Unit 8: FINANCIAL ADMINISTRATION

'I want to work in finance.' As a statement of intent this might impress your grandmother, but for a career in finance you need to ask yourself some pertinent questions: What kind of skills and attributes do I have? Am I analytical and thoughtful, or an ambitious risk-taker? Lifestyle issues are important too. Are you prepared to move away from home, or give up your social life for your career? Are you ready to take further exams? Not every area of finance involves working 90-hour weeks while studying for professional qualifications - but some do. You also need to be more specific about what area of finance you want to work in. As the saying goes, money makes the world go round, and the world of money is extraordinarily complex and covers a vast area of different yet complementary services. What does an investment banker do? What is private banking? What sort of people work in the stock exchange? What is the difference between bookkeeping, accounting and auditing?

1. The best things in life are free.
2. It is important to be a winner.
3. A high salary is an indicator of success.
4. It's better to compete with a friend for promotion than worry about

your friendship.

1. It is vital to have a plan for the development of your career.
2. There's nothing wrong with taking a day off work if the weather's nice.
3. Money is the root of all evil.
4. Money can buy you happiness.
5. Madonna is somebody to admire more than Mahatma Gandhi.
6. It is more important for people to regard you with affection rather than

with respect.

Although some languages use the same expression for both bookkeeping and accounting and although systems may vary from one country to another, there are certain basic principles. In most business transactions, the seller of goods or services sends the buyer a bill or invoice, and later a receipt acknowledging payment. In English, the word 'bookkeeper' is used for the person who uses a double-entry system to record payments received (credits) and payments made (debits) in a temporary book or journal. The bookkeeper must also keep the original documents in an orderly file. The information from the journal is entered later in the relevant account book, or ledger. From time to time the bookkeeper does a trial balance to test whether the credit and debit sides of an account match. Of course nowadays the 'books' are usually files in a computer program, and the trial balance is a function that the program will perform automatically on demand. An accountant, unlike the bookkeeper, analyses financial records, and decides how to present them to managers, tax inspectors, shareholders or auditors. An auditor is an independent qualified person who carries out an official examination of an organisation's accounts.

Prudence Tuffy and Kenny Cookham have met at a cocktail party. Kenny thinks Prudence is rather attractive and wants to impress her.

Assets are of many kinds but the first distinction to be made is between fixed assets and liquid assets. Fixed assets, also called capital or permanent assets, are possessions such as land, buildings or machinery which cannot be sold because they are needed for making the firm's products. Liquid or available assets are cash or anything which can quickly be turned into cash. Buildings, machinery and equipment gradually lose value, i.e. they depreciate, because they wear out or become obsolete, and have to be replaced. The cost of buying or replacing fixed assets that will have a useful life of several years is not charged against a single year's profits but is included as an expense in the company's accounts over a number of years. This process is called depreciation, although the word 'amortization' is sometimes used in the U.S. There are various depreciation methods, but the most usual one simply divides the total expected cost by the number of years of expected life, and charges an equal sum each year.

A company with more debts than money to pay them, or in other words more liabilities than assets, is insolvent and if a creditor takes the matter to court the company may be declared bankrupt. This situation can arise even if the company has wonderful sales figures. How is this possible? Some people say that it is not money that makes the world go round, but credit. Getting orders is tough enough, but getting paid can be even tougher. If the company's cash is tied up in stocks of materials and credit to customers it may not have enough cash to pay short-term expenses. It has a cash-flow problem. Managerial accountants and financial directors know that what distinguishes an efficiently managed business from a poorly managed one is the way it controls credit and manages cash-flow, in other words the skill with which a company can make its creditors wait and put pressure on its debtors. So how can credit be controlled, and the risk of bad debt be minimised? The ideal solution would be to make the customer pay up front, but the goodwill of your customers is vital to securing their business in the future. Charge interest on outstanding debts and again you risk alienating your customers. Debts do of course show up in a company's assets, but it is hard cash, not promises to pay, that finances new projects. Promises are often forgotten, and creditors have better memories than debtors.

You do not need to have studied accounting in the past to join this course but you will need to have an interest in the subject, and a passion to work with numbers. Your first year will give you a firm foundation in maths and statistics, financial and management accounting, business law and economics. In the second year, you'll choose options from a wide selection including financial and management accounting, mathematical applications, planning and finance, marketing, taxation, economics, law, quantitative methods and international accounting. Before your final year we encourage you to spend an optional sandwich year in industry doing an industrial placement. Work experience will help you get a job later and many of our placement students go on to work full time for their placement employer after graduation. Financial accounting and strategic management will form part of your final year, with options that include business finance, company law and international financial management.

If you have always wanted to spend time with the rich and famous, private banking could be a good place to work. It is a job for the discreet. Private bankers exist to help very rich people manage their money in private, far away from the gossip columnists and paparazzi. The clients can be company chief executives, property tycoons, footballers, pop stars, or the children of recently deceased billionaires. They all have one thing in common: they are rich beyond most people's wildest dreams. Private banks typically look for clients with at least $1 million to invest, but many private bankers only deal with clients whose financial assets are worth more than $30 million. The banking needs of these clients are, understandably, more complex than those of people with a salary and a mortgage or other debts to pay off. It is up to the private banker to devise a strategy that will help these rich clients to remain rich, by avoiding risks that might reduce the value of their assets, and by taking risks that might make them richer still. If there is a housing market crash or the stock markets plummet, multi-millionaires do not want to see their wealth wiped out.