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WHAT IS
BUSINESS
FINANCE
 Finance is about managing your money —
knowing what’s coming in and going out. Check
out the jargon:
B is for budget, C is for cash flow.
A big part of managing your finances is having visibility of what’s
going on in your business, whether you’re a sole trader, or in a
partnership or a corporation company.  The key tools and reports
to manage your finances are:

CASH FLOW
- is the money coming in and going out of your business and
how much of the money sitting in your bank account is
yours to spend. A healthy cash flow is having enough money
to pay what you owe when it’s due.
2. BUDGET

- A budget is an estimate of your income and spending over a

period. It helps you think ahead and plan your spending to get
to where you want to go.
 PROFIT AND LOSS
STATEMENT
Your profit and loss statement is an
accounting report that shows your income
and expenses — and whether you made a
profit or loss — over the financial year. It
may also be known as the income statement.
 BALANCE SHEET
The balance sheet is an accounting
report that shows what you own and
what you owe at the time of the report.
It’s known as the ‘snapshot’ of your
business’s financial position.
Why manage
your business
finances???
BY STAYING ON TOP OF YOUR
FINANCES YOU CAN:
• understand how your business is performing
• make informed decisions about your spending
• make sure you have enough money in the bank to pay the
people you need to, when you need to
• stay on top of your tax payments
• provide accurate information to get investment or a business
loan
• set and achieve key business milestones — like expanding into
new areas, or hiring someone new.
TIPS TO MANAGE YOUR
FINANCES:
• Keep accurate records and check them regularly
• Use a separate business bank account to keep a clear
record of the money coming in and going out of your
business
• Put aside a portion of your income into a savings account
to cover your taxes.
• Set a budget and compare how you’re actually going
against the budget every month to make sure you’re on
track.
 AVOID THESE COMMON MISTAKES TO
KEEP YOUR BUSINESS FINANCES ON
TRACK:
• Not having access to records that can help you
understand your finances.
• Spending the money in your bank account, not
realizing it's needed to cover bills.
• Not putting away money as you go to cover your
taxes.
• Invoicing late, and not chasing up debtors — this
has a huge impact on your cash flow.
QUESTION # 1

WHAT SHOULD BE THE

MOST IMPORTANT GOAL
OF A COMPANY?WHY?
QUESTION # 2

WHAT IS THE IMPORTANT

REASONS WHY THE BOARD OF
DIRECTORS IS THE HIGHEST
POLICY-MAKING BODY IN A
CORPORATION?
QUESTION # 3

WHY DO WE NEED TO STUDY

INCOME STATEMENT, BALANCE
SHEET AND CASH FLOW
STATEMENT IN FINANCING
SYSTEM?
THE FINANCIAL
SYSTEM
THE FINANCIAL SYSTEM

The financial system is the

process by which money flows
from savers to users.
 UNDERSTANDING THE
FINANCIAL SYSTEM

Financial System
• Savers
• Users
• Financial Institutions

• Savings is a function of many variables.

• Funds can be transferred between users and savers

UNDERSTANDING STOCK
MARKETS

Stock market
(exchange) – market in
which common stocks
are traded, such as the
New York Stock
Exchange.
FI N AN C IA L
I T U T I ONS
INST

Commercial Banks

Savings Banks and Credit

Unions

Non-depository Institutions
 IC B A NK I NG
EL EC T RO N

An increasing amount of funds move through electronic funds

transfer (EFTs).
Millions of businesses and consumers now pay bills and
receive payments electronically.
Most employees directly deposit employee paychecks.
Social security and other federal payments are made each year
electronically.
Automated Teller Machines (ATMs) continue to grow in
popularity.
More than 1/3 of American households use some online
banking.
FEDERAL DEPOSIT INSURANCE

• Restore public confidence in the banking system

• Before deposit insurance, runs were common as

people rushed to withdraw their money from the
bank

• Deposit insurance shifts the risk of bank failures

from individuals to the FDIC
 SAVINGS BANKS AND CREDIT
UNIONS
• Offer a variety of consumer services

• 85% of their loans are real estate loans

• Credit unions are cooperative financial institutions

that are owned by depositors/members.

• Credit unions are created to serve consumers.

NON DEPOSITORY FINANCIAL
INSTITUTIONS


Insurance
Insurance Companies
Companies

Pension
Pension Funds
Funds

Finance
Finance Companies
Companies
 KEY COMPONENTS OF THE
FINANCIAL
1.FINANCIAL ASSETSSYSTEM
An asset is anything of value owned
by a person or a firm.
A financial asset is an asset that
represents a claim on someone else
for a payment.
2.FINANCIAL INSTITUTIONS
 ONE KEY COMPONENT OF
FINANCIAL ASSETS INCLUDES
• A securitySECURITIES.
is a financial asset that
can be bought and sold in a
financial market.
• Financial markets are places or
channels for buying or selling
stocks, bonds, and other securities.
 FIVE KEY CATEGORIES OF FINANCIAL ASSETS:

1.Money

2.Stocks

3.Bonds

4.Foreign exchange

5.Securitized loans
MONEY

• Money is anything that is generally

accepted in payment for goods and
services or to pay off debts.
• The money supply is the total
quantity of money in the economy
STOCKS

• Stocks are financial securities that represent

partial ownership of a firm; also called
equities.
• Dividends are payments that a corporation
makes to its shareholders after keeping some
of its profits.
BONDS

• A bond is a financial security issued

by a corporation or a government
that represents a promise to repay a
fixed amount of money.
• The interest rate is the cost of
borrowing funds (or the payment for
lending funds), usually expressed as
FOREIGN EXCHANGE

• Foreign exchange refers to units of

foreign currency.
• To buy foreign goods and services or
foreign assets, a domestic business or a
domestic investor must first exchange
domestic currency for foreign
currency.
•
 Nonbank Financial Intermediaries

Savings and loans, savings banks, and credit unions are nonbank financial
intermediaries that also take in deposits and make loans, but they are legally
distinct from banks.

• Investment Banks
Investment banks assist firms in underwriting stocks and bonds. Examples are
Goldman Sachs and Morgan Stanley.

• Insurance companies

Insurance companies collect premiums from customers and then invest the
premiums to obtain the funds necessary to pay claims and other costs.

• Pension funds
Pension funds collect contributions from workers and firms and make benefit
payments during workers’ retirements.

Key Components of the Financial System

THE FEDERAL RESERVE AND OTHER FINANCIAL
REGULATORS

Federal agencies that regulate the financial system:

• Securities and Exchange Commission (SEC)
– regulates financial markets
• The Federal Deposit Insurance Corporation (FDIC)
– insures deposits in banks
• Office of the Comptroller of the Currency
– regulates federally chartered banks
• The Federal Reserve System
– the central bank of the United States

Key Components of the Financial System

QUESTION #1

•Explain why the same

company can be a saver
and a user of funds.
QUESTION #2

•Explain the role

of the banks in
the financial
QUESTION #2

•What is the role of

financial intermediaries
in the financial system?