Chapter 1.

2: Relationship Finance

TOPIC 4: INTER RELATIONSHIP BETWEEN BUSINESS ORGANIZATION

Business Relationship
 relations between stakeholders in the business process, such as employer-
employee, the employer/employee and business partner, employer/employee-
outsourced employee relations

Business Relationship Management

 A formal approach to understanding, defining, and supporting inter-business
activities related to business networking.

 It consists of knowledge, skills, and behaviours (or competencies) that foster a

productive relationship between a service organization (e.g. Human Resource,
Information technology, a finance department, or an external provider) and their
business partners.

Why business relationship is important?

 To make profit, there must be sales & product or service.
 To create the product or develop a service, relationships are required with
suppliers and stakeholders.
 To sell the product, there needs to first be a relationship of trust built with the
customer.
 To manage the business, company leaders and managers must build a
relationship with their people based on trust, respect and understanding
 Our customers, our employees, our managers and leaders are all human.
 Humans are complex emotional beings.
 Everyone has different needs, desires, aspirations, values and expectations.
 Those who are able to discover and leverage these unique variables in individuals
build exceptional teams and successful companies.
 It takes building and managing ongoing relationships to unearth, develop and
maximise the talents of your staff, the desires of your customers and the
expectations of your stakeholders.

When you are focus on managing relationships,

 you are in an incredibly powerful position to get the best out of your staff
 get ahead of your competition in serving the needs of your customer
 gain cooperation you need from all stakeholders to achieve your business goal
TOPIC 5: SOURCES OF FINANCE & THE BANKING COMMUNITY

WHAT IS AN ACCOUNTING?
Accounting
 Recording, classifying, summarizing and interpreting of financial events and
transactions in to provide management and other interested parties the
information they need to make good decision.
Major Purpose of Accounting
 To help managers make well-informed decision
 To report financial information about the company to interested stakeholders
*Interested Stakeholders: employees, owners, creditors, suppliers, unions,
investors
And the government – make use of a firm’s accounting information

Accounting System

Inputs Accounting Processing Outputs Financial

Documents Statement
I. Entries are made into
 Sales Documents journals : recording  Balance Sheet
 Purchasing II. The effects of these  Income Statement
Documents journal entries are  Statement of cash
 Shipping Documents transferred or posted flows
 Payroll records into ledgers classifying  Other reports (e.g.
 Bank records III. All accounts are annual reports)
 Travel records summarized
 Entertainment records

Accounting Disciplines
 Managerial Accounting
 Financial Accounting
 Auditing
 Tax Accounting
 Governmental & Non-for-Profit Accounting

MANAGERIAL ACCOUNTING
 Provides information and analyses to managers inside the organization to assist
them in decision making
 Managerial accounting is involved with :-
costs of production
costs of marketing
preparation and control of budgets
minimizing tax liabilities
FINANCIAL ACCOUNTING
 Accounting information and analyses prepared for people outside the
organization.
 Accounts are summarized and transferred periodically to financial statements
which show the financial condition of the company (its profits or losses, its cash
position, how much it owes, etc.)
 Annual Report– A yearly statement of the financial condition, progress, and
expectations of the firm.
 Accounting period– The time which transactions which cause changes in assets,
liabilities and equity are recorded into accounts and summarized for reporting to
management and/or the public. E.g. one month, or one quarter or one year.

FINANCIAL STATEMENTS
 A summary of all the financial transactions that have occurred over a particular
period.
 Key Financial statements of business are:-
 Balance sheet
 Income statement
 Statement of cash flows

FINANCIAL STATEMENTS
INCOME STATEMENT
 Shows the income (sales or revenues) and expenses during the period and the
resulting net income after taxes
BALANCE SHEET
 Shows the financial condition (assets, liabilities and stockholder equity) of the
company at the end of each period
CASH FLOW STATEMENT
 Shows the net cash balance at the end of the quarter arising from the various
activities of the company during the period

FUNDAMENTAL ACCOUNTING EQUATION

 The basis for the Balance Sheet
 Equity -- Amounts paid in to buy an interest in the company, plus retained
earnings. Also known as Stockholders’ Equity
 The equation must always be balanced and includes the formula:
 Assets = Liabilities + Owners Equity

