The Importance Of Financial Management In Small Business

2795 words - 11 pages

The Importance of Financial Management in Small BusinessAbderrahim AouchiMaryam OihabiAbderazak OuassouTexas A&M UniversityAbstractThe purpose of this paper is to explore the automotive industry and to understand opportunities and barriers of starting a small auto parts retail store and entering the market place. Quickfix Auto-parts case study is a very good example of how a good start can be turned into a nightmare because of uncalculated expansion decisions. Using mainly trend analysis, this paper indicates that it might seem easy to start a small business having the necessary expertise however finance and accounting knowledge are indispensable to develop a healthy and steadily growing business. More importantly, the good understanding of the financial statements and the ability to use the various financial management ratios is of capital importance for the success of any business owner.The Importance of Financial Management in Small BusinessQuickfix is an Auto Parts company that was created by Andre Pires, after he had 15 years experience working in the automobile industry, first as a technician, and later on as the parts department manager, he opened his own company. The experience he had while working allowed him to be in contact with dealers and other people in the industry, which helped him to get more information and useful contacts which helped him when he decided to open his business. The business was successful and Andre was able to double his store size, the industry forecasts were showing a bright future for the automobile industry so Andre was sure that his store sales would grow.Andre Pires was not good in analyzing numbers, interpreting them, and his knowledge about finance and accounting was limited, this was a disadvantage for the business. So he used most of the available funds to expand the business, he did not analyze the external factors that may influence negatively the economy, therefore affect the automobile industry. Over the past two years the financial health of the store was not good, the financial situation was negative, and the cash flow, situation was weak, he had not enough cash to finance the store. He had to take a look at the financial situation and try to overcome the bad situation, to do so he had to hire Juan Plexo and MBA student who was majoring in accounting, to help him figure out the situation and find solution to improve his financial situation to be able repay the suppliers.When establishing a business, the owner should have a minimum background in finance to understand the situation and be able to grow the business and expand it, what happened to Andre was because of the limited knowledge. The financial health of the business is a crucial aspect to keep growing and expanding, and to take the right decision when needed.The sales average compound rate (table 1, appendix A) is calculated by subtracting the...

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