Lexicon - Financial Controlling

BWA (Business Management Analysis)

Business Management Analysis (BWA) is a crucial part of company accounting and is used for regular monitoring and financial control. It provides a concise summary of financial results and company condition over a specific period, typically monthly or quarterly.

BWA contains various key figures and financial data, including sales, costs, profits, liquidity, and others. It provides a quick overview of financial performance and enables company managers and controllers to respond rapidly to changes. Here are several important aspects of BWA and its application in controlling:

Financial Monitoring: BWA enables (when properly prepared) evaluation of financial performance compared to budgets or previous year periods. This allows for identification and analysis of variances.
Liquidity Management: The company's liquidity situation is clearly visible in BWA. This helps identify bottlenecks in time and take appropriate actions.
Cost Control: BWA shows the company's cost structure and its development. This enables identification and reduction of unnecessary expenses.
Profitability: By analyzing profit margins and other profitability indicators, the company can assess its profitability and develop strategies to increase it.
Decision Making: BWA provides data-driven information essential for strategic decisions. It supports management in planning future actions.

Overall, BWA is a powerful controlling tool. It provides insight into the company's financial condition and helps create a solid foundation for financial decision-making. Regular evaluation and analysis of BWA enables more effective company management and achievement of financial stability.

Controlling

Controlling is a vital concept in business management. It refers to systematic planning, monitoring, and control of company resources and processes to effectively achieve corporate goals. The main objective of controlling is to ensure economic efficiency and company profitability.

Various instruments and key data are used in controlling to evaluate financial performance, goal achievement, and company efficiency. These include budgeting, cost accounting, financial analysis, and reporting. These tools help managers and executives make informed decisions and continuously optimize business processes.

Controlling tasks include budget planning, monitoring actual data against budgets, identifying variances, and developing corrective actions. It plays a key role in supporting management in strategic decision-making by providing information and analyses that serve as a basis for decisions.

Overall, controlling helps ensure financial stability, profitability, and long-term company competitiveness. It is an important part of modern business management and supports leadership in achieving goals and success.

Financing

In finance, financing refers to providing capital to a business entity so it can achieve its financial goals. This can mean securing funds for companies, projects, or investments. There are various types of financing, including:

Equity Financing: where financial resources come from the company's own resources, such as equity capital and profits.
Debt Financing: where external funding sources are used, for example through bank loans or bond issues.
Mezzanine Financing: This form of financing combines features of equity and debt financing and includes, for example, convertible bonds or profit-participating loans.

The type of financing chosen by a company depends on its financial needs, risk appetite, and other factors. Financing plays a crucial role in business management and investment decisions.

Financial Liquidity

Liquidity refers to the ability of a company or individual to meet their financial obligations in a timely manner. It is an important indicator of financial health and company stability. If a company is liquid, it means it has sufficient available funds or easily convertible assets to cash to cover current bills, debts, and other payment obligations.

Liquidity can be divided into different levels, including:

Operational Liquidity: refers to the company's ability to cover daily operational expenses such as salaries, supplier invoices, and rent.
Long-term Liquidity: refers to the ability to service long-term obligations such as loans and bonds.
Total Liquidity: This is the total amount of cash and assets held by the company.

Sufficient liquidity is crucial for avoiding financial crises and maintaining the trust of creditors, suppliers, and investors. It enables the company to take advantage of opportunities and respond flexibly to changes in the business environment.

Effects of Negative Financial Liquidity

Negative liquidity can have serious consequences for a company, including:

Insolvency Risk: Negative financial liquidity exposes the company to insolvency risk. This means it cannot meet its financial obligations, including paying bills, salaries, and debts. This can lead to bankruptcy and legal consequences.
Limited Operating Ability: Companies with negative financial liquidity have limited room for maneuver. They cannot make urgently needed investments, pay suppliers on time, or take advantage of growth opportunities.
Loss of Credit Rating: Negative financial liquidity can shake creditors' and investors' confidence. The company's creditworthiness may suffer, making it harder to obtain financing and increasing the cost of borrowed capital.
Legal Consequences: Many countries have insolvency filing requirements stating that companies must file for bankruptcy if they cannot make payments. Failure to comply can lead to legal consequences for managing directors.
Loss of Customers and Employees: Negative financial liquidity can lead to delayed salary payments and affect employee trust. Customers may leave due to uncertainty about business continuity.

