g S m a l l

Ma n a g i n
F i n a n c e
Busin e s s
 Intro d u c t i o n
• Sources and application • Business operations
of funds are two of the are in full swing:
– Firms cannot afford to lose
most important the opportunity to make
concerns of the small profits because of the
business owner. shortage of funds to
sustain production efforts.
• Errors in decision
– (inversely) when funds or a
making regarding these part of it remains unused,
two concerns could put the profitability stature of
in jeopardy the the firm is diminished.
existence and survival – There is a need to manage
properly the finance.
of the firm.
 l a n ni ng
i al P
Financ
• Financial planning
become a requisite:
– Increase the chances
of reaping the financial
rewards expected from
the business.
 t a n c e o f
Im p or
P l a n n i n g
nanc i a l
Fi
• Provides the small • Decisions can be
business operator made in advance to
with a detailed minimize the risk of
approach to errors brought by
managing the making choices in the
financial activities of middle of operations
the firm. without the benefit of
careful analysis.
 in a n c i a l
h a t i s F
W g ?
Plann i n
• An activity that
• Involves an analysis involves:
of possible future – analyzing the financial
events and how flows of the firm as a
these events might whole;
affect the firm. – forecasting the
consequences of
various investments;
– Financing;
– Profit decisions;
– and weighing the
effects of various
alternatives.
 n c i n g
Fina
• The act or process or
an instance of raising
or providing funds.
 i n g – fo r
i a l P l a n n
Financ S ( C o n t.)
U S I N E S
B
SMALL
• It means knowing the • The preparation of a
profit objectives of the budget will satisfy
firm, identifying the most of the
sources and uses of requirements for
funds, and making financial planning in
decisions on various small business.
financing alternatives.
 a t i s a
Wh
G E T ?
BUD
• An estimate of the • Must be made with
income and the objective of
expenditures for a satisfying the target
future period of market, employees,
time, usually one and management
year. goals.
 B u d g e t
Step s i n
r a t i o n
Prepa
1) Build the foundation for
the budget. 2) Determine
• Project the best estimate of anticipated fixed cost;
the volume of products or
services (or both) expected
and the revenue that will be 3) Establish projected
received. non-operating income
• Divide the estimate into and costs.
monthly figures.
• Obtain an estimate of
monthly cost of sales or
rentals, product or service.
 d g e t ( fo r
e s o f B u
Ty p e s s )
l l B u s i n
Sma
• Cash budgets – for
all types of firms.
• Production budgets
– for small
manufacturing firms.
• Sales budgets – for
small service firms
 B u d g e t
C a s h
• A forecast of future • It contains the
cash receipts and following section:
cash disbursements 1) Total cash available;
over various 2) Cash
intervals of time. disbursements;
• Also referred to as 3) Cash excess of
CASH RECEIPTS deficiency;
and CASH
4) Financing; and
DISBURSEMENT
statement. 5) Cash balance
 C a s h
Total o n
b l e se c t i
Availa
• Identifies the
beginning cash
balance and the
expected cash
receipts.
 r s e m e n t
i s b u
Cash d
section
• List all cash outlays
for the period except
for interest payments
on short term loans.
 x c e ss o r
Cash e
y s e c t i o n
deficie n c
• Shown by
subtracting cash
available from cash
needs
 Se c t i o n
i n a n c i n g
F
• Shows the planned • CASH BALANCE
borrowings and – Is a result of cash
repayments including available plus
interest borrowings less cash
disbursements.
 r od u c t i o n
The P
Bu d g e t
• An estimate of the quality of
goods to be manufactured
during the budget period.
• It describes how many units
must be produced in order to
meet sales needs and satisfy
ending inventory requirements.
 B u d g e t
r od u c t i o n
P . )
(C o n t
• Production budget is the primary basis for
planning the following:
– RAW MATERIALS REQUIREMENTS;
– LABOR NEEDS
– CAPITAL ADDITIONS;
– FACTORY CASH REQUIREMENT;
– FACTORY COSTS
 a n d i se
Merch d g e t
e s B u
P urchas
• Retailing Firm
– The merchandise purchases budget is the
equivalent of the manufacturing firm’s
production budget.
– It identifies the quality of each item that
must be purchased for resale, the unit cost
of the items, and the total purchase cost.
 rc h a s e s
n di s e P u
Mercha ( co n t. )
Budget
• Merchandise Purchases Budget usually
includes the following:
1) Planning of sales
2) Stocks
3) Reductions
4) Markdowns
5) Employee discounts
6) Stock shortages
7) Purchases
8) Gross margin
 B u d g e t
Sal e s
• Sales budget that is applicable to service
firm identifies each service and its quality
that will be sold.
• The services produced are identical to
services sold.
 l e S a l e s
Sa m p
Bu d g e t
 An a l y s i s
i na nc i a l
F
• Financial health of the firm is the primary
concern of the small business operator.
• The firm can achieve its objective it if can
continue to supply with the necessary funds its
current and proposed activities.
• The SBO, however, is not helpless in
determining the financial condition of the firm.
• He can harness the proven practices of those
who employed financial analysis in their own
particular situations.
 n c i a l
Fina
m e n t s
State
• Major classes of financial statements that
provide major financial data about a small
business.
1) BALANCE SHEET
2) INCOME STATEMENT
3) STATEMENT OF CHANGES IN FINANCIAL
POSITION
 S H E E T
N C E
BALA
• It gives a financial profile of a business at
any given point, showing its assets,
liabilities, and net worth.
• Shows at a glance the financial health of a
firm
– The information becomes more relevant if
compared with the company’s balance sheets
of previous years.
 S H E E T
N C E
BALA . )
(c o n t
• ASSETS
– Current Assets
– Non-current Assets
• LIABILITIES
– Current Liabilities
– Non-current Liabilities
• CAPITAL

