BUSINESS FINANCE

FIRST QUARTER

Bureau of Curriculum Development

February 6, 2017
 CURRICULUM GUIDE

Parts of Curriculum Guide

Core Subject Title
Subject Description
Content
Content Standard
Performance Standard
Learning Standard
Learning Competencies
Code

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

 OBJECTIVES

1. Identify the flow of funds within an

organization.

2. Distinguish the role of the financial

manager.

3. Outline the financial manager activities.

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

Senior High School Training Schedule
 Fund - an amount ofSchoing
Senior High moneySchedule
that is used for a
special purpose; available money; an amount of
something that is available for use; a supply of
something.
 FINANCIAL MANAGEMENT

FUND – This is money

SOURCES OF FUND – This is WHERE we get finance from

Starting Up – Buildings, machinery, raw materials and office
equipment

WORKING CAPITAL – Short term finance required for the day-to-

day running of a business

Unforeseen Events – Sudden decline in sales, large customer

fails to pay on time or pay expenses quickly
DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT
 Why Do Businesses Need Fund?

Starting Up – Buildings, machinery, raw materials

and office equipment

WORKING CAPITAL – Short term finance required

for the day-to-day running of a business

Unforeseen Events – Sudden decline in sales, large

customer fails to pay on time or pay expenses
quickly

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

 Why Do Businesses Need Finance?

Why Do Businesses Need Finance?

For starting up Everyday bill payments

Businesses need
Expansion Take over bid
money for…

Internal Growth Replace

machinery/equipment

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

 The purpose of finance

“Different sources of finance have different

implications for a business, so it is important that
the most appropriate method of finance is chosen
for the purpose that the business has in mind”

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

 SOURCES OF FINANCE

Sources of
Finance/Fund
can be either:

Internal External

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

 INTERNAL SOURCE

INTERNAL SOURCES OF FINANCE – Finance which is raised internally, it does not

increase the debts of the business.

Examples:
Retained profit
Personal savings
Sale of unwanted assets
Sale and leaseback

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

EXTERNAL SOURCES OF FINANCE – Finance provided by
people or institutions outside the business, creates a debt
that will require payment.

Examples:
Loans
Overdraft
Shares
Debentures

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

 Time Periods for Finance

SHORT MEDIUM LONG

TERM TERM TERM

UP TO 3 3 – 10 OVER 10
YEARS YEARS YEARS

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

 SHORT TERM FINANCE

Short-term Finance is needed for the day-to-day running of a

business and is usually for a period of up to 3 years

In order to understand short-term finance it is necessary to

understand the concept of CASH FLOW

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

 Cash Flow
CASH FLOW – A business needs sufficient inflows of cash to finance its
day-to-day outgoings.

INFLOWS refers to OUTFLOWS refers

money received by the to money paid out by
business the business
EXAMPLES: EXAMPLES:
•Sales revenue •Purchases
•Capital •Rent & Rates
•Loans BUSINESS •Wages & Salaries
•Grants

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

 Why is Cash Flow Important?
Think of a business as a bath without a plug…

If the bath is ever

empty the business
is in TROUBLE – it
There should has a CASH FLOW
always be cash PROBLEM.
available – so the
bath is never
empty!

If this is not the case the business needs

short-term finance to overcome this problem!

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

 Sources of Short-Term Finance
All commercial banks offer various methods of short-term
finance for businesses:
• Overdraft
• Short-term Loan
EXTERNAL SHORT-TERM
Other sources of Short-Term Finance: FINANCE

• Hire Purchase (External)

• Trade Credit (Internal)

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

External Short-term Finance
OVERDRAFT - The bank allows the business to draw more
money from their bank account than they actually have in
it.
Advantages Disadvantages

Very quick to arrange Only suitable for smaller

amounts
Only pay interest on amount overdrawn Has to be repaid within a short
amount of time
A good short term solution to a cash flow Interest or charges are paid
problem

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

 Continued…
SHORT-TERM LOAN – An amount of money is borrowed from
the bank, then repaid (with interest) over a set period of
time (0 – 3 years).

• Tends to be used to buy specific pieces of equipment or to

purchase a particular consignment of raw materials in order
to fulfil a contract

• Not a safety net in the way an overdraft is

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

Advantages
Easy and quick to set up
Small or Large amounts of
money can be borrowed
Structured repayment term
Disadvantages
Interest payable
If repayments cannot be kept
up, the business risks getting a
poor credit rating or being made
bankrupt

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

 Factors affecting bank’s decision to lend
Type of
Purpose of the
Product? Past Trading
Finance?
Record?

Current
Financial
Position? Business
Proposal?

Financial
Projections? Nature of the
Market/Sales
forecast?

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

INFLOWS AND OUTFLOWS

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT

Roles of Finance Manager

DEPARTMENT OF EDUCATION – BUREAU OF CURRICULUM DEVELOPMENT