Cash Flow

Cash flow is a key term in corporate finance and controlling. It describes the surplus of incoming over outgoing payments in a specific time period. This surplus of liquid funds is crucial for a company's financial health as it provides information about whether sufficient capital is available to cover current operating costs and investments.

Cash flow plays a vital role in controlling as it serves as a liquidity indicator. Companies use it to plan short and long-term financial strategies and avoid liquidity bottlenecks. Positive cash flow indicates more money is flowing into the company than it spends, providing financial stability. Negative cash flows may indicate liquidity problems and require careful monitoring and adjustment of financial strategy.

Overall, cash flow is an essential tool in corporate controlling for assessing financial health, making decisions, and ensuring long-term success.

Liquidity Planning

Liquidity planning is a key process in corporate financial management that involves looking ahead and forecasting liquid funds over a specific period. This process includes systematic analysis and forecasting of company cash flows to ensure sufficient cash availability for covering current operating costs, settling obligations, and implementing planned investments.

The forecasting element is crucial here. It's based on historical financial data and considers future revenues, expenses, cash inflows, and outflows. The forecast enables identification of potential liquidity bottlenecks early and taking appropriate actions to avoid or mitigate them.

Liquidity planning has direct impacts on controlling and cash flow:

Controlling: Liquidity planning is an integral part of controlling. It enables monitoring and managing company financial performance by comparing forecasted results with actual financial changes.
Cash Flow: Liquidity planning significantly impacts cash flow. The goal is positive cash flow, and liquidity planning helps achieve this by ensuring more money flows in than out.
Risk Management: By forecasting liquidity bottlenecks, financial risks can be identified and minimized early. This contributes to company stability.
Bank Discussions: If liquidity planning indicates future payment bottleneck risks, discussions with the house bank can be initiated early. Well-prepared discussions (e.g., with numerical data prepared in Companyon) will more easily reach their goal than in a sudden crisis. This usually helps avoid negative consequences of liquidity bottlenecks.
Investment Decisions: Liquidity planning influences investment decisions by showing whether sufficient funds are available for new projects or if external funding sources are required.

Forecast

The term forecast in corporate planning refers to systematically estimating and predicting future business development and financial results. This process is crucial for making informed strategic decisions, effective resource planning, and achieving long-term goals.

Forecasting in corporate planning can include various aspects:

Sales Forecasting: This process determines expected company sales in a given period. It's crucial for setting sales targets and planning marketing strategies.
Profit Forecast: This forecast aims to determine expected company profit by considering anticipated revenues and expenses. It helps with budgeting and profit maximization.
Cost Forecast: Estimates expected personnel costs, materials, operating costs, and other expenses. This enables efficient resource allocation.
Cash Flow Forecast: Estimating expected cash flows is crucial for ensuring the company has sufficient financial liquidity to maintain current operations.
Risk Assessment: Forecasting enables identification of risks and uncertainties that may impact business planning. This allows companies to take action to minimize risks.

Forecasts are often created using various methods and tools, including statistical analyses, historical data, market analyses, and expert opinions. They are essential tools for creating solid foundations for corporate planning and ensuring long-term success.

Scenario

A scenario in corporate planning refers to forecasting possible future events to make informed decisions and assess risks. It's a method that enables companies to analyze different possibilities and their impact on business strategy. Here are two examples:

Example 1: Investment Decision A company plans to invest in a new production facility. It creates different investment scenarios: Optimistic scenario: The facility is completed on time, product demand is high, and profits grow rapidly. Pessimistic scenario: Construction delays occur, market demand is lower than expected, and profits remain low. Realistic scenario: Construction proceeds largely according to plan, demand meets expectations, and profits grow moderately. By analyzing these scenarios, the company can better understand potential risks and opportunities associated with the investment and make an informed decision.
Example 2: Personnel Actions A company considers expanding its sales organization by several employees. The scenario can now be used to calculate whether the expected additional income exceeds the expected additional costs. This enables a reliable assessment of whether recruitment makes economic sense. In another example, the impact of wage increases due to a new collective agreement on earnings can be calculated. Different measures can be derived depending on the forecast: Raising own sales prices or cutting costs elsewhere. In both cases, scenarios enable making justified decisions and help consider possible risks and opportunities in corporate planning.

