ACP- EU

Development
Minerals
Programme
DAY 2- Financial Management
Country–level Training on Enterprise Skills, Market Penetration Investment
Promotion and Value-addition in the Development Minerals Sector
ENHANCING
ENTREPRENEURIAL
SKILLS OF SMES
FINANCIAL MANAGEMENT

F
FINANCIAL PLANNING

It is no secret… you will not be

financially successful unless you are
able to manage your MONEY.
FINANCIAL MANAGEMENT
 Manage the flow of cash
 Do proper Budgeting
 Maintain proper and updated business records
 Pay yourself a salary for work done in the business
 The “profit "money left over after all your business expenses are
paid ) made in the business should be reinvested in the business.
FINANCIAL WORDS TO KNOW
EXPENSES
INCOME =
= MONEY GOING
MONEY INTO YOUR OUT OF YOUR
BUSINESS BUSINESS

Examples Examples
 Purchase of stock. raw materials
 Equity/Capital or ingredients
 Loan  Rent Payment
 Grant  Utilities
 Interest Earned  Salaries and wages
 Income/ Sales Revenue  Loan payment (interest + capital)
 Transportation Toll
 Office supplies- record books,
pens etc.
SETTING FINANCIAL GOALS
EXAMPLES
WHAT ARE FINANCIAL
GOALS?
A financial goal states:
what you plan to accomplish
what resources you'll need to make it happen
how much time you'll need to make it happen
how you plan to make your goal fit into your overall
budget and life
GOAL SETTING
Goals can be classified as:

 Short-term- less than 6months

 Medium-term- 6 – 12 months
 Long-term - more than a year

Tip: Short-term goals build upon each other to help you to achieve your
long-term goals.
 SMART GOALS
Our Goals must be SMART if we want to achieve them
Setting SMART Goals Using 5 Easy Steps
Step SMART Description
What exactly do you want to achieve? Answer who,
1 S Specific
what, where,, why, which.

You need to be able to track the progress and measure

2 M Measurable
the outcome. Answer how much or how many.

3 A Action-oriented Say what you are going to do. Describe the result.

Goals should be challenging but realistic. Develop

4 R Realistic
strategies to turn goals from optimistic to realistic.

Include a time limit. Answer the question “by when” do

5 T Time-based
you want to achieve your result?
 EXAMPLES
Let us examine these statements:
Statement 1: My goal is to save money to expand my business.
Statement 2: To raise 500,000 from loan to open a pastry shop in
Yallahs by May 20, 2018.
Statement 3: My goal is to sell 100 coconut cakes weekly
up to April 30, 2018.
Statement 4: To buy an industrial stove to increase my sales by
$150,000 by April 20, 2018
Statement 5: To increase production level by 150% (produce 250
coconut cakes) weekly beginning May 1, 2018.

In your opinion, which goal makes you more likely to succeed? Why?
 ACTIVITY 1:
SETTING SMART GOALS FOR MY
BUSINESS

 Setting Goals Worksheet

SAMPLE GOALS:
SMART GOAL SETTING
WORKSHEET
Goals
Target
Date:
Cost Estimate:
Amount Already
Saved/Paid:
Amount Needed/Month
to Reach Goal:

Short-term Goals:        

 Write your short term goal here. 

Medium-term Goals:
       

Write your medium term goal here. 

Long-term Goals:

Write your long term goal here. 

15
 SAMPLE GOALS
Target Date: Cost Estimate: Amount Already Amount Needed/Month to Reach
Short-term Saved/Paid: Goal:
Goals:

e.g. To buy 100 June, 2018 $15,000 $0 To save $5,000 by June 10, 2018 for
branded shirts the purpose of purchasing and
branding of Polo-shirts for business
promotions.

e.g. To buy an September 30, $60,000 $5,000 To purchase an industrial stove by

industrial 2018 September 30, 2018 by saving
stove $5,000 weekly beginning April 5.

