CHAPTER 8.

FINANCE IT: RAISING MONEY FOR YOUR - Business with inventory and large
BUSINESS enterprises are usual followers

A. WHERE TO GET THE MONEY

E. TECHNIQUES TO A HEALTHY CASH FLOW
Sources of capital
 internal – e.g. savings 1. Treating suppliers and sub contractors as partners –
 external – e.g. financial support from family and friends pay them on time, this enables them to get credit
terms and ensure gets the product quality.
Four options:
1. Bootstrapping - using whatever resources you have 2. Making extra effort to follow up collections – make a
on hand system that would make it easy for clients to meet
2. Friends and family their payables on time.
3. Banks
4. Customers and suppliers 3. Safeguarding integrity

4. Collect receivables as fast as you can – the usual

credit term is 30 days, but seven days is acceptable in
B. LEARNING FINANCIAL BASICS some businesses.

- putting a sound financial system in place to ensure 5.
that your business will be managed properly
- Having a foolproof recording system
- The mark of a good financial record is one where it 6.
shows clearly where the company’s money is being
spent-expenses-and where is it coming from, in the
form of revenues or earnings. 7.
- To make sure that all transactions are recorded, issue
invoices and official receipts for sales and collections, 8.
and record all purchases and other expenses
- Two ways to set up one’s own financial system:
 manual 9.
 automated
Pay creditors on due date not before – this will allow
you to use the money before it is due.
Weigh the advantages of paying creditors earlier in
exchange for discounts.
Give shorter credit terms to customers if possible.
Liquidate excess o. If you don’t need them now, sell
them.
If cash is short, sell equipment used for operations
and subcontract the job.

10. Maintain 1:1 ratio for payables and capitals – if you

have a debt of 10,000, your capital should be 10,000.
C. FINANCIAL STATEMENTS
When the ration becomes 2:1 you would have a
difficulty meeting the payments if collection were
1. Income statement (Financial Performance)
delayed.
- indicates your earnings, expenses, and any
gains or losses
11. Keep expenses low to meet cash needs monthly.
- a.k.a. Profit and Loss Statement
12. Buy inventory only as needed.
Components:
 Sales
 Cost of Goods Sold
CHAPTER 9. MANAGING SMALL BUSINESS RISK
 Gross Profit
 Operating expenses
Defining Risk
 Other income and expenses - Risk can be defined as the chance of something
 Net profit happening that will impact upon objectives
2. Balance Sheet (Financial Position)
- list of your assets, liabilities, and owner’s equity Types of Risk for Small Businesses
 Opportunity Based Risk - risk associated with not
Components: taking an opportunity and those associated with an
 Assets opportunity
 Liabilities
 Equity  Uncertainty based risk - associated with unexpected
events
3. Cash flows
- shows how much cash is coming in from
operations and other activities
 Hazard based risk - with a source of potential harm
- shows the sources and uses of cash within a
or with a potential to cause harm
certain period as money coming in and going out
o Physical
o Biological
o Ergonomic
o Psychological
D. ACCOUNTING BASICS

 Cash method
- transactions are recorded when money Managing the Risk
changes hands
- suited for small start up and no inventory 1. Opportunity based risk management
Opportunities associated with changing location include:
 Accrual method  Increase foot traffic
- transactions are recorded when they are  Increase sales
made  Joint marketing with the shopping center tenants
and participation in special events to raise profile
Risk associated with changing location:
 Increased competition
 Loss of regular customers
 Business damage to reputation in the local
community
 Significant increase in leasing and marketing cost
2. Uncertainty based risk management
 Disaster and emergency planning
 Planning to recover from a disaster
 Business continuity planning to ensure that the
business can continue can operate after a major
disruption
3. Hazard based risk management
 Eliminate – avoid whatever possible
 Substitute – whenever possible use alternative
methods or equipment
 Separate – separate whatever hazard from workers
wherever possible
 Re-design – change the work layout, process or
equipment
 Administer – change current work practices, train
staff
 Protect – consider all control options first and then
provide staff with protective equipment
Categories of Risk in Small Businesses
 Financial
includes cash flow, budgetary requirements, tax
obligations, creditor and debtor management,
remuneration and other general account management
concerns.
 Organisational
relates to the internal requirements of a business,
extending to the cultural, structural and people issues
associated with the effective operation of the business.
 Compliance /legal
includes compliance with legal requirements such as
legislation, regulations, standards, codes of practice and
contractual requirements. This category also extends to
compliance with additional ‘rules’ such as policies,
procedures or expectations, which may be set by
contracts, customers or the social environment
 Operational
covers the planning, operational activities, resources
(including people) and support required within the
operations of a business that result in the successful
development and delivery of a product or service
 Commercial
the risks associated with market placement, business
growth, diversification and commercial success. This
relates to the commercial viability of a product or service,
and extends through establishment to retention and then
growth of a customer base.
 Safety
safety of everyone associated with the business. This
extends from individual safety, to workplace safety, public
safety and to the safety and appropriateness of products
or services delivered by the business
 Strategic
planning, scoping and resourcing requirements for the
establishment, sustaining and/or growth of the business.
 Equipment
extends to the equipment utilised for the operations and
conduct of the business; includes the general operations
of the equipment, maintenance, appropriateness,
depreciation, safety and upgrade.
 Security
overall security of the business premises, assets and
people, and extends to security of information, intellectual
property, and technology
 Reputation
entails the threat to the reputation of the businesss due to
the conduct of the entity as a whole, the viability of product
or service, or the conduct of employees or other
individuals associated with the business
 Service delivery
delivery of services, including the quality and
appropriateness of service provided, or the manner in
which a product is delivered, including customer
interaction and after-sales service.
 Project
management of equipment, finances, resources,
technology, timeframes and people associated with the
management projects. It extends to internal operational
projects, projects relating to business development, and
external projects such as those undertaken for clients
 Stakeholder management
management of stakeholders, and includes identifying,
establishing and maintaining an appropriate relationship.
This includes both internal and external stakeholders
 Technology
implementation, management, maintenance and upgrades
associated with technology. This extends to recognizing
the need for and the cost benefit associated with
technology as part of a business development strategy
Integrating Risk Management in Small Business
 Business Planning
 Occupational Health and Safety
 Human Resources Management
 Compliance
 Financial management
 Client-customer relationship management
 Contract management
 Quality Assurance
Types of Insurance
 Property - insures against loss or damage to the
location of the business and its contents
 Casualty - against loss or damage to the business
 Liability - insures against liability legally imposed
upon your business because of the negligence of the
business or its employees
 Commercial Auto - coverage insures against
property damage to vehicles and damage caused to
others by those vehicles
 Worker’s Compensation - insure your employees
against on-the-job injuries
 Business interruption - insures against loss or
damage to the cash flow and profit of a
 business caused by the business being unable to
operate because of interruption
 Health - coverage benefit to your employees (and
you)
 Life and Disability - against the death or disability of
key employees