Budget Plan

Budget planning is a key element of operational financial management and refers to creating and managing a financial plan for an organization's future. This plan typically includes income, expenses, and investments expected over a specific period. Budget planning usually covers the upcoming fiscal year or years. During ongoing monitoring, expectations formulated in budget planning are compared with actually achieved results (target/actual analysis or plan/actual analysis). This enables quick recognition of whether the company is developing according to plan or if there are deviations (sales areas, cost areas).

Budget planning is typically prepared before the planned period begins. In contrast, forecasting is used during the current fiscal year to update the original plan.

Target/Actual Analysis

Target/actual analysis (also known as plan/actual analysis) is an important method in controlling and business management. It serves to compare actual company results and performance with planned or expected goals and tasks. The following steps are taken:

Target Specification: First, target values are defined. These are expected or planned goals for sales, profits, costs, or other performance indicators. These goals are often defined in budgets or plans.
Actual Result: The company's actual results and performance are then recorded. This usually occurs through analysis of business data, reports, and key figures.
Comparison: Target values are compared with actual results. This includes analyzing the extent to which the company achieved its goals. Deviations can be identified, both positive (overachievement) and negative (underachievement).
Variance Analysis: Analyzing deviations is central to target/actual analysis. It examines why certain goals weren't met or why they were exceeded. This enables planning and implementing corrective actions.
Control and Optimization: Decisions about company control and optimization can be made based on the analysis. This may include adjusting strategies, budgets, or operational processes.

Key Performance Indicators, KPIs

Key figures, also known as Key Performance Indicators (KPIs), are numerical values or metrics used to measure, monitor, and evaluate a company's or specific area's performance and success. They play a crucial role in controlling and business management.

The importance of key indicators in controlling stems from various reasons:

Measurability: KPIs enable quantitative measurement of various company aspects, such as sales, costs, profit, efficiency, customer satisfaction, and others. This measurability facilitates tracking changes and development in the company.
Orientation: KPIs serve as guides for company goals. They help set clear objectives and monitor progress toward achieving them. This enables focused and targeted business management.
Early Warning System: KPIs can serve as an early warning system to recognize problems or deviations from goals early. This enables taking corrective measures in time and preventing negative developments.
Decision-Making Basis: Controlling key figures provide decision-makers with important information that helps them plan and manage the company. They form an objective basis for strategic and operational decisions.
Transparency: Using key data makes company results transparent and understandable. This promotes employee accountability and helps increase efficiency.

Overall, key performance indicators are essential in controlling for analyzing, evaluating, and continuously improving company results. They provide a data-driven foundation for strategic orientation and operational business management.

Excel as a Controlling Tool

Excel is undoubtedly the favorite controlling tool for many smaller companies. It offers numerous advantages that increase its attractiveness for this target group. However, there are also certain challenges and risks associated with using Excel as a controlling tool.

Excel's Capabilities in Controlling:

Cost-effectiveness: Excel is widely used and already available in most companies. It requires no additional license costs, making it cost-effective for smaller companies.
Flexibility: Excel is extremely flexible and can be adapted to individual company requirements and needs. It enables creating custom reports and analyses.
Quick Implementation: Excel spreadsheets can be created and used quickly (assuming appropriate knowledge). This enables rapid implementation of control measures.

Challenges and Risks:

However tempting it may be, especially due to costs, to create an Excel-based controlling tool independently, this decision comes with certain serious consequences and risks:

Manual Effort: Every change, every adjustment (in the program, but also reports or analyses) must be implemented in Excel by the user themselves. This leads to significant time investment, which quickly offsets the apparent cost advantage.
Manual (Monthly) Data Entry: Excel often requires manual data entry, which can be error-prone. This can lead to inaccuracies in reports.
Limited Function Scope: Starting with a self-programmed Excel controller is often quite easy, at least for experienced users. However, even such users reach their limits (in terms of time or content) when functions need to be added (e.g., automatic profit or liquidity forecasts).
Limited Scalability: Excel reaches its limits when companies grow and require more complex data analyses. Managing large amounts of data can be problematic.
Lack of Data Integrity: Without proper controls, ensuring data integrity in Excel can be difficult, especially when multiple users have access to files.
Lack of Automation: Excel offers limited process automation capabilities. This can be time-consuming and affect efficiency.

GDPR

GDPR stands for "General Data Protection Regulation." It is a regulation used in connection with electronic accounting and archiving of company data.