Type source of Financing

(a) DEBT FINANCING
 Debt financing involves borrowing money, generally in the form of a loan from a
bank or other financial institution or from commercial finance companies
Advantages for the debt financing
 The bank or lending institution has no say in the way you run your company and
does not have any ownership in your business
 Principles & interest are known figures you can plan in a budget (provided that
you do not take a variable rate loan)
 Loans can be short term or long term
 The interest on the loan is tax deductible
 The business relationship ends once the money is paid back

Disadvantages for the debt financing

 Money must pay back within a fixed amount of time
 If you rely too much on debt and have cash flow problems you will have trouble
paying the loan back
 If you carry too much debt, you will be seen as “high risk” by potential investors –
which will limit your ability to raise capital by equity financing in the future
 Debt financing can leave the business vulnerable during hard times when sales
take a drop
 Debt can make it difficult for a business to grow because of the high cost of
repaying the loan
 Assets of the business can be held as collateral to the leader. And the owner of
the company is often required to personally guarantee repayment of the loan.

(b) EQUITY FINANCING

 Equity financing come from personal savings, family, friends & partners.
 It is also involves bringing investors or partners who provide capital in exchange
for a share of ownership of the business

Advantages for the equity financing

 You tap into the investor’s network, which may add more credibility to your
business
 It is less risky than a loan because you don’t have to pay it back and it is a good
option if you can’t afford to take on debt
 Investors take a long-term view, and most don’t expect a return on their
investment
 You won’t have to channel profits into loan payment
 You will have more cash on hand for expanding the business
 There is no requirement to pay back the investment if the business fails

Disadvantages for the equity financing

 It may require returns that could be more than the rate you would pay for a bank
loan
 The investor will require some ownership of your company and a percentage of
the profits. You may not want to give up this kind of control.
 You will have to consult with investors before making big (or even routine)
decisions – and you may disagree with your investors.
 In the case of irreconcilable disagreements with investors, you may need to cash
your portion of the business and allow the investors to run the company without
you.
 It takes time and effort to find the right investor for your company
SOURCE OF FINANCING
INTERNAL RESOURCES (raised from within the organisation)
 Owner’s investment (start-up / additional capital)
 Retained profits
 Sale of stock
 Sale of fixed assets
 Debt Collection

EXTERNAL RESOURCES (raised from the organisation)

 Bank loan
 Additional Partners
 Share Issue
 Leasing
 Hire Purchase
 Government Grants

Key Accounting Terms

 Assets
 Liabilities
 Equity
 Profits
 Losses
 Dividends

Key Accounting Term – Assets

 Resources which the company owns and can use to generate profits (earnings).
Items can be tangible or intangible.
 Tangible assets: Current assets, property, plant, equipment, long-term
investments
Current Assets – Items that can or will be converted to cash within one year
Fixed Assets – Long-term assets that are relatively permanent such as land,
buildings or equipment
 Intangible assets: Patents, copyright, trademarks, franchise licenses.

WHAT IS A TRADE MARK?

 A trade mark is a sign which distinguishes the goods and services of one trader
from those of another. A mark includes words, logos, pictures, names, letters,
numbers or a combination of these.
 A trade mark is used as a marketing tool to enable customers in recognizing the
product of a particular trader. 

FUNCTIONS OF TRADE MARK

 Origin Function - A trade mark helps to identify the source and those responsible
for the products and services sold in the market.   
 Choice Function - A trade mark enables consumers to choose goods and services
with ease while shopping.   
 Quality Function - Consumers choose a particular trade mark for its known
quality.  
  Marketing Function - Trademarks play an important role in advertising. Its normal
for consumers to make purchases based on continuous influence of advertising.   
 Economic Function - Established trade mark is a valuable asset. Trade marks
may be licensed or franchised.

Key Accounting Term – Liabilities

 Liabilities: What the business owes to others – its debts.
 Accounts Payable: Current liabilities a firm owes for merchandise or services
purchased on credit.
 Notes Payable – Short or long-term liabilities a business to pay by a certain date.
 Bonds Payable – Long-term liabilities that the firm must pay back

OWNERS’ EQUITY ACCOUNTS

 Owner’s Equity – The amount of the business that belongs to the owners minus
any liabilities of the owners
 Retained Earnings – Accumulated earnings from the firm’s profitable operations
that are reinvested in the business

Key Accounting Terms

 Profits for a company are all income or revenues minus all expenses
 Losses occur when expenses exceed income
 Owner’s interest in a company is the amount of the company that the owner has
title to or owns
 Dividends are cash paid to the owners as a reward for investing in the company