes procedures, defines lines of responsibility, establishes performance criteria, and sets up timetables.
The careful planning and control of a budget benefit a company in many ways, including:
In recent years the pace and complexity of business have out-paced the ability to manage by "the seat of your pants." On a day-to day basis, most managers focus their attention on routine problems. In preparing the budget, however, managers are compelled to consider all aspects of a company's internal activities. The act of making estimates about future economic conditions and about the company's ability to respond to them, forces managers to synthesize the external economic environment with their internal objectives.
Because the budget is a blueprint and road map, it alerts managers to variations from expectations that are a cause for concern. When a flag is raised, managers can revise their immediate plans to change a product mix, revamp an advertising campaign, or borrow money to cover cash shortfalls.
Preparation of a budget assumes the inclusion and coordination of the activities of the various segments within a business. The budgeting process demonstrates to managers the interconnectedness of their activities.
Budgets provide management with established criteria for quick and easy performance evaluations. Managers may increase activities in one area where results are well beyond exceptions. In other instances, managers may need to reorganize activities whose outcomes demonstrate a consistent pattern of inefficiency.
The master budget aggregates all business activities into one comprehensive plan. It is not a single document, but the compilation of many interrelated budgets that together outline an organization's business activities for the coming year. To achieve the maximum results, budgets must be tailor-made to fit the particular needs of a business.
Budgets may be broadly classified according to how a company makes and uses its money. Different budgets may be used for different applications. Some budgets deal with sources of income from sales, interest, dividend income, and other sources. Others detail the sources of expenditures such as labor, materials, interest payments, taxes, and insurance. Additional types of budgets are concerned with investing funds for capital expenditures such as plant and equipment;