GDPR is a series of guidelines and standards developed by data protection authorities. Their aim is to ensure that digital documents and data are transparent, identifiable, and auditable for data protection purposes. This is particularly important in preventing data breaches and ensuring companies maintain proper data protection practices.

GDPR specifies how companies must record and store their digital documents and make them available for audits conducted by supervisory authorities. This includes requirements for electronic accounting, electronic bookkeeping, and digital document archiving. Companies must ensure their digital documentation complies with GDPR to maintain regulatory compliance.

Overall, GDPR serves to regulate digital transformation in terms of accounting and archiving and ensures that companies and authorities can access digital documents in an effective and auditable manner.

Entity

This is a general explanation of the term "entity":

In the software world, the term "entity" typically refers to an object or unit that exists in a system and has specific properties or characteristics. An entity can take various forms, such as a person, company, product, or concept.

Imagine a database where information is stored. Each type of information is often assigned to a specific entity. For example, a "company" entity might contain information such as company name, address, and industry. Another entity might be "Product" and contain information such as product name, price, and availability.

Entities allow programmers and database administrators to organize and manage information by structuring different types of data into clearly defined units. This makes it easier to search, update, and process information in the system.

Trial Balance (T-Balance)

Trial Balance is a tabular statement used in accounting and finance to provide a clear overview of a company's or organization's financial position. It is an important element in preparing financial statements and reports to analyze and document financial results.

The structure of a trial balance typically consists of several columns and rows. Here are the typical elements:

Account Number/Name: The first column contains a list of account numbers or names. These accounts represent various aspects of financial transactions, such as revenue, expenses, assets, and liabilities.
Opening Balance: The next column contains the opening balance of the account at the beginning of the analyzed period. This opening balance is usually carried forward from the previous period.
Additions: All additions to the respective accounts are recorded in this column. These can be income, costs, or other financial transactions that occurred during the period under review.
Withdrawals: All withdrawals from accounts are recorded here, such as expenses or losses.
Balance: The balance is calculated in the next column by subtracting withdrawals from additions. The balance shows the current state of the account at a specific point in the analyzed period.
Cumulative Balance: This column shows the cumulative balance over the entire period. This means that the balance values in each period are summed to show the cumulative balance.

Investment Planning

Investment planning is a crucial process in business management and finance. It refers to the strategic preparation and analysis of planned investments in a company. The main goal of investment planning is to make wise decisions about using financial resources to ensure long-term growth and profitability. Investment planning is also an essential element of budget planning.

Investment planning considers various factors, such as identifying investment opportunities, estimating costs and risks, forecasting future cash flows, and selecting the best projects or assets to invest in the company. This process helps companies use their financial resources effectively and ensure investments align with long-term business goals and profitability.

Investment planning is an ongoing process, as companies must adjust their investment strategies to changing market conditions and business requirements. Prudent investment planning can help create financial stability and growth opportunities for the organization.

Cash Flow Statement

The cash flow statement is a financial reporting tool used by companies. Its main purpose is to provide a detailed overview of a company's cash inflows and outflows during a specific period, typically a fiscal year. This enables stakeholders (e.g., investors, lenders, or management) to understand where money comes from and how it's spent.

The cash flow statement is typically divided into three main sections:

Operating Activities: This section shows cash flows from core business operations and includes activities such as selling goods, receiving customer payments, or payments to suppliers.
Investment Activities: This section presents cash flows from investments in fixed assets, such as machinery, real estate, or investments in other companies.
Financing Activities: This area provides information about cash flows related to obtaining and repaying debt or issuing and repurchasing equity (e.g., shares).

Chart of Accounts and Standard Chart of Accounts

A chart of accounts is a systematic listing of accounting accounts used in a company's or organization's bookkeeping. This list contains all relevant accounts required for financial documentation and accounting. The chart of accounts serves to organize financial transactions and events into specific categories or accounts to ensure orderly and standardized accounting.

The purpose of a chart of accounts is to organize a company's financial data so it can be easily understood and analyzed. Typically, the chart of accounts is organized hierarchically, with more general accounts (such as "cash" or "bank") at higher levels and more detailed accounts (such as "trade payables" or "trade receivables") at lower levels.

Standard charts of accounts contain account lists organized by categories such as assets, liabilities, equity, revenue, and expenses. Each account has a unique number and name describing the type of transactions recorded in that account. This helps standardize accounting and allows companies to more easily create and compare financial reports like balance sheets and income statements.

