UNDERSTANDING THE

BASICS OF ACCOUNTING,
FINANCE, AND FINANCIAL
MANAGEMENT
Module #15
LESSON
OBJECTIVES:
• Understanding the concept of basic
accounting, finance, and financial
management; and
• Know the importance of accounting
and finance in one's own business.
Module #15 3

INTRODUCTION
Without sales and accounting records, an entrepreneur would seem
like navigating his business with blind eyes

On this module, you will learn some basic concept of accounting

finance and financial management which would be helpful in starting
business.

You will also learn the break-even analysis, which would really be
helpful, especially to those who are into food business
 BUSINESS FINANCIAL
MANAGEMENT FOR BEGINNERS
Basic financial planning is to running a business as knowing
how to speak a given language is to visiting a foreign
country. Many people know a few words nut they bumble
around as tourist, making mistakes and then leave. A person
who is going haul needs to be fluent in the local way of life, the
advantages and disadvantages of different interactions and far
more.
 5

BASIC ACCOUNTING
• The bread and butter of financial planning is knowing where a business has been. that means
having a solid grounding in financial accounting and knowing what reports to pull to get the
information needed. Without this records, you won't know whether you are producing profit
consistently' much less whether your business is growing or declining.

• Different documents generated from the accounting records provide the foundation for the
decision making process. These documents include the income statements, the cash flow
report and the balance sheet.
THE PROFIT CENTER OF THE BUSINESS 6

This are the core activities of general sales and revenue for the company, and if
they are limited and restricted, those revenue streams decrease or shut down.
Since the business fundamentally needs profit to keep growing and growing,
the improvement of these profit centers is a primary goal of financial
planning.

MANAGING CASH
It may seem like an archaic term from an era before digital finance and the
electronic age, but cashflow management can make or break a business. Any
financial planning attempted without understanding cashflow is leaving a,
wide door open to problem. Thus knowing how to use cash budgets covering
short periods within the year can be paramount to succeeding in business.
One of the most demanding expenses with least amount of flexibility:
• Payroll
Cash flow can be interrupted very quickly, especially if a business works on
thin profit margin.
 7

LEVERAGING ASSETS
When starting business, a good number of small business owners think of
assets from the perspective of the store address/building, equipment for
production, may be the company car and furniture. It's not the most creative
perspective. But that’s often a reflection of an understanding of what can be a
business asset.
Asset can serve as leverage in two different ways, but both are effective at
raising money.

• First, assets can be used as collateral to secure loans.

• Second, assets increase the equity in a business (if they were not financed by
loans in the first place), so additional investor of public financing
raised against that equity if the business is structed accordingly.
 8

TAXATION

Businesses don't survive very long if proper tax management is ignored in

their financial planning. The government can be very unforgiving when it
believed that insufficient taxes are being paid on income or, worst, taxes are
being avoided unintentionally.

Not paying attention to these rules, as well as appropriate tax planning to take
advantage of available opportunities to save, means a business can end up
losing money and end up penalties and tax interest. Both can eat away at the
life blood of a company and a bad tax audit can bankrupt a business
completely.
 9

LONG TERM BUSINESS STRUCTURE

Most small businesses start off as sole proprietorships or partnership. For
liability reasons, ownership and management will want to restructure the
business so that it becomes its own entity versus a personal financial extension
of the owner.

Financial planning has a big influence in this field helping decision makers
choose and plan out the best way to evolve the company to the next stage.

A financial planner, especially a planner with advanced education such as an

MBA with an accounting specialization or a master of accountancy, can be great
asset to a small business, especially in making the right decisions early in that
helps the company grow exponentially down the road. The financial planner has
to available in different financial management scenarios.
 10

ACCOUNTING AND FINANCE:

WHY IS IT IMPORTANT TO YOUR
BUSINESS?
 -

ACCOUNTING AND
11

FINANCE ON BUSINESS
KEEP
AVOID LEGAL MAKE A ANALYZING
FINANCIAL
PROBLEM BUDGET PERFORMANCE
RECORDS

Accounting is An oversight in A budget gives

Successful
essentially a finance s you a current view
business
record of a improvement to of
owners are also
company's your facility could your financial sta
checking in to see
financial activities mean that you're nding and helps
how their business
not following the you navigate your
is doing.
regulation of business toward
safety loads future growth and
development
 -

ACCOUNTING AND
12

FINANCE ON BUSINESS

EXTERNAL INTERNAL DEVELOPING

COMMUNICATION COMMUNICATION ACTIVITIES

The Financial Good accounting

communication reporting can also and finance
of financial help business management
owners
information is inevitably leads to
communicate a good strategy.
important when information to
dealing with internal
external parties. stakeholders.
 13

BREAK-EVEN ANALYSIS
As an entrepreneur you would like to know at what level of sales the business
break-even will. When we say "break-even", this is the point for the level of sales
neither produce loss or profit for the business.
The profit of business is dependent on sales (volume x selling price) on one hand
and costs on the other.
Break-even analysis is one of the many tools to analyze and measure the
profitability of the company management can utilize this tools to determine the
effect of certain decisions or situations on their operations, such as:
• A lower sales performance compared to the expected volume of sales;
• An increase( or decrease) in the selling prices;
• The hiring of additional sales people;
• An increase in the wages of director labour ;
• The rise In the cost of the raw materials; and
• Other factors affecting costs, volume of sales and production, and selling prices.
 14

WHY IS ACCOUNTING SO
IMPORTANT TO A BUSINESS?

WHAT IS THE ROLE OF

ACCOUNTING IN BUSINESS?
Presentation title 15

HOW WE GET THERE

FIXED COST
. .
• Are those costs that remain constant
regardless of the volume of production,
Example; rentals, salaries of executives,
depreciation, wages of indirect labour, and
other cost paid based on time
VARIABLE COST
• Are costs that vary directly with the level of
volume of the business activity
• This costs go up when the production
increases and down when production
decreases
Examples; directs materials, direct labour
and commissions.

However, some costs are classified as " semi variable". This costs change with the changed in the volume
of production, but not in the direct proportion (i.e transportation, office supplies).
Presentation title 16

SUMMARY
At Contoso, we believe in giving 110%. By using our next-generation data
architecture, we help organizations virtually manage agile workflows. We thrive
because of our market knowledge and great team behind our product. As our
CEO says, "Efficiencies will come from proactively transforming how we do
business."
THANK YOU
Members:
Rinalyn Balderama
Cherrelyn Fernandez
Frickzy Arra Ibanez
Marivic Mauricio