16
 SAMPLE GOALS
Target Date: Cost Estimate: Amount Already Amount Needed/Month to
Medium-term Saved/Paid: Reach Goal:
Goals:

e.g. To hire new Starting $6,000 per week $0 To hire a baker at $6,000 weekly
production and August 2018 for salary by July 25 2018 for starting
sales staff August 5, 2018.

e.g. To Sell 1,000 November $40,000- raw $0 To increase production of cakes

cakes monthly 2015 materials by 50% (1000 cakes) monthly
  beginning November 01, 2015.

17
 SAMPLE GOALS
Target Date: Cost Estimate: Amount Already Amount Needed/Month to Reach
Long-term Saved/Paid: Goal:
Goals:

e.g. Acquire Starting June $30,000 monthly $0 Access a business loan of $100,000
commercial 2018 for rent by May 05 2018 for deposit and
kitchen space refurbishing of kitchen space.
for baking

e.g. Start by August 2018 $40,000- for $0 To invest 40, 000 from personal
production of production (raw savings as a loan to business to start
natural juices material and labels) natural juice production by August
04, 2018.

18
BUDGETING
What is a Budget?

A plan of expected income (money

coming in the business), and

expenditure (money going out of the

business)

20
IMPORTANCE OF A BUDGET
It will help you to:
 determine how much money you have,
 expected sources, and
 how you will use it,
 decide whether you have enough money to achieve your financial
goals.
 estimate future needs and plan profits
IMPORTANCE OF A BUDGET
Identify problems before they occur and make
changes to prevent those problems.

Estimate how much cash you will have left at the

end of a period (e.g. month) after paying your bills.
BUDGETING
EXERCISE

Let us prepare a two (2) months budget together.

1. Personal
2. Business

23
RECORDS MANAGEMENT

Record-keeping is a way of writing down

all transactions involving:
Money owed Money owed
to the by the
Business Business

25
 RECORDS MANAGEMENT

Record-keeping helps you to

Helps to track income and expenditures

know the profit and loss status for any specific period
of time;
obtain the information needed to plan (e.g.
production, inventory, sales, credit policy);
control the costs and expenses of the business;
Helps you to identify trends

26
 RECORDS MANAGEMENT
Record-keeping helps you to

monitor purchase and sales prices;

guarantee transparency (important if the business is run
by partners);
introduce accountability (vis-à-vis employees).
help demonstrate the financial viability of the
business when trying to obtain credit.

27
 QUESTIONS TO ASK
WHEN PREPARING YOUR
RECORDS
 What did I buy?  What did I sell?  What do I have in stock? (raw material)

 When did I buy it?  When did I sell it?  How much monies do I receive everyday
?
 How much did it cost?  How much did I
receive?  How much monies do I spend everyday?
BEST PRACTICES IN RECORDS MANAGEMENT

Go through your books once a week (preferably at the end of the

week) to do the following:

 Categorize your expenses

Mark invoices as paid by linking them to income receive
 Check to see who are your CREDITORS (who owes you), when payment is
due and the amount.
 Be sure to call and follow-up with them
 Check to see who are your DEBTORS (who the business owes)
BEST PRACTICES IN RECORDS MANAGEMENT

Reconcile your account(s) at the end of every month.

 Make sure that the remainder of your account matches what
is on your bank statement.
 Do not forget to pay yourself separately.
 Make sure that you have separate bank accounts for
personal and business
purposes.
TYPES OF RECORDS TO KEEP
There are a number of books that as
Entrepreneur you will have to keep.

Let us look at the main types of records.

MOST COMMON RECORDS
Record Books Purpose
Records the costs for goods or services that a customer
Quotation
express interest in.
Purchase Commitment placed by a customer for a good or service.
Order This can become binding in court.
Invoice Record the sales you make and credit terms
List the services/ goods sold …state description of good,
Delivery Note
quantity and condition
Proof of payment (by you for or by your customer for
Cash Receipt
goods or services)
Cash Book- Record your cash receipts & payments

Record the use of an agreed cash : allowance to the

Petty Cash business to pay for basic day to day business expenses.
32
MOST COMMON RECORDS
RECORD
RECORD

ISSUED BY
Quotatio n
RELATION TO OTHER RECORDS

SELLER
Purchase Order

Invoice

BUYER Purchases Ledger -All purchases &

Deliv ery Note

Purchases Book - Credit Purchases

Receipt

SELLER
Petty Cash

Cash Book
- Cash sales and purchases and other cash
SELLER paid expenses
- Bank column for Cheque