Table A
The Master Budget:
Common Segments Across Industries
    Sales Budget
    Budget of ending inventories
    Production budget
         Materials budget
         Director labor budget
         Manufacturing overhead budget
    Budgeted cost of goods sold
    Administrative expense budget
    Budgeted income statement
    Capital expenditures budget
    Cash budget
    Budgeted balance sheet
    Budgeted statement of cash flows
and some budgets predict the amounts of funds a company will have at the end of a period.
A company cannot use only one type of budget to accommodate all its operations. Therefore, it chooses from among the following budget types.
The fixed budget, often called a static budget, is not subject to change or alteration during the budget period. A company "fixes" budgets in at least two circumstances.
1.   The cost of a budgeted activity shows little or no change when the volume of production fluctuates within an expected range of values. For example, a 10 percent increase in production has little or no impact on administrative expenses.
2.   The volume of production remains steady or follows a tight, preset schedule during the budget period. A company may fix its production volume in response to an all-inclusive contract or it may produce stock goods.
The variable or flexible budget is also called a dynamic budget. It is an effective evaluative tool for a company that frequently experiences variations in sales volume that strongly affect the level of production. In these circumstances a company initially constructs a series of budgets for a range of production volumes that it can reasonably and profitably meet.
After careful analysis of each element of the production process, managers are able to determine the fixed costs (e.g., taxes) that will not change within the anticipated range, the variable costs (e.g., raw materials) that will change as volume changes, and the semivariable costs (e.g., equipment maintenance fees) that vary to some extent, but not proportionately within the predicted range.
The combination budget recognizes that most production activities combine both fixed and variable budgets within its master budget. For example, an increase in the volume of sales may have no impact on sales expenses while it will increase production costs.
The continuous budget adds a new period (month) to the budget as the current period comes to a close. Under the fiscal year approach, the budget year becomes shorter as the year progresses. The continuous method, however, forces managers to review and assess the budget estimates for a never-ending 12-month cycle.
As a general rule, a company adopts budgets covering a period long enough to show the effects of managerial policies, but short enough so as to make estimates with reasonable accuracy. Although planned activities differ in the length of operation, budgets describe only what a company expects to accomplish in the upcoming 12 months.
Capital expenditures for major investments in plant and equipment are long term by nature. A company constructing new facilities, laying pipelines, or paving roads may design projects encompassing periods of five to ten years. Nevertheless, a company details the ongoing expenses on an annual basis.
Most operating and financial budgets (Table A) cover a period of one fiscal year, comprised of 12 months arranged in quarters (segments of three months) and semiannual periods (segments of six months).
The operating budget gathers the projected results of the operating decisions made by a company to exploit available business opportunities. In the end analysis, the operating budget presents a projected pro forma income statement that displays how much money the company expects to make. This net income demonstrates the degree to which management is able to respond to the market in supplying the right product at an attractive price, with a profit to the company.
The operating budget consists of a number of parts that detail the company's plans on how to capture revenues, provide adequate supply, control costs, and organize the labor force. These parts are: sales budget, production budget, direct materials budget, direct labor budget, factory overhead budget, selling and administrative expense budget, and pro forma income statement.
Preparation of the master budget is a sequential process that starts with the sales budget. The sales budget predicts the number of units a company expects to sell. From this information, a company determines how many units it must produce. Subsequently, it calculates how much it will spend to produce the required number of units. Finally, it uses all this information to estimate its profitability.
From the level of projected profits, the company decides whether to reinvest the funds in the business or in alternative investments. The company outlines the predicted results of its plans in a balance sheet that demonstrates how profits will have affected the company's assets.
Accounting: The Basis for Business Decisions notes the five major, sequential steps to preparing a master budget:
1.   Preparation of the sales forecast. How many units can be sold? How many units will be sold? How much will it cost to sell these units? How much net revenue will these sales generate?
2.   Preparation of the production and operating costs. How much will it cost to produce the units? How can production be more efficient? How much will administrative expenses run?
3.   Preparation of a budgeted income statement. What will be the net income? How much will be cash, credit, and noncollectible? How much will be available for capital investments? How much will remain as cash for financing daily operations?
4.   Preparation of a cash budget. Will cash flow be adequate? Will receipts be evenly or erratically distributed? Will third-party financing be needed? How are excess funds to be invested? How much of the funds will be needed for capital expenditures?
5.   Preparation of a budgeted balance sheet. How will the period's performance change the level of assets and liabilities? How will the profit position of the company change? How will the company's wealth be affected?
The sales organization has the primary responsibility of preparing the sales forecast. Since the sales forecast is the starting point in constructing the sales budget, the input and involvement of most other managers is important. First, those responsible for directing the overall effort of budgeting and planning contribute leadership, coordination, and legitimacy to the resulting forecast. Second, in order to introduce new products or to repackage existing lines, the sales managers need to elicit the cooperation of the production and the design departments. Finally, the sales team must get the support of the top executives for their plan.
The sales forecast is prerequisite to devising the sales budget on which a company can reasonably schedule production, and to budgeting revenues and variable costs. The sales budget, also called the revenue budget, is the preliminary step in preparing the master budget. After a company has estimated the range of sales it may experience, it calculates projected revenues by multiplying the number of units by their sales price.
