It has been six weeks of learning more and more about properly managing a business enterprise. As a full-time managing director of Thai Lay Fashion Co Ltd., (a reputed exporter of garments from Hong Kong Europe), the whole course till now and this week, in particular, has been very useful for me. The focus for this week has been more on the financial aspects of running a business. The topics that were covered in the module in week six are an overview of and the importance of preparing a sales/expense forecast statement. This is very important in a professionally run enterprise. This is especially true for my company since it is a manufacturing firm. To be competitive in an export environment is quite difficult and hence understanding the nitty-gritty of cost control is very important. Only then can any company remain competitive.
I have to deal with many types of costs and expenses. My company buys yarn, dyes, and other raw materials from other suppliers in the area. The prices offered to vary only to a small extent for a particular item. Till now the variations were not considered seriously by my company. But the topics covered this week have shown me that even small variations in prices can impact the cost of the final product. This small variance in the final cost of the exported product can mean losing or gaining an order. A discussion on how the specific topics helped me this week is given here. It should be noted the topics studied today were not new to me. Our company used to employ such techniques previously also though not in a very scientific manner. Another benefit that I got from this week’s study was the importance of these calculations.
The week started with a financial sections overview. The book that I studied as a part of additional research work titled “Financial Plan; Ernst & Young’s Personal Financial Planning Guide” was very useful in helping me understand the importance of financial planning. The book along with my course module taught me that a proper financial plan (to which this module belongs) can be used as a yardstick to measure performance. These calculations like the break-even point can be used to measure my company’s cost-effectiveness against our competitors and also with the industry average. Any negative difference will give the signal that things have to improve within the company. The main topics covered this week were the preparation breakeven analysis, the preparation of the breakeven chart, and sales forecasting. Understanding the importance of classifying costs into fixed, variable, and semi-variable costs was also very useful for me. The most useful part was the actual calculation of the break-even point of Thai Lay Fashion using the techniques studied this week. The calculation of the profit volume ratio was also made possible. The minimum volume of sales needed to break even for our company was computed at approximately 45,000 USD. A breakeven chart was also prepared using the above figures. It is proposed that new charts will be made at fixed intervals of say one month and any variations studied. Breakeven charts can easily give a clear picture of the expense management of the company. The charts can be posted on a convenient wall in the administrative office. It will be a constant reminder for the top management of the company about the control of costs. This will help to keep a constant eye on the company’s day to expenses.
The next major area of study was about sales forecasting and the importance of why such forecasting is necessary. The main reason for fixing targets is to set a goal for the company to achieve that target. The company and its employees may begin to relax if sales are good for the current period. But it is necessary to stretch in all ways to come out of the comfort zone and improve. Setting targets and forecasts will help us to stay alert and remain competitive. If our company is constantly achieving our sales forecasts, then it is to be understood that a higher target or forecast is set. But this should be done in a scientific way taking into consideration all market factors not only in Hong Kong and China (manufacturing base) but also the conditions in the European markets. Any slump or slow down in the importing market will also affect us. So a sales forecast can be very useful in setting the future direction for Thai Lay Fashion Company Ltd.
Like sales forecast, expense forecast is also very important. It will help us to identify whether the forecast is being matched by the actual expenses incurred by the company. If we are exceeding targets, an analysis should be made whether it is within the company or due to outside market forces like inflation, shortage of materials, etc. Whatever be the case, steps should be taken to see that actual expenses match with or is lower than the forecasts. But lower costs (than forecasts) should also be studied because it may be due to inferior low-quality raw materials being purchased by Thai Lay Fashion. Like sales forecasts, expense forecasts should also be done scientifically by taking into account all relevant market factors both at home and abroad. This week the focus was more on techniques rather than the study of major theories of business. I also feel that the modules are moving along in a timely manner and do not foresee any major delays in the completion of the whole course.
About the work done by colleagues, I have the following comments to make. They have also completed the same week six module. On the whole, they have also the same feelings about the module. But the difference is that both of them are employees and view the module from that point of view only. According to them, it is only their duty as a part of their job to calculate breakeven points, sales and expense forecasts, etc. One of them even believed that the employer should remain profitable so that their salary and compensation will be adequately met. According to my, it is okay to feel that the calculations are part of the job. But doing this just to assure that a person should get a timely (and large) salary is not correct. HRD studies show that employee and employer goals may clash occasionally. It is up to the employer and the employee to have a matching of goals. The employee should look for good compensation, but to boost the company profits so that everyone benefits (employees, shareholders, other stakeholders). The colleague should take a much broader view of things for a long and successful career.