SELLER

Sales Ledger (All Sales)

&
BUYER Sales Book (Sales on credit) 33
 MOST COMMON RECORDS
 Hardcover Note Book: This can be used to support the other
record and may also be used to record the following:

 Inventory/ materials
 Sales on credit
 Debtors (People who you owe)
 Labour (e.g. time/ day/ activity records)

Note that if you did not receive a bill when you purchased goods or
when you took the bus or taxi to write down the details about the
transaction yourself.

You can use an exercise book to write down the information.

34
INVENTORY MANAGEMENT
INVENTORY MANAGEMENT

The Main Idea

 An entrepreneur’s main profit stems from the sale of inventory.

 He or she needs to keep careful control over this valuable asset.

 INVENTORY MANAGEMENT

Content Vocabulary
 financing cost  obsolescence cost
 opportunity cost  warehousing
 storage cost  lead time
 insurance cost  usage rate
 shrinkage cost  safety stock
INVENTORY MANAGEMENT

Inventory Management

When you keep too much inventory on hand, the cost of inventory can increase by as
much as 25 percent. Added costs include:

 financing
 opportunity
 Storage
 insurance
 shrinkage
 obsolescence
INVENTORY MANAGEMENT

Inventory Management

Financing cost on excess inventory can impact the prices businesses

charge customers.
financing cost
the cost of interest paid to borrow
money to purchase inventory
INVENTORY MANAGEMENT

Inventory Management

A business can incur opportunity cost and storage cost by keeping

too much inventory.

storage cost
the cost associated with renting
or buying space needed to store
inventory
INVENTORY MANAGEMENT

Inventory Management

A business with sound inventory procedures can reduce insurance

cost and shrinkage cost.
shrinkage cost
the cost associated with the loss of
inventory items that are broken,
damaged, spoiled, or stolen
INVENTORY MANAGEMENT

Inventory Management

A business must closely monitor inventory turnover rates in order to

control obsolescence cost on items that remain in inventory too long.

obsolescence cost
the cost associated with products or
materials that become obsolete while in
inventory
INVENTORY MANAGEMENT

Inventory Management

There are two steps involved in determining the amount of inventory you need:

1. Calculate the supply you need.

2. Calculate the inventory investment

INVENTORY MANAGEMENT

 Warehousing
Warehousing operations can occur in a dedicated structure or in an assigned
space within a structure.

warehousing
the act of holding and handling goods
in a warehouse
INVENTORY MANAGEMENT

Reordering
To maintain proper inventory levels,
you need to decide when and how
much to reorder.
 
The type of inventory you keep
determines which reordering system
is best for you:
Periodic reordering
Non-periodic reordering
INVENTORY MANAGEMENT

Reordering

Products or raw materials that are inexpensive, used often, and/or easy to get
should be reordered periodically.

A sandwich shop might restock bread daily.

INVENTORY MANAGEMENT

Reordering

Lead time must be considered for inventory that is suited to non-periodic

reordering

lead time
the gap in time between placing an
order and receiving delivery
INVENTORY MANAGEMENT

Reordering

When using a nonperiodic reordering system, inventory needs must be projected

so that usage rate can be calculated and safety stock is available.

safety stock
a cushion of products or materials that
prevents a business from running out
of inventory while waiting for an order
PREPARING BANKABLE BUSINESS DOCUMENTS FOR
FINANCING
BANKABLE DOCUMENTS
Why do we need them?
Generally required by financing entities in order to make the
financing decision:
 To whom the products / services will be sold, why and how
 How the products/services will be acquired/produced and delivered
to the market
 Financial summary and returns
 Risks involved and mitigating measures
BANKABLE DOCUMENTS
What's required?
1. Planning – a sound Business Plan
2. Financial Statements
3. Feasibility Study
4. Marketing Study
CYCLE:
FOR THE PROJECT
OWNER
Identification

Project preparation
/ Internal Checks

Preparation of
bankable document
• Identification of possible
financiers
• Sharing bankable document
with them
Negotations with
financiers