The sales budget includes items such as: sales expressed in both the number of units and the dollars of revenue, adjustments to sales revenues for allowances made and goods returned, salaries and benefits of the sales force, delivery and setup costs, supplies and other expenses supporting sales, advertising costs, and the distribution of receipt of payments for goods sold. Included in the sales budget is a projection of the distribution of payments for goods sold. Management forecasts the timing of receipts based on a number of considerations: the ability of the sales force to encourage customers to pay on time, the impact of credit sales that stretch the collection period, delays in payment due to deteriorating market and economic conditions, the ability of the company to make deliveries on time, and the quality of the service and technical staffs.
The ending inventory budget presents the dollar value and the number of units a company wishes to have in inventory at the end of the period. From this budget, a company computes its cost of goods sold for the budgeted income statement. It also projects the dollar value of the ending materials and finished-goods inventory, which eventually will appear on the budgeted balance sheet. Since inventories comprise a major portion of current assets, the ending inventory budget is essential for the construction of the budgeted financial statement.
After it budgets sales, a company examines how many units it has on hand and how many it wants at year-end. From this it calculates the number of units needed to be produced during the upcoming period. The company adjusts the level of production to account for the difference between total projected sales and the number of units currently in inventory (the beginning inventory), in the process of being finished (work [goods, services] in process inventory), and finished goods in the ending inventory.
To calculate total production requirements, a company adds projected sales to ending inventory and subtracts the beginning inventory from that sum.
The products completed and available for sale at the start of the period make up the beginning inventory budget. A company determines the value of the beginning inventory by: counting all products on hand, multiplying this quantify by the cost per unit, and aggregating the costs of the various products.
The work in process budget enumerates those units currently in the production phase. There inevitably will be some work in process at every point in the budget period. Therefore, a company needs to determine the number and value of the beginning and ending work in process inventories. Because the items are in different stages of production and finishing, these computations present a problem. Although computer technology has made great strides in simplifying the accounting process, predictive accuracy is contingent on the experience of line supervisors who feed the data to the accountants.
With the estimated level of production in hand, the company constructs a direct-materials budget to determine the amount of additional materials needed to meet the projected production levels. A company displays this information in two tables. The first table presents the number of units to be purchased and the dollar cost for these purchases. The second table is a schedule of the expected cash distributions to suppliers of materials.
Purchases are contingent on the expected usage of materials and current inventory levels. The formula for the calculation for materials purchases is:
Purchase costs are simply calculated:
A company plans a direct-materials budget to determine the adequacy of their storage space, to institute or refine just-in-time inventory control systems, to review the ability of vendors to supply materials in the quantities desired, and to schedule material purchases concomitant with the flow of funds into the company.
Once a company has determined the number of units of production, it calculates the number of direct-labor hours needed. A company states this budget in the number of units and the total number of dollar costs. A company may sort and display labor-hours using these parameters:
A company segregates employees according to the type of work they do regardless of the products. For example, a company will add up the costs for all assemblers even though they assemble different products.
This method sorts labor by the production process. It focuses on the different types of employees working on one product. For example, a company constructs a budget showing the labor costs for all employees working on the same product, regardless of their role.
This method classifies employees by seniority, level of skill, union affiliation, and the like. A company uses this information to better understand the relationships between labor, skills, experience, and production costs. This information assists management in organizing the labor force more efficiently.
A company using the cost center approach to organization gives each unit of the company the responsibility of controlling its labor costs. Each unit, therefore, is empowered to take corrective action if problems arise in meeting the budget's goals.
At this point the company has projected the number of units it expects to sell and has calculated all the costs associated with the production of those units. The company will sell some units from the preceding period's inventory, others will be goods previously in process, and the remainder will be produced. After deciding the most likely mix of units, the company constructs the budget of the cost of goods sold by multiplying the number of units by their production costs.
In the administrative expense budget the company presents how much it expects to spend in support of the production and sales efforts. The major expenses accounted for in the administrative budget are: officers' salaries, office salaries, employee benefits for administrative employees, payroll taxes for administrative employees, office supplies and other office expenses supporting administration, losses from uncollectible accounts, research and development, mortgage payments, bond interest and property taxes, and consulting and professional services.
Generally, these expenses vary little or not at all for changes in the production volume that fall within the budgeted range. Therefore, the administrative budget is a fixed budget. There are some expenses, however, that can be adjusted during the period in response to changing market conditions.
A company may easily adjust some costs, such as consulting services, R&D, and advertising, because they are discretionary costs. Discretionary costs are partially or fully avoidable if their impact on sales and production is minimal. A company, however, cannot avoid such costs as mortgage payments and property. These committed costs are contractual obligations to third parties who have an interest in the company's success. Finally, a company has variable costs that it adjusts in light of cash flow and sales demand. These costs include such items as supplies, utilities, and the purchase of office equipment.
