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David Stokes

Nicholas Wilson

Small Business Management and Entrepreneurship

Fifth Edition

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Lecture outline Financial needs of small businesses

Sources of funds

Control of financial resources

Financial lifecycle of a firm

Managing finance

Stocks

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

What does a small firm need money for?

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Permanent capital equity capital

Expansion and development

Innovation Refinancing

Working capital short term finance

Debtors/creditors gap

Seasonal fluctuations Bridging finance

Short lived assets

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Asset finance medium to long term finance

Plant and machinery

Equipment and furniture Building

Vehicles

International trade finance

Growth through international trading

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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

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External equity finance

Other forms

Leasing

Hire purchase

Export finance

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Control of financial resources Market failure

Difficulty in making appropriate assessments of riskwhen possessing limited information

Finance gap

Unwillingness on the part of suppliers of finance tosupply it on the terms and conditions required by smallbusinesses

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Financial lifecycle of a firmStage Likely source of finance Financial issuesConception Personal investment Under capitalization

lack of track record whichhinder raising finance

Introduction Bank loans, overdraft Lack of Control of costsand information

Development Hire purchase, leasing Over t-trading, liquiditycrises

Growth Venture capital Equity gap, appropriateinformation systems

Maturity All sources Weakening return oninvestment

Decline Sale ofbusiness/liquidation

Finance withdrawn. Taxissues if business is sold

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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 theamount of money being pursued

Small firm may not have control system to identifyindividual debtor problem before they become critical

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Stocks Management of stocks

Excessive stocks represent poor investment for a smallfirms financial resources although running short ofstocks can be even more of a problem

Stock management is therefore about balance, and theoptimization of resources

Raw materials

Work in progress

Finished stock

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Liquid assets and current liabilities

Costs and pricing

Fixed costs Variable costs

Mark-up

Gross margin

Break-even analysis Discounting

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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 whatwas meant to be taught

Wish all of you all the very best in your life andrespective professions.

I am just a call away if you need any help or assistanceat any phase of your life.

Good luck for your exams!!

Enjoy!