Financial Analysis

Financial analysis is the process of examining and evaluating a company's or organization's financial condition. It involves a systematic review of financial data, reports, and other relevant information to gain insight into an organization's financial performance and stability.

During financial analysis, various financial ratios are calculated and interpreted to assess a company's financial situation. These include key figures such as liquidity ratios, profitability, debt levels, and growth rates. These indicators enable the identification of trends and patterns in financial data and draw conclusions about a company's profitability, financial stability, and efficiency.

Financial analysis is important for various purposes. Companies use it for making decisions about investments, loans, budgeting, and strategic planning. Investors use it to evaluate a company's attractiveness as an investment. Lenders use it to assess a company's creditworthiness. Government agencies and analysts use it to monitor the economy and financial sector.

Overall, financial analysis helps make informed decisions and minimize risk by providing a comprehensive picture of a company's financial condition. It's an important part of corporate governance and the investment process.

Depreciation

Depreciation is an accounting concept that describes the systematic reduction of assets' book value over time. This occurs to reflect the depreciation or wear of assets such as machinery, buildings, or vehicles during their useful life. Depreciation allows companies to spread asset acquisition costs evenly over their entire useful life, improving financial reporting accuracy and profit determination. This process also helps determine the actual value of assets in a company's balance sheet and accounts for depreciation over time.

Depreciation has a significant impact on both a company's balance sheet and income statement:

Balance Sheet Impact:

Depreciation affects the balance sheet by reducing asset values over time. For example, when a company owns machinery or buildings, these assets must be depreciated over time as they lose value or useful life. This depreciation is recorded as a long-term liability on the balance sheet's liabilities side. This means the book value of these assets decreases on the assets side, reflecting the company's financial condition.

Income Statement Impact:

Depreciation also directly impacts the income statement. It's recorded as an expense, thus reducing company profit. This occurs because depreciation corresponds to actual costs incurred from asset usage. Higher depreciation leads to lower profit shown in the income statement. Lower profit can have tax implications, as companies often pay taxes based on their profit.

Income Statement

The "Income Statement" is a key element of a company's financial reporting. In simple terms, it can be described as follows:

The income statement is a financial summary providing information about a company's revenues, costs, and profits or losses over a specific period. It's typically prepared annually or quarterly and serves to transparently present a company's financial results.

Balance Sheet Analysis

Balance sheet analysis is the process of evaluating a company's financial condition and performance based on its balance sheet, income statement, and other financial reports and ratios. This analysis aims to gain insight into a company's financial situation for informed decision-making.

Two examples of balance sheet analysis:

Liquidity Analysis: A controller or financial manager can use balance sheet analysis to assess company liquidity. Key figures like the current ratio can be used for this. The current ratio is calculated by comparing current assets (such as cash, receivables, and inventory) to current liabilities (such as supplier credits and short-term loans).
Profitability Analysis: Another important application of balance sheet analysis is evaluating company profitability. Key figures like Return on Equity (ROE) can be used here. ROE measures how effectively a company uses its equity to generate profits, calculated by dividing net profit by equity.

Consolidation

Consolidation is an essential controlling process that aims to combine financial and operational results from multiple legal entities or business units into a single, transparent presentation. This process is particularly important for companies with several subsidiaries or branches, as it provides a clear and unified picture of overall company performance.

Consolidation involves combining various financial data such as sales, costs, investments, and forecasts. This often occurs using specialized software that ensures automatic and consistent data consolidation.

Consolidation is vital not only for external reporting but also for internal management and decision-making processes. It enables management to make well-founded decisions and effectively control company development.

Segmentation

Segmentation is a crucial controlling process that enables dividing a company into different business units, such as branches, regions, or product lines. This allows for detailed economic analysis and management of individual segments.

Segmentation allows companies to define specific segments and flexibly divide business analyses (BWA) into these segments. This means that a profit and loss statement (P&L) can be created for each segment, enabling more precise analysis of financial results. For example, branches, product groups, or regions can be analyzed separately to assess their individual profitability.

Another advantage of segmentation is the ability to take targeted actions to improve the performance of individual segments. This can be achieved by identifying strengths and weaknesses in different areas of the organization. Segmentation also enables better resource allocation and strategic planning, as specific needs and challenges of individual segments can be taken into account.

Segmentation is therefore an essential controlling tool that helps companies optimize their financial performance and make well-founded decisions.