A budgeted income statement combines all the preceding budgets to show expected revenues and expenses. To arrive at the net income for the period, the company includes estimates of sales returns and allowances, interest income, bond interest expense, the required provision for income taxes, and a number of nonoperating income and expenses, such as dividends received, interest earned, nonoperating property rental income, and other such items. Net income is a key figure in the profit plan for it reflects how a company commits the majority of its talent, time, and resources.
The financial budget contains projections for cash and other balance sheet items—assets and liabilities. It also includes the capital expenditure budget (see Table A). It presents a company's plans for financing its operating and capital investment activities. The capital expenditure budget relates to purchases of plant, property, or equipment with a useful life of more than one year. On the other hand, the cash budget, the budgeted balance sheet, and the budgeted statement of cash flows deal with activities expected to end within the 12-month budget period.
Capital expenditures budgets outline major investment goals often over a 5- to 10-year period. Companies rely on capital budgeting to identify, evaluate, plan, and finance major investment projects through which it converts cash (short-term assets) into long-term assets. A company uses these new assets, such as computers, robotics, and modern production facilities, to increase productivity, increase market share, and bolster profits. A company purchases these new assets as alternatives to holding cash because it believes that, over the long term, these assets will increase the wealth of the business more rapidly than cash balances. Therefore, the capital expenditures budget is crucial to the overall budget process.
Capital budgeting seeks to make decisions in the present that determine, to a large degree, how successful a company will be in achieving its goals and objectives in the years ahead. Capital budgeting differs from the other financial budgets in that:
•   Capital expenditures require relatively large commitments of resources whose dollar value may exceed annual net income.
•   Capital expenditures extend beyond the 12-month planning horizon of the other financial budgets. To replace equipment may take 18 months. To build a new plant could involve years of planning and construction.
•   Capital expenditures involve greater operating risks. A company encounters more difficulties in the long-term projecting of revenues, expenses, and cost savings. In addition, capital projects divert employee energies away from daily operations.
•   Capital expenditures increase the financial risks by adding long term liabilities. A company's short-term liabilities, in the form of mortgage or bond interest, increase long before the project becomes an earning asset.
•   Capital expenditures require clear policy decisions that are in full agreement with the company's goals since a company has less flexibility to modify or cancel a project in midstream without serious potential consequences.
In the cash budget a company estimates all expected cash flows for the budget period by: stating the cash available at the beginning of the period, adding cash from sales and other earned income to arrive at the total cash available, and subtracting the projected disbursements for payables, prepayments, interest and notes payable, income tax, etc.
The cash budget is an indication of the company's liquidity or its availability of cash, and, therefore, is a very useful tool for effective management. Although profits drive liquidity, they do not necessarily have a high correlation. Often when profits increase, collectibles increase at a greater rate. As a result, liquidity may increase very little or not at all, making the financing of expansion difficult, and the need for short-term credit necessary.
Managers optimize cash balances by having adequate cash to meet liquidity needs, and by investing the excess until needed. Since liquidity is of paramount importance, a company prepares and revises the cash budget with greater frequency than other budgets. For example, weekly cash budgets are common in an era of tight money, slow growth, or high interest rates.
A company derives the budgeted balance sheet, often referred to as the budgeted statement of financial position, from the budgeted balance sheet at the beginning of the budget period and the expected changes in the account balances reflected in the operating, capital expenditure, and cash budgets. (Since a company prepares the budgeted balance sheet before the end of the current period, it uses an estimated beginning balance sheet.)
The budgeted balance sheet is a statement of the assets and liabilities the company expects at the end of the period. The budgeted balance sheet is more than a collection of residual balances resulting from the foregoing budget estimates. During the budgeting process, management ascertains the desirability of projected balances and account relationships. The outcome of this level of review may require management to reconsider plans that seemed reasonable earlier in the process.
The final phase of the master plan is the budgeted statement of cash flows. This statement anticipates the timing of the flow of cash revenues into the business from all resources, and the outflow of cash in the form of payables, interest expense, tax liabilities, dividends, capital expenditures, and the like.
The statement of cash flows includes:
•   The amount of cash the company will receive from all sources, including nonoperating items, creditors, and the sale of stocks and assets. The company includes only those credit sales for which it expects to receive at least partial payment.
•   The amount of cash the company will pay out for all activities, including dividend payments, taxes, and bond interest expense.
•   The amount of cash the company will net from its operating activities and investments.
The net amount is a clear measure of the ability of the business to generate funds in excess of cash outflows for the period. If anticipated cash is less than projected expenses, management may decide to increase credit lines or to revise its plans. Note that net cash flow is not the same as net income or profit. Net income and profit factor in depreciation and nonoperating gains and losses that are not cash-generating items.
Budgeting is the process of planning and controlling the utilization of assets in business activities. It is a formal, comprehensive process that covers every detail of sales, operations, and finance, thereby providing management with performance guidelines. Through budgeting, management determines the most profitable use of limited resources. Used wisely, the budgeting process increases management's ability to more efficiently and effectively deploy resources, and to introduce modifications to the plan in a timely manner.