Implementation
 BUSINESS PLAN
PRIMARY PURPOSE of A BUSINESS PLAN

 Raise Capital
 A Road Map Setting Out The Policies And Actions Of The Enterprise Over
The
 Short Term
 Medium Term
 Long Term
ELEMENTS OF A BUSINESS
PLAN
I. Executive Summary
II. Information on Industry, Company and its Products
III. Market Research And Analysis
IV. Marketing Plan
V. Developmental Plans
VI. Manufacturing and Operations Plan
ELEMENTS OF A BUSINESS
PLAN
VII. Management Team
VIII. Economics of The Business/Financial Plan
IX. Schedule of Activities
X. Critical Risks and Assumptions
XI. Financing
XII. Appendix
 SOURCES OF FUNDING
Funding can come from several sources

 Investment or Personal Saving

 Grants

 Loans

 Retained Earnings (Profit)

FINANCIAL STATEMENTS
 FINANCIAL STATEMENTS
It is important to prepare several financial statements to give you a picture of what your business will look like
at startup and how much you will need to keep paying the bills while your business is growing. This will include:

 Start-up Cost Worksheet

 Sales Forecast
 Sources and use of funds statement
 Cash-flow Forecast
 Projected Income Statement (Profit and Loss statement)
 Projected Balance Sheet
 START-UP COST
 If you are starting a new business, then you will be required to calculate the total a mount
needed to start this venture. This should also include the cost for all raw material and labour. If
the business is an existing one and you are seeking funding you should also give a detailed listing
of how much money you will need and what the money will be used for.
 Source of funding may either be: Loans, Grants or Equity.

 Loans – These are sources of funding usually given by a bank or from a friend with repayment
terms and, in most cases, with interest.
 Grants - These are moneys that are given to an investor without repayment terms or interest. In
other words you don’t have to pay it back.
 Equity – This is money that you or you business partner will be putting into the business
START-UP COST SCHEDULE
Quantity Item Unit Cost Total Source of Funding

 2  Sewing Machines  $40,000  $80,000   Personal Savings

         

         

         

         

         

         
SALES FORECAST
 A sales forecast is an essential tool for managing a business of any size. It is a
month-by-month prediction of the level of sales you expect to achieve. Most
businesses draw up a sales forecast once a year.

 Though these are estimated figures, they must be based on the expected
result of the marketing strategy. The key is not to over-estimate, as this will set
you up for disappointment. Try to be as realistic as possible.
SALES FORECAST
Product /Service Mth 1 Mth 2 Mth 3 Mth 4 Mth 5 Mth 6 Total Sales

Skirts 15,000 15,000 15,000 18,000 18,000 18,000 99,000

Pants 18,000 18,000 18,000 24,000 24,000 24,000 126,000

               

Total Monthly Sales 33,000 33,000 33,000 42,000 42,000 42,000 225,000
 CASH FLOW
 Cash flow is a projection of how money (cash) will move in and out of your business

 Cash Inflow: This indicates the avenues from which money will come into the business

 Cash Outflow: This indicates how money will leave the business or flow out of the business

 The cash flow statement reports the cash generated and used during the time interval specified
in its heading. The period of time that the statement covers is chosen by the company.
CASH FLOW STATEMENT
 The cash flow statement reports the cash generated and used during the time
interval specified in its heading. The period of time that the statement covers is
chosen by the company.
INCOME STATEMENT
Have you ever gone to your money stash,
wherever it may be that you keep it, and thought
“Where did it all go???”
INCOME STATEMENT
 P & L measures the activity of a business over a period of time usually a
month, a quarter, or a year.
 This financial report may have several different names:
 Profit & Loss (P&L)
 Income Statement,
 Statement of Revenues and Expenses, or
 Operating Statement.