• ASSETS = LIABILITIES + CAPITAL

 SHE ET
N C E
BALA
(cont.)
• Current Assets
– cash
– Marketable securities; and
– all other assets that will be turned into cash
within a year, such as
• receivable
• inventory.
• Short-term investments
 SHE ET
N C E
BALA
(cont.)
• Non-current Assets
– Plant and equipment
– Assets that generally have a life of more than
one year.
– Long term investments
 SHE ET
N C E
BALA
(cont.)
• Current Liabilities
– Liabilities whose due dates (maturities) are
within a year
• Non-current Liabilities
– Are debts with maturities exceeding one year.
 Wo r t h
Net
• The residual amount after deducting total
liabilities from total assets.

• NET WORTH = TOTAL ASSETS –

TOTAL LIABILITIES
 a t e m e n t
come S t
In
• Shows the Revenue and Other income,
Expenses, and net Income for the small
business covering a period of time, usually
one year.
• Comparing it with previous pear’s income
statements will make the analysis more
meaningful.
 a t e m e n t
come S t
In
• Profit Measures
1) Gross Profit (Sales – cost of goods sold)
2) Operating Profit (gross Profit – operating
Expenses)
3) Profit before tax (Operating Profit + other
income, such as interest earned from
investing idle cash, minus interest expense
on borrowed funds); and
4) Net Profit (Profit before tax – tax laiability)
 An a l y s i s
i na nc i a l
F
• Process of interpreting the past, present,
and future financial condition of a firm.
• Requirements in making FINANCIAL
ANALYSIS.
1) Financial statements;
2) Break-even analysis; and
3) Financial ratio analysis.
 - e v e n
Break
An a l y s i s
• Useful tool in managing the finances of the
firm/company.
• Al calculation that determines at what
point in a business activity the total
revenue equals expenses.
• Above the break-even point, the business
will be making a profit; below it, the firm
will incur a loss.
 - e v e n
Break t .)
s i s ( c o n
Anal y
• Used to determine the following
information which are useful to the firm.
1) Sales in pesos for a period, resulting on a
zero net income.
2) Sales in pesos for a period, resulting in a
reasonably calculated (and desired) net
income; and
3) Sales in pesos for a period, resulting in a
maximum net income for capacity available.
 l at i n g th e
Ca l c u
K - E V E N
BR E A
1) Calculating the Break-even point in units:
BEPu = FC/SPu-VCu
2) Calculating the Break-even in Pesos
BEPpesos = FC/1-VCu/Spu
Where: SPu = Selling Price per unit
FC = Fixed Costs
VCu = Variable Cost per unit
 l at i n g th e
Ca l c u
K - E V E N
BR E A
Example1 : Given:
Price per unit of product = P50,000
Fixed costs = P3,500,000
Variable cost = P450,000
Unit Sold = 120
Variable cost per unit = P3,750
Solution:
1)BEPu = P3,500,000/50,000-3,750 = 75.67 units
2)BUPpesos = P3,500,000/1-3,750/ 50,000 =
P3,783,783.78
 l at i n g th e
Ca l c u
K - E V E N
BR E A
Example 2: Given:
Price per unit of product = P10,000
Fixed costs = P100,000
Variable cost = P300,000
Unit Sold = 100

Solution:
1)P100,000/1-3,000/ 10,000 = P142,857 UNITS
 y o u r
Show
sol u t i o n .

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