management  of the  pitfalls are commonly observed in the daily operations of   trade  debts

A trade debt in the business world is an account payable. It is the money one company owes another for a good or service received but not yet paid for. These obligations are usually paid between 10 and 90 days, and in accounting, are considered current liabilities for the purchasing company.
1.   Trade Debts Impact on Accounting
o   Conducting business with trade debts is essentially suppliers selling their goods and services on credit rather than for direct payment. The advantage of selling on credit is the potential for increased sales revenue because companies can purchase goods prior to having the money to pay for them. Another benefit of selling goods on credit is that it augments the supplier’s accounts receivable, which is an asset reported on balance sheets, even though the money has yet to be received. A disadvantage of suppliers using the trade debt method of sales is that the purchasing companies can fail to pay for the goods and services they have received. When this happens, the supplier’s income statement sustains a loss and its balance sheet experiences diminished accounts receivable.

Debt's a symptom, not the problem. Before tackling, it you must reduce your spending. Not only to stop you borrowing more, but to maximise repayments.
Are your non-mortgage debts bigger than a year's after-tax salary?
If your non-mortgage debts (usually credit cards and loans) are more than a year's salary after tax, then they're quite severe. After all, that means you'd need to work more than a year to repay them, even if you had no outgoings.
Yet even if your debt is manageable, if you don't know where it came from, that's a big danger signal. Compare these two answers:
So how did you build up debts of this size?
"Well I planned for and budgeted, shopped around to get the cheapest borrowing in order to buy a car/conservatory/caravan and now we're repaying it."
...and compare that with:
So how did you build up debts of this size?
"Well I'm not sure really, I just used my credit card and the cost built up."
The latter is, of course, the most worrying. It means you are spending more than you earn and using borrowing as a means to fill the gap.
If you continue to do that, you'll get in a debt spiral.

Never borrow more
Traditional debt help says 'never borrow your way out of a debt problem'. But this ignores the varying cost of different debts.
The MoneySaving approach is: "Never borrow more to get out of a debt problem."
If it’s possible to borrow more cheaply elsewhere to replace existing borrowing, then this can provide a huge boost, as lower interest rates mean more of your cash goes towards repaying the actual debt rather than just servicing the interest.
Those with big debts may save thousands a year in interest by being more savvy with their borrowing.
The debt problems checklist
The idea of the checklist is simple: to explore every option and use each one that works for you.
Most link to more detailed guides focusing on those subjects. Once you've found something that works, don't stop. Continue down the list to see if there's anything else that will help.
Some of the suggestions only work for those with a decent credit history and not too severe debts, but it's still worth checking.
The first step... sort your spending
The following are a few ways to manage your cash and reduce your outgoings that are specifically useful for those with debt problems. If you've time, it's far better to go through the full Money Makeover guide.
•   Budget and reduce outgoings
If you have debt problems, then doing a budget is central. You have to get a handle on what you spend to future-proof your finances. The big problem with most budgets though, is... they don't work. To help, there's a special free budget planner which counters all the traditional budgeting problems.

•   Earn under £72k? Check your benefits
Any family with income under £72,000 may be entitled to some form of benefit. You can do a quick check-up for free in just five minutes.
•   Can you get help paying the mortgage?
There are a couple of Government schemes specifically to help mortgage holders who are struggling to make monthly repayments. These are an extra benefit to pay the interest for you and a full rescue scheme where your local council buys some or all of your home then rents it back.
•   Reclaim, reclaim, reclaim
If you have, or have had a loan, then it's crucial to check whether you were mis-sold payment protection insurance, which could've cost you 1,000s, to see if you can get the cash back.
For those in debt, it's very likely some of it has been made up of fees and charges. If you've incurred bank or credit card charges for going beyond your limits, you may be able to get the cash back.
It's also possible you may be in one of 400,000 homes in the UK paying too much for your council tax.
Cut the costs of all your debt
Now the aim is simple. Repay the debt as quickly as possible, while being charged the lowest possible interest rate.
•   Check credit reference files (for free - or get PAID)
Before you start, it's worth ensuring your ability to get new cheap credit isn't being hampered by duff data on your credit files. This can cause rejections, but worse still, if you keep applying before it's corrected, even once the problem is fixed you can then be rejected because of all the applications. It's possible to check your files for free though.
•   Shift debts to a cheaper credit card
Suitable for: Mid to high credit scorers
Used correctly and with discipline, credit cards are the cheapest borrowing possible, especially when shifting debt to new ‘balance transfer' offers. It's possible to get long-term borrowing on a credit card at under 7%. Even if you don't have a great credit score there are still attainable deals.
•   Cut credit card costs without new credit
Suitable for: Low-mid to high credit scorers
New credit isn't always necessary to cut credit card costs. Many credit cards allow existing customers to move other debts to them at special rates. Doing this in the correct order can create substantial savings - using this technique, one man's annual interest was cut from £1,400 to £400 a year.

