1. 1 Nursery Management Understanding and Managing Finance Session 1

2. 2 What do we mean by Finance and Accounting? Finance is:  Concerned with the way in which the money used in a business israised and invested Accounting is:  The process of identifying, measuring and communicating financial (and other) information so as to permit informed judgements and decisions to be made by the stakeholders in a business.

3. 3 The Role of Accounting, Finance and Budgeting There are four separate, but linked functions:  Reporting  providing information about what we are doing  Decision-Making  working out how to do things better  Controlling  making sure we are doing what we said we would do  Planning  working out in detail how we should do things

4. 4 Case Study You are a personnel officer in a large nursery, and one of your employees, a young early years worker has been chosen to attend the local Business School to study for a diploma in management. He is reluctant to sign up for the course because it includes a subject called “Financial Management”. He thinks it will be a waste of time to study such a subject. Prepare some notes that you could use in speaking to her in order to show her benefits of studying financial management. Dyson (1997) - Accounting for non-Accounting Students

5. 5 The Role of Finance and Accounting PLANNING  Producing forecasts and budgets  Ensuring that the organisation will have enough cash to survive  Allocating money in line with the mission and objectives of the organisation  Setting targets for the organisation and for each department in the organisation  Providing each department with the money it needs to operate

6. 6 The Role of Finance and Accounting CONTROLLING  Monitoring income - checking that targets are achieved  Monitoring expenditure - checking that there are no over-spends  Monitoring the overall position - checking that the overall organisation is profitable and does not run out of cash

7. 7 The Role of Finance and Accounting REPORTING  Classification of transactions into different categories  Summarising for different users  Reporting on performance - internally - who brought in how much income, who spent what, how is the organisation performing  Reporting externally - to shareholders, tax office, VAT office, Companies House, non-executive Directors

8. 8 The Role of Finance and Accounting DECISION-MAKING  Helping the organisation to achieve its financial objectives - e.g. increasing wealth of owners of a private nursery  Helping the organisation, and its staff, to make decisions about what it should to invest in  Helping the organisation to determine where to get its money from- e.g. are there government grants?  Helping the organisation to decide what to do with its money

9. 9 The Different Types of Accounting There are two main types of accounting Financial Accounting This is the main ‘public’ or external financial scrutiny undergone by an organisation in order to demonstrate its effectiveness.This is what you would show to the Bank Manager Management Accounting This is the internal financial scrutiny used to manage the organsiation and to help it to achieve its goals and mission.

10. 10 Key Topics Financial Accounting  Statutory requirements  Financial statements  Cash-flow statements  Accounting standards  Interpretation of accounts  Annual reports Management Accounting  Costing  Cost-volume-profit analysis  Pricing  Budgeting  Investment Analysis  Sources of finance

11. 11 Financial Accounting and Management Accounting Financial Accounting  Seeks to meet needs of other stakeholders  General purpose, summary reports with little detail  Subject to regulations and standardised format  Tends to be annual or six- monthly, backward-looking  Audited, objective measurement of financial position  May be certified by auditor Management Accounting  Seeks to meet needs of managers  Detailed and focused on specific needs  Does not require a specific or standardised format  Produced as frequently as required, with forecasts  May incorporate information which is less objective or verifiable

12. 12 Stakeholders and their Needs  For Accounting information to be useful, it must be put in a form which is relevant to the needs of the user.  The next slide identifies 10 possible stakeholders in an early year’s setting.  Each will have their own need in terms of information on which they will base their decisions.

13. 13 Stakeholders and their Needs CUSTOMERSContinuity of supply of childcare Ability to meet needs COMPETITORSThreats to ‘sales’ and profits Provide comparisons of costs and performance EMPLOYEESJob security Remuneration- comparison with other organisations/profits GOVERNMENTTax Statutory legislation COMMUNITYContribution- services provided Jobs

14. 14 Stakeholders and their Needs SUPPLIERSAbility to pay for food, electricity etc LENDERSAbility to repay, Security of investments Credit risk Financial structure MANAGERSPay and conditions Company Performance and Planning SHAREHOLDERS (Limited Companies) Organisational performance Value of shares, Return versus risk Management performance FINANCIAL ANALYSTSPerformance Plans and Objectives

15. 15 Case Study 1 - solution The personnel officer might say something like:  In terms of future prospects, if you intend to progress upwards through the career structure, then you will inevitably need to take responsibility for some aspect of financial management.  You might be required to work within a budget, complete an end-of- year financial report or produce evidence for auditors or accountants who will be attempting to measure the performance of your department.  Having some understanding of basic accounting procedures will allow you to be proactive, and make the accounting work for you, and to your advantage, rather than reactive, in simply acceding to the demands of the accountants and auditors. This means that the department that you run is more likely to be effective, and you are more likely to gain promotion.