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WEEK 8 & 9

WEEK 8 & 9. BUSINESS FINANCIAL MANAGEMENT. 1. OBJECTIVES FOR FINANCIAL PLANNING. To identify the capital needed in order to execute the busines. To identify possible sources of finance where applicable. To ensure sufficient starting capital.

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WEEK 8 & 9

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  1. WEEK 8 & 9 BUSINESS FINANCIAL MANAGEMENT

  2. 1. OBJECTIVES FOR FINANCIAL PLANNING • To identify the capital needed in order to execute the busines. • To identify possible sources of finance where applicable. • To ensure sufficient starting capital. • To evaluate business viability before any investment implementation. • As a guideline for business implementation.

  3. FINANCIAL PLANNING – AN INTERLINKING BETWEEN BUSINESS FUNCTIONS (cont.) MARKETING BUDGET PLANNING BUSINESS FINANCE MANAGING CONTROLLING OPERATIONAL BUDGET ADMINISTRATIVE BUDGET

  4. 2. STEPS IN FINANCIAL PLANNING • Gather financial information (marketing, operation, administrative), • Prepare table of business implementation cost, • Prepare sources of financing, • Prepare cash flow pro forma (financial statement), • Prepare income statement pro forma.

  5. Elements in Business Implementation Cost

  6. Example : BUSINESS IMPLEMENTATION COSTS (cont.)

  7. Elements in Business Implementation Cost (cont.) • Purchasing or fixed assets: • Also known as Investment Capital. • Any cost to acquire fixed assets for business. • Fixed assets is any assets to harness business revenues and their benefit/usage is usually more than a year. For examples; vehicle, building, land, machine, furniture, etc. • Generally involves large cost because their long usage period. • Basically need to consider their depreciation. • Depreciation will reduce the fixed assets’ value for every year.

  8. Elements in Business Implementation Cost (cont.) • Working Capital: • Capital needed for every daily/monthly business expenditure. • Three general categories: • Production expenditure; cost to produce a business product. Examples; direct labour cost, factory rental, utility bills, maintenance, etc. • Administration expenditure; cost to manage the company’s activities for smoothness of overall operation, Examples; wages for manager, executive, clerk, office rental, office supply and utilities, etc. • Marketing expenditure; cost for selling and marketing activities. Examples; wages for sellers, allowances, commisions, promotions, transportation, distribution, etc.

  9. Example: Production Expenditures (cont.)

  10. Example: Administration Expenditures (cont.)

  11. Example: Marketing Expenditures (cont.)

  12. Elements in Business Implementation Cost (cont.)

  13. Elements in Business Implementation Cost (cont.) • Other cash requirements: • Other than fixed assets and working capital. • Usually non-recurring. • Usually being imposed once only during business start-up. • Examples: • Deposit for utilities, space rentals, etc. May get back those deposits once left from business. • Start-up expenditures. Cost for business registration, lawyer fee, professional service, training, stamp duty, etc.

  14. Elements in Business Implementation Cost (cont.) • Contingency Expenditure: • Cost for any unforeseen matters during business start-up. • Generally, the allocation is between 5% to 10% from the previous elements in business implementation costs. • Usually, businessman will use their own judgments in determining the allocated expenditure.

  15. 3. HOW TO EVALUATE THE BUSINESS FINANCIAL PERFORMANCE • Usually by using: • Income (Profit/Loss) Statement • Cash Flow Statement • Balance Sheet Statement

  16. I. Income (Profit/Loss) Statement • Reports the profitability of the business for a given period. • It compares revenue and expenses/resources used up to generate revenue. • Basic elements: • Sales – revenues/business income • Expenditures – cost of production and operational • Profit and Loss – difference between sales and expenditures; if positive, the business gain profit, and vice-versa.

  17. Example: Income Statement (cont.)

  18. II. Cash Flow Statement • Also known as ‘source and application’ of fund statement. • Reports the sources and usages of funds for a given period. • It compares the inflow and outflow of cash. • It also can assists knowledge on: • either the business have excess/surplus or shortages of cash, • total cash needed to cover the shortages, • when the business have surplus to pay back any short term loan.

  19. Methodology for Cash Flow Statement (cont.)

  20. Example: Cash Flow Statement (cont.)

  21. III. Balance Sheet Statement • It is a statement of financial position. • Reports the company’s assets, liabilities, and owner’s equity for a specific date. • It shows the position or ending balances of company’s assets, liabilities, and equities. • Formula: • Asset = Liability + Equity

  22. Balance Sheet Statement (cont.) • What is assets: • Either fixed assets or current assets. • Current assets = any assets that can easily turns into cash, such as account receivable (credit sales), inventories, supplies, and pre-payment expenditures (upfront). • Fixed assets = any assets to harness business income, such as land, building, factory, renovation, vehicle, machine, equipment, furniture, etc.

  23. Balance Sheet Statement (cont.) • What is liabilities: • Any claims toward business assets, such as debt, obligation, etc. • Types of liabilities: • Short term; such as account receivable (credit sales) • Long term; such as bank loan which usually need more than one (1) year of monthly installments. • What is equity: • The ownership claims on total assets (total assets – total liabilities).

  24. Example: Balance Sheet Statement (cont.) BALANCED

  25. THANK YOU !!

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