•   Check for grants and support
Some utility companies offer help if you have large arrears on your gas, electricity or water bills. You'll need to be a customer of the company, so if yours isn't listed contact it to see if it has a similar scheme.
Gas & Electricity: Schemes are offered by British Gas Energy Trust, EDF Energy Trust,E.on CaringEnergy Fund, Npower Energy Fund, Scottish Power Energy People Trust.
Water: The Water UK website has info on all the water company schemes.
Related info: Details of other grants available in the Low Income Grants guide.
•   Get a cheap personal loan
Standard personal loans can give you a consistent cheap debt, and for larger amounts are competitive with the cheapest credit cards. The fixed repayments also provide structure for those who tend to let credit card debt linger.

Unfortunately, those with poor credit scores won't usually get decent rates. An alternative is to look at joining a credit union. For many they’re a welcome alternative to payday loans or doorstep lending.
Credit unions are independently-run local co-operatives which aim to assist people who may not have access to financial products and services elsewhere. There are 500 in the UK providing loans, savings and current accounts, each deciding its own services and rules on who can join.
•   Always use savings to repay debt
The interest paid on savings is usually far less than interest charged on borrowing, so paying off debts with any savings is a serious boon.
The reason this is after the main debt switching steps is that you should first try to cut the cost of your debts where you can. Then use what savings you have to pay off as much as you can - but focusing on the remaining high interest rate debts.
Thinking "surely I need my emergency cash fund"? Actually, that's old-fashioned logic. Read the guide linked below for a full explanation of why.
•   Danger credit card minimum repayments
The amount you repay on cards is also crucial. Minimum repayments are designed to keep you locked in for years. Make only the minimum on a standard high street card with £3,000 on it, and it'll take you 27 years to repay and cost you almost £4,000. Yet it's easy to turn this around, even if you can't afford to pay more.
•   Remortgage: Shift debts to a cheap deal
Suitable for: Low-mid to high credit scorers
It's worth stating that a mortgage is just a loan secured on your home. If you can't pay it back, the lender can take your house. It's due to this additional security that it can offer a cheap rate over the long term.
Cheap deals are available, especially if you've a decent amount of equity in your home. Yet it's worth working HARD to find the best deal for you.

An obvious idea is to shift credit card and other loan debts onto your mortgage if it's cheaper. On the surface this looks like a no-brainer. The debt is cheap, and as it's over a long time the amount you pay each month will be lower.
But it's not quite that simple. Technically you are shifting unsecureddebt to secured debt, so there's an increased risk of losing your home if you can't repay.
Plus it may increase your life assurance and other associated mortgage costs. And it may not actually be cheaper. Paying off over a longer period means you end up paying more interest, eg, 5% over 20 years is much more expensive than 10% over five years.
Don't be totally put off though, if the other routes above haven't worked. It's still worth considering and doing the numbers, especially if you've a flexible mortgage so you can pay the debts off more quickly.
Dealing with problem debts
If you can't cut the cost of the debts, or if after doing that you're still struggling, it's time to consider some more severe measures.
•   Talk to your lender
It's very important to get on top of debts as soon as possible. Don't default or miss payments. Let your lender know if you’re going to be unable to pay; it's always better to talk to it. Of course, preventative measures such as reducing interest, expenditure, and being a smart consumer are the best form of action.
•   Can you get help from the Government?
There are a few ways which may be able to provide you with interest-free borrowing rather than getting any commercial debt.
Local council support schemes: Since April 2013, each local authority has been responsible for providing help to residents struggling with an emergency. This could include you or your family's health being at risk, not being able to afford to buy food, needing help to stay in your own home and coming out of care, hospital or prison.
Sadly this is a postcode lottery, each council can choose whether to offer financial help or not or who is eligible. For example, some may give furniture or food grants while others may give cash. Contact your local council or just Google "" to find out its procedure.
Budgeting loans and advances: This is a Government scheme providing interest free loans to those on certain income-based benefits if you need essential items for your home or other things that you cannot pay for in a lump sum, such as clothes and furnishings.
Apply for one via the Jobcentre or via the form on If you have means to get money any other way (using savings, for example), you won't qualify. Up to £1,500 can be borrowed at one time for each loan and repayments are dependent on what you can afford to pay.

