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David Stokes Nicholas Wilson Small Business Management and Entrepreneurship Fifth Edition

Lecture outline
Financial needs of small businesses
Sources of funds Control of financial resources Financial lifecycle of a firm Managing finance Stocks

Financial needs
A small business needs finance in a variety of areas.

What does a small firm need money for?

Permanent capital equity capital Expansion and development Innovation Refinancing Working capital short term finance Debtors/creditors gap Seasonal fluctuations Bridging finance Short lived assets

Asset finance medium to long term finance Plant and machinery Equipment and furniture Building Vehicles International trade finance Growth through international trading

Sources of funds
Internal finance Personal savings Friends and family External finance Debt finance /overdraft bank lending

Personal interviews Evaluation of risks Financial projections/ cash flows and ratios

External equity finance Other forms


Leasing Hire purchase

Export finance

Control of financial resources


Market failure Difficulty in making appropriate assessments of risk when possessing limited information Finance gap Unwillingness on the part of suppliers of finance to supply it on the terms and conditions required by small businesses

Financial lifecycle of a firm


Stage Conception Personal investment Introduction Development Growth Maturity Decline Bank loans, overdraft Hire purchase, leasing Venture capital All sources Sale of business/liquidation

Likely source of finance Financial issues Under capitalization lack of track record which hinder raising finance Lack of Control of costs and information Over t-trading, liquidity crises Equity gap, appropriate information systems Weakening return on investment Finance withdrawn. Tax issues if business is sold

Managing finance
Cash flow, debtors and stocks
Debtors control They absorb cash and increase funding requirements The longer debt is alive, the greater the risk of bad debt The cost of chasing bad debt may be greater than the amount of money being pursued Small firm may not have control system to identify individual debtor problem before they become critical

Stocks
Management of stocks Excessive stocks represent poor investment for a small firms financial resources although running short of stocks can be even more of a problem Stock management is therefore about balance, and the optimization of resources

Raw materials Work in progress Finished stock

Liquid assets and current liabilities


Costs and pricing Fixed costs Variable costs Mark-up Gross margin Break-even analysis

Discounting

Thank you guys!!


Thank you for bearing me for the whole semester It was a pleasure teaching you this course I really hope you have learned from this course what

was meant to be taught Wish all of you all the very best in your life and respective professions. I am just a call away if you need any help or assistance at any phase of your life. Good luck for your exams!! Enjoy!

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