 The P&L shows the actual value of _____ for a specific period
 revenue,
 expenses,
 profit, and loss.
 INCOME STATEMENT
An income statement, otherwise known as a profit and loss statement, is a
summary of a company’s profit or loss over a given period of time, usually one
year. The income statement records all revenues for a business during this given
period, as well as the operating expenses for the business.
You use an income statement to:
 track revenues and expenses so that you can determine the operating performance of your
business over a period of time.
 find out what areas of their business are over budget or under budget.
 track dramatic increases in product returns or cost of goods sold as a percentage of sales.
 determine income tax liability.
 FORMAT FOR YOUR PROFIT AND LOSS STATEMENT
JANE SHAW
PROFIT AND LOSS STATEMENT FOR THE MONTHS OF JUNE & JULY 2014
 

  JUNE JULY

INCOME (J$)  
SALES - 320,000
TOTAL INCOME (J$) - 320,000
   

COGS  
Baby Chicks 30,000 30,000
Feed 110,000 110,000
Light 10,000 10,000
Water 3,000 3,000
Vitamins 6,000 6,000
Total COGS 159,000 159,000
GROSS PROFIT (159,000) 161,000
   

EXPENSES  
Rent (2 months deposit paid in month 1) 40,000 20,000
Transportation & Delivery 12,000 12,000
Salaries 22,000 22,000
Wages 20,000 20,000
Water Tank 10,000 -
Tarpaulin 10,000 -
Wages (Pickers) 12,000 12,000
Saw Dust 1,500 1,500
Loan - Interest only - 1,667
Other Expenses -
Total Expenses 127,500 89,167
NET PROFIT/LOSS (286,500) 71,833
69
 BALANCE SHEET
 A balance sheet is a snapshot of a business’ financial condition at a specific
moment in time, usually at the close of an accounting period. A balance sheet
comprises assets, liabilities, and owners’ or stockholders’ equity.
 A balance sheet helps a small business owner quickly get a handle on the
financial strength and capabilities of the business and answer questions such as:
 Is the business in a position to expand?
 Can the business easily handle the normal financial ebbs and flows of revenues
and expenses?
 Or should the business take immediate steps to bolster cash reserves?
MANAGING YOUR BUSINESS
BANK ACCOUNT
OPENING A BANK ACCOUNT
 Once you've chosen a name and registered your business, you will need to
open a commercial bank account.

 Setting up a business bank account is easy.

 Start by selecting the bank you want to work with--think small-business-

friendly--and call to arrange an appointment to open an account.
OPENING A BANK ACCOUNT
When you go, make sure you take :
 Personal identification
 TRN
 Proof of address
 At least 2 references
 Your business name registration papers and business license
 Proof of business income (if existing)
OPENING A BANK ACCOUNT
 The next step will be to deposit funds into your new account.

 If your credit is sound, also ask the bank to attach a line of credit to your
account, which can prove very useful when making purchases for the business
or during slow sales periods to cover overhead until business increases.

 Also be sure to ask about a credit card merchant account, debit account, and
other small business services.
MANAGING YOUR BANK
ACCOUNT
 Lodgments (completing your lodgment slips)
 Withdrawals (completing your withdrawal slips)
 Taxes
 Interest Income
 Bank reconciliation
 BANK RECONCILIATION
It is important that you reconcile or calculate if
there is any difference between your bank book/
your cash book and your bank statement.
BUSINESS ETHICS, CORPORATE & SOCIAL RESPONSIBILITY
BUSINESS ETHICS,
CORPORATE & SOCIAL
RESPONSIBILITY
"We Will Not Lie, Steal Or Cheat, Nor
Tolerate Among Us Anyone Who Does"

Which do you think is the harder part:

 Line 1 or Line 2?
 Why?
DEFINITIONS AND
RELATIONSHIPS
 Corporate social responsibility (CSR) is the process by which
businesses negotiate their role in society

 In the business world, ethics is the study of morally appropriate

behaviors and decisions, examining what "should be done”

 Although the two are linked in most firms, CSR activities are no
guarantee of ethical behavior
 ETHICAL
BEHAVIOUR
 What is ethical behaviour?
 How do ethical dilemmas complicate the workplace?
 How can high ethical standards be maintained?
 What is corporate social responsibility?
 WHAT IS ETHICAL
BEHAVIOUR?
 Ethics
 Moral standards, not governed by law, but which focus on the human
consequences of action

 Ethical Behaviour
 That which is accepted as ‘good’ and ‘right’ in the context of a governing
,oral code

 Values
 Broad beliefs about what is or is not acceptable behaviour
 WHAT IS ETHICAL
BEHAVIOUR?
Examples of Values

 Equality
 Honesty
 Fairness
 Responsibility
 Harmony
 ETHICS IN BUSINESS/THE
WORKPLACE

 What is an Ethical Dilemma?