Sadly, demand is extremely high at the moment and there isn't a bottomless pot of money. If the Jobcentre decides your circumstances aren't urgent or you're not struggling, you may not get anything. But if you think you qualify and really need the cash, it's definitely worth a shot.
•   Have you been rate-jacked?
Many card providers have written to their customers saying their APRs will increase by up to 10%. This is the growing phenomena of 'rate-jacking'. Under-publicised rules can be deployed to stop rate-jackers in their tracks - these include an absolute right to reject rate rises for existing debts. If you've had a letter you have several options on how to fight back.
•   Carefully check secured loans
Suitable for: Very poor to poor credit scorers, but be careful
Secured or 'consolidation' loans are something to beware of. We've campaigned against many elements of them, and they can be dangerous. They are, at best, a loan of last resort and if you fail to repay it you can lose your home. Plus, unlike personal loans, the rate is variable, so it may sound cheap at the start, but soon they can push it up.
However, in a few, very limited circumstances, they're a good solution. If you've got expensive debts and some (not too substantial) credit history problems, you may be able to cut their interest rate this way.
•   Sale and rent back
Suitable for: Very poor to poor credit scorers, but be careful
This is where you sell your house to a company, but then are allowed to continue living there paying rent. It seems an attractive option for some but it's nowhere near as good as it sounds for many people.
You could only get 50% of your home's value, the rental agreement mightn't be secure and there's even a risk that the person you sell the house to may have it repossessed themselves. Consider with care.
•   Is an IVA or DRO right for you?
If you’ve seen the adverts on TV, you’d be forgiven for thinking that an individual voluntary arrangement (IVA) is the answer to all debt worries. The promise of a scheme that can write off 75-90% of your debt is not to be taken lightly.
An IVA is a serious financial arrangement and is only suitable for a small number of people. If you are in debt crisis, read the guide to find out if it could be the right thing for you. It's also worth talking it through with one of the debt counselling agencies.
Since April 2009, a new type of insolvency (of which IVAs and bankrupcy are another) called a debt relief order (DRO), has been available. It's specifically aimed at those with debts of less than £15,000 (being raised to £20,000 from October, subject to Parliamentary approval) who do not own a house (or have any other assets, such as savings).
To get a DRO you need to go via an approved intermediary, such as StepChange Debt Charity or many Citizens Advice bureaux. See their contact details in the free debt counselling section.
•   Free debt counselling
If you've exhausted all the options above, check the not-for-profit Money A&E website for further ideas. If things are no better, even if you're not in debt crisis, at this point it's worth talking to one of the debt counselling agencies below.
Debt Counselling: Get free one-on-one help
For those in debt crisis ) who are consistently struggling with debts and meeting repayments, free personal help is invaluable. Though if you'd like to see roughly where you stand before you start, try our DIY options below.
The right people to go to...

The aim is to find non-profit debt counselling help. In other words, a one-to-one session with someone paid to help you, not to make money out of you. Be careful not to confuse this with ‘free help’: many commercial companies say they’re free as you’re not charged directly, but you’ll still pay somehow.
Stop debt collectors harrassing you for 30 days
These non-profit agencies are also the ideal people to go to if you're being harassed and bullied for payments by debt collection agencies.
An agreement between the Government and Credit Services Association, the body that represents debt collecting agents (see its Code of Practice), gives new power that guarantees debt collectors won't contact you for at least 30 days, provided you've sought debt help or can show you are trying to repay your debts using a self-help tool.
The debt counselling service will inform collectors, which will then give you a month's breathing space to get yourself on a better footing.
The places we'd suggest contacting:
Christians Against Poverty
Debt counselling agency, which specialises in helping those who are emotionally struggling too. The religious focus is why they do it, not howthey do it.
•   Tel: 0800 328 0006
•   Opening times: different for each bureau
Citizens Advice Bureau
Full debt and consumer advice service. Many bureaux have specialist caseworkers to deal with any type of debt, including repossessions and negotiation with creditors.
•   Opening Times: different for each bureau
Civil Legal Advice
Legal advice on a small range of issues, including debt where your home is at risk. Recent funding cuts have restricted who can get this, but a handy checker tells you if you're eligible.

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Leo Lingham


management consulting process, management consulting career, management development, human resource planning and development, strategic planning in human resources, marketing, careers in management, product management etc


18 years working managerial experience covering business planning, strategic planning, corporate planning, management service, organization development, marketing, sales management etc


24 years in management consulting which includes business planning, strategic planning, marketing , product management,
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