1. Financial management
Developing an understanding of the role
of financial planning within business
operation.

2. Business and resources
 Financial Resources of a business are the items
or inventory that a business can place a
monetary value to.
 Building and equipment
 Cash and capital
 Investments
 Patent, and human resources

3. Introduction and scope
 Finance refers to how a business pays for its operations.
 Cost is crucial businesses try to maximise profit, thus in
a competitive market minimising cost and maintaining
efficiency , quality is fundamental.
 Financial planning is crucial to the success of a business
from sourcing funds
tracking revenues
tracking expenses
 Financial planning allows informed decisions to be
made.

4. Importance and meaning
 Financial management is the planning, organising and
controlling the acquisition and use of financial resources
for the purpose of achieving organisational goals.
 Information needs to be prepared in such a way that
other departments can easily understand information so
decisions can be made.
 Such documents include;
Balance sheets
Profit and Loss Statements
Cash Flow statements
Budgets

5. Financial planning
Financial planning includes the following areas
 Investment planning
Evaluation of new or existing projects
Pay- back
Net – present value
 Finance planning
Decisions about borrowing, leverage
Mix of liabilities to Owner’s equity
 Risk planning
Various insurance strategies

6. The importance of financial management
 Businesses fail for a number of reasons:
 Lack of capital
 Too many long term assets
 Inadequate control of inventory and credit
 Cash flow and debt collection (accounts receivable)
 Lack of control over costs and sales affecting profits
 All involve management and control of financial
resources.

7. Objectives of financial management
 P.
 L.
 E.
 R.
 G.

8. The objectives are to maximise a business’s
 Profitability
 Liquidity
 Efficiency
 Return on capital
 Growth

9. Profitability
 The ability of an organisation to maximise profits
 Satisfies the basic goal of all business
 Satisfies the owner
 Sustains the business
 Businesses must monitor
 Revenues
 Pricing policy.. Costs/expenses
 Inventory levels
 Assets levels

10. Liquidity
 The ability of an organisation to pay its debts as they fall
due.
 Businesses require enough
cash flow to meet obligations
 Inventories must be able to
converted into cash quickly
 Predicting cash flows is vital
 A business must avoid cash short falls or under
performing funds.

11. Efficiency
 The ability of an organisation to manage its assets to
maximise profits requires:
 Efficient use of organisations assets
 Assets must be monitored. Including
 Inventories
 Cash
 Collection of accounts receivable

12. Return on Capital
 The amount returned to owners or shareholders as a %
of their capital contribution is vital. Owners expect a
return on their investment that matches or betters market
returns.
 Owner’s invest money CAPITAL
 Expect to receive a return FLOW
 Returns should make the investment worthwhile
 Must be able to compare other possible investments

13. Growth
 The ability of an organisation to increase its size in the
long term is another key goal of business.
 Maintain profit levels
 Develop assets to:
 Increase sales
 Increase profit
 Increase market share.

14. The planning cycle
Monitoring cash
flows
Determining financial
elements
Developing
budgets
Interpreting reports
Maintaining
Record systems
Planning financial
controls
Minimising risk
And losses
Addressing present
Financial position

15. Developing budgets
 Budgets provide information in quantitative terms (facts
and figures)
 Budgets can be drawn up to show
1. Cost of capital and expenses
2. Cash required for planned outlays
3. Cost of raw materials
4. Cost and number of labour hours
 For us financial budgets are important, these include
Revenue statements
Balance sheets
Cash flow statements

16. Revenue statement, statement of financial
performance
 Is a summary of the income earned and the expenses
incurred over a trading period.
 Revenue minus cost = profit …. The basis of the
statement
revenue
costs

17. Revenue statement continued
 Revenue statements must have a “header” detailing who
it is prepared for the operating time and the purpose of
the statement.
 Revenue statements are organised into
Revenue
Less Cost of goods
Equals Gross profit
Less other Expenses
Equals Net profit

18. Expenses
 Can be divided into three
key groups.
COGS or Cost of goods is shown
separately from expenses.
Selling Administrative financial
commission stationary Interest
payments
salaries Office salaries Lease
payments
wages rent dividends
delivery rates
insurance

19. Balance sheets
 Called a Statement of Financial position is used to keep
an eye on the levels of DEBT and EQUITY and compare
the financial position from one period to another.
 The key thing to note is that ASSETS must equal the
sum of all LIABILITES AND OWNERSHIP
 The simplest from of balance sheet is a T style
Name of Business and date prepared
Assets Liabilities
owners equity
header

20. Items in the Balance sheet
 Assets
Items of value in a business, officially divided into TWO key
categories
Current Assets cash
accounts receivable (credit sales)
stock or inventories
pre-paid expenses
Non – Current Assets machinery, and equipment
buildings
land
Intangible Assets trade marks
goodwill

21. liabilities
 Liabilities debts owed to other people. Again divided
into TWO key areas
Current liabilities accounts payable (credit owed)
loans
overdrafts
credit cards
Non – Current liabilities leases
mortgages
long term loans
retirement benefit funds

22. Owners equity
 What the owner contributes. This is called
capital. Owners equity is considered a liability
as the business is seen as obligated to the
owner.
 A = L + OE is the standard equation for the
balance sheet.

23. Cash flow statements
 Cash flow statements assess whether money
in flows match money out flows. In other
words “liquidity”
Cash inflows Cash outflows
Cash sales Payments for stock
Credit sales Payments for expenses
Other incomes payments for other
expenses
Timing of payments is vital for survival of a business