Finance

### Relationship

Purchasing (PMN), Retail (RTL), Marketing (MKT), Forecasting / Planning (FCS), Warehouse / Logistics (WHS), B2B / Wholesales (B2B), Production (PRD), Maintenance (MNT), Human Resources Management (HCM), Service Management (SRV)

## **Finance**

Finance is a broad term that describes two related activities: the study of how money is managed and the actual process of acquiring needed funds.

In MonsoonSIM, Finance is one of the core modules. The focus currently is on how money is managed. Eventually, we will also cover the fund's acquisition and funds management.

Since all transactions that involve money are recorded in the Profit & Loss, Balance Sheet, and Trial Balance module within the Finance, it is not possible to run any MonsoonSIM workshop without turning ON the Finance Module.

MonsoonSIM Finance is more in line with GAAP (General Accepted Accounting Practice). This means learners interested in business (regardless of types of business) will get exposed to GAAP financial reports easily with MonsoonSIM.

MonsoonSIM supports multiple levels of complexity. Learners are encouraged to start with the basic module, called Baseline model, and slowly progress to more advanced functionalities.

### **Here are what you will learn in the MonsoonSIM Finance (Baseline) :**

* How transactions are being recorded in the Accounting ledgers
* How to read GAAP and IFRS financial reports
	+ Profit & Loss
	+ Balance Sheet
	+ Trial Balance
* How to trace transactions in the ledgers
* Concept of asset and liabilities
* Concept of cash flow
* Concept of profitability
* Concept of cost
* Concept of expense
* Concept of margin
* Concept of credit/debit

### **Here are some of what you will learn in the MonsoonSIM Finance (Advanced) :**

* Concept of Accrual accounting
* Concept of Account Payables
* Concept of Account Receivables
* Concept of Foreign Exchanges
* Concept of Credit Limit
* Importance of cash management
* How to navigate business in casha -tight situation
* How to avoid bankruptcy
* When to convert asset to cash in emean rgency situation
* How to measure and maintain own Current Ratio
* How Credit Rating works and how to monitor our own credit rating
* How credit rating affects getting funds from lender
* How Long Term Payables are booked in accounting
* How to select loan types based on our cash situation
* How to decide between Fully Amortising loan and Interest Only loan
* How to use credit effectively to grow business

### **In MonsoonSIM, the Finance module is related to the following department (modules):**

* Purchasing (PMN)
* Retail (RTL)
* Marketing (MKT)
* Forecasting / Planning (FCS)
* Warehouse / Logistics (WHS)
* B2B / Wholesales (B2B)
* Production (PRD)
* Maintenance (MNT)
* Human Resources Management (HCM)
* Service Management (SRV)

Note: There is no pre-requisite to learning the MonsoonSIM Baseline concepts

## **Operating model of MonsoonSIM Finance module**

### **Baseline:**

* Focus on how money is managed (not yet about funds acquisition and management)
* There are two types of Accounting
	+ Cash
	+ Accrual
* There are three financial reports which are more in line with GAAP (General Accepted Accounting Practice)
	+ Profit & Loss
	+ Balance Sheet
	+ Trial Balance
* Bank overdraft facility (standby-loan) is available for immediate drawdown when the operating cash runs out
* When the accumulated overdraft has reached the bank facility limit, the company may not be able to draw down any more for new purchases
* Overdraft will incur daily interest
* Overdraft will appear as short termed liability in the Balance Sheet
* To reduce interest expense, all incoming cash (from sales) will be immediately used to pay off the overdraft
* Start with initial cash for all teams
* Every transaction will be fully recorded and traceable in Accounting
* The team will not be able to run the business anymore (bankrupt) when cash runs out and bank facility exhausted
* Cash Accounting
	+ No concept of Account Payables and Receivables
	+ Payment can only be made if there is enough cash on hand
	+ If you made a purchase and you do no have enough cash to pay upon vendor delivery, the goods will NOT be delivered and you will NOT be penalized or considered delinquent.
	+ If you have an outstanding PO that cannot be delivered due to you having not enough funds, your outstanding POs will be eventually be cancelled by your vendors. Typically, this will happen around 10 days after the promised delivery day.
	+ No partial payment is supported
* Delinquent Payout
	+ If you have exhausted your overdraft limit, any incoming dues, such as salary, rental, PO for goods successfully delivered, will be considered delinquent.
	+ You can find the list of your delinquent out-payments in your Finance Menu.
	+ Exceeding certain # of outstanding delinquents will also bring about bankruptcy. This limit is configurable by the CT
	+ Every day, the system will automatically try to settle your delinquent payment, starting from one with the lowest amount, and the process will repeat daily.
* Bankruptcy
	+ When the number of delinquent payments exceeds the limit set by the CT, the team will be proclaimed bankrupt.
	+ Once bankrupt, the team will not be able to perform any transactions. No sales, No bidding. No more expenses to be incurred. The account is pretty much frozen. However, other teams can continue as usual.

### **Advanced:**

* Accrual Accounting
	+ The concept of Account Payables and Account Receivables
	+ No partial payment is supported
	+ Payment to a vendor will be based on vendor-specific Terms of Payment
	+ Besides payment to vendors, all other payment (salary, etc) will not be accrued
	+ The concept of Vendor Credit Limit
		- Account Payable to the vendor will decrease this credit limit
* Foreign currency can affect the price of an imported product. If our local currency gets weaker against the foreign currency, the imported product, which is quoted in foreign currency, will be more expensive, and vice versa
* Delinquent Payout
	+ The number of outstanding delinquents now affects your CREDIT RATING.
* Credit Rating
	+ There are 5 types of credit rating a company can get
		- Unrated  ---  your company is not rated yet, the system will start rating on day 10
		- DDD ---  if your outstanding delinquent payments exceed 20
		- CCC --- if your outstanding delinquent payments is between 10 to 20
		- BBB  --- if your outstanding delinquent payments is between 1 to 10
		- AAA  --- if you do not have any outstanding delinquent out-payment
	+ AAA is the best, it means that your company is most credit - trustworthy
	+ Credit Rating is important when applying for a business loan
* Loan
	+ There are several types of loans available. These are configurable by CT
	+ Terms - indicates the duration of the loan
	+ Base Interest - indicates the base interest usually are set by the lending institutions
	+ Central Bank rate - simulates the Central Bank's inter-bank overnight lending rate. This rate is floating and, in MonsoonSIM, the future fluctuations are accurately predicted and can be viewed in the Forecast menu
	+ Effective rate - Base Interest + Central Bank's rate
	+ Fully amortization - where the loan is being paid off based on an equal amount at every period. This amount consists of ever-increasing principal portion and an ever decreasing interest portion.
	+ Interest only - where the loan is being paid off based on interest only at every period and a lump sum of principal at the very end of the term. (Balloon payment)
	+ Loan in MonsoonSIM will be considered as Long Term Payable in accounting
	+ Current Ratio Requirement
		- Current Ratio is one of the requirements to obtain a loan
		- Current Ratio is defined as total asset divided by total liability
		- One can find the current ratio from the Business Intelligence menu. Current Ratio appears in Finance Section
	+ Credit Rating Requirement
		- Credit Rating is one of the requirements to obtain a loan

Players can analyze the financial performance and other useful intelligence by carefully examining the information from the Business Intelligence module