 Situation that requires choosing a course of action

 Offers potential for personal and/or organizational gain
 One option may be considered unethical
 EXAMPLES OF ETHICAL
DILEMMAS

 Should I sign a forged (or otherwise false) document?

 Should I accept a gift from a client?

 Should I give special treatment to a friend or boss’ friend?

 Should I cheat the weight of my customer?

 Should I pay someone in the system to fast-track my transaction?

Concern for Ethical
and Societal Issues
Business Ethics
The standards of conduct and moral values governing actions and decisions in
the work environment.
 Social responsibility.
 Balance between what’s right and what’s profitable.
 Often no clear-cut choices.
 Often shaped by the organization’s ethical climate.

Sarbanes-Oxley Act
2002 law that added oversight for the nation’s major companies and a special
oversight board to regulate public accounting firms that audit the financial
records of these corporations.
 The Contemporary
Ethical Environment

• High profile investigations

and arrests in headlines.
• Vast majority of businesses
ethical.
• New corporate officers
charged with deterring
wrongdoing and ensuring
ethical standards.
Johnson & Johnson Website
 Individuals Make
A Difference
• Individuals can make the
difference in ethical expectations
and behavior
– Putting own interest ahead of the
organization
– Lying to employee
– Misrepresenting hours
– Safety violations
– Internet Abuse
• Technology is expanding
unethical behavior
Development of
Individual Ethics
 On-the-Job Ethical
Dilemmas

Telling the truth and

adhering to deeply felt
Situation in which a business ethical principles in
decision may be influenced business decisions.
for personal gain.

Businesspeople expect
employees to be loyal
Employee’s disclosure and truthful, but ethical
of illegal, immoral, or conflicts may arise.
unethical practices in
the organization.
CORPORATE SOCIAL
RESPONSIBILITY
Areas of Responsibility
 Responsibilities to
the General Public
• Public Health Issues. What to do about inherently dangerous
products such as alcohol, tobacco, vaccines, and steroids.
• Protecting the Environment. Using resources efficiently,
minimizing pollution.
• Recycling. Reprocessing used materials for reuse.
• Developing the Quality of the Workforce. Enhancing quality of
the overall workforce through education and diversity initiatives.
• Corporate Philanthropy. Cash contributions, donations of
equipment and products, and supporting the volunteer efforts of
company employees.
 Responsibilities to Customers

• The Right to Be Safe. Safe operation of products,

avoiding product liability.
• The Right to Be Informed. Avoiding false or misleading
advertising and providing effective customer service.
• The Right to Choose. Ability of consumers to choose
the products and services they want.
• The Right to Be Heard. Ability of consumers to
express legitimate complaints to the appropriate parties.
 Responsibilities to Employees

• Workplace Safety. Monitored by

Occupational Safety and Health Administration.
• Quality-of-Life Issues. Balancing work and family through
flexible work schedules, subsidized child care, and regulation
such as the Family and Medical Leave Act of 1993.
• Ensuring Equal Opportunity on the Job. Providing equal
opportunities to all employees without discrimination; many
aspects regulated by law.
• Age Discrimination. Age Discrimination in Employment Act of
1968 protects workers age 40 or older.
• Sexual Harassment and Sexism. Avoiding unwelcome actions
of a sexual nature; equal pay for equal work without regard to
gender.
 Responsibilities to Investors

• Obligation to make profits for shareholders.

• Expectation of ethical and moral behavior.
• Investors protected by regulation by the
Securities and Exchange Commission
and state regulations.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
ARGUMENTS AGAINST

 Restricts the free  Increase business

market goal of profit power
maximization  Limits the ability to
 Business is not compete in a global
equipped to handle marketplace
social activities
 Dilutes the primary
aim of business