Chapter 10

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Financial Management
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q Financial capital or funds are essential

resources to the entrepreneur. These are the lifeblood of the enterprise. The entrepreneur needs money in starting his business. He also needs money in starting his business. He also needs money for the development and growth of his business. In many cases, small entrepreneurs have inadequate capital. Thus, it is important for them to be able to identify the sources of funds.
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 This Chapter presents topics such as

financing the enterprise and the need for financial management. In addition, developing the financial plan and evaluating the financial performance are explained.

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Financial Management Definition

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q It refers to activities that are concerned with

securing money and using it properly. The entrepreneur as financial manager needs to determine the best way to raise money. However, it is also important that the money should be used effectively in realizing the goals of the enterprise. Clearly, good financial management requires planning. managing money. This means it includes both individual skills and methods of getting and using financial resources.

q Basically, finance is the art and science of

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q To be an effective financial manager, a

good knowledge of economics is essential. started as a door to door salesman of shoes. Afterwards, he put up a shoe store on Rizal Avenue. He is now the owner of SM, a chain of department stores. Evidently, he knows how to use his financial resources.

q The good example of this Henry Sy, He

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Financing the Enterprise

q Many poor Filipinos wish they have seed

capital in order to put up their own micro businesses. In rural areas, some folks like to put up backyard poultry or piggery projects for individuals like to own a sari-sari store, a small bakery, a beauty parlor, or a small restaurant. But they have no funds to start their modest business.

q For the poor, cooperatives are the best

sources of funds with very minimal interest. Other good sources of seed capital are the 7/26/12 non-government organizations (NGOs) and

Cooperatives for Micro Business

q Successful Cooperatives have been responsible for the economic @ social

upliftment of poor people in all countries. In the Philippines, we have several successful cooperatives. One is the farmers cooperative in Tarlac organized by Ka Dante Buscayno. Another is the san Dionisio Credit Cooperative in

Paranaque. It started in July 1961 with 28 members and P380 capital. Today it is the biggest community credit cooperative in the country. It has 15,000 members(including special depositors) and p75 million assets.

q Many members of the credit cooperative in San Dionesio were able

to put up their micro businesses. Others were able to purchase tricycles. Before, they had paid boundaries. Many young people got their college and vocational education. All these benefits were made possible through the assistance of the San Dionisio Credit Cooperative.

q Even giant institution like PLDT, CB and SMC have Credit

cooperatives. 7/26/12 q Credit Cooperatives are effective in driving away usurers or the loan

Sources of Funds
q There are government @ non-government

organizations that extend both financial @ technical assistance to small entrepreneurs. We have PNB, DBP, @ LBP. They have their own programs for small @ medium-scale enterprises.

q For entrepreneurs who are not really poor,

they put up their business with their own funds. If these are not enough, they borrow from friends, relatives, and ultimately from financial institutions. In case of big firms, they 7/26/12shares of stock to the public. Or they sell

Here are some sources of funds:

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1.Short-term financing (one year or less)

a. Trade Credit b. Promissory Notes c. Unsecured Bank Loans d. Commercial paper

2.Long-term financing ( More than a year)

a. Loans b. Stock
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c.Bond

The Need For Financial Management

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q Next to people, money is the most

important resource of any business organization. Without money, there is no business at all. Money needs to start a business. Money is need to sustain activities like production @ marketing.

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Good Financial Management Can ensure the following:

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Financing priorities are

established in accordance with organizational objectives.

Spending is planned and

controlled in line with established priorities.

Adequate funding is available

when it is needed, now and in the future.

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Developing the Financial Plan

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