Small Business Management - Week # 3 chapters 8,9
Week 3 on this blog covers chapters 8-14.
Chapters 8 & 9 -
Chapter 8 - Accounting records and Financial statements - BOY OH BOY !!!
When people think about accounting for a small business, there are two popular reactions: either they panic (like me !) or they fail to give it the importance it deserves. The first reaction - well, it's normal for those who failed math in high-school (again, like me, at least on the first two years of high school. I guess it was the shock caused by numbers or something...). The second one is a common mistake among small business owners.
Why is it so imporant?
Believe it or not, a small business owner can get alot of essential information by holding financial records. He/She can evaluate the financial health of a business about to be purchased. He/She can prevent mistakes and can make the right financial decisions according to financial history and financial forecasts.
The bottom line is that the accounting process helps you translate numbers (the language of business ) into plain English.
Are you planning to be a small business owner ? do yourself a favour and hire a professional accountant!
After this short lecture from someone who feels very intimidated by accounting and financing in general - here are this chapter's objectives:
Further to reading this chapter, we should be able to:
* Discuss the importance and uses of financial records to a small business.
*Itemize the accounting records needed for a small business.
*Explain the 11 ratios used to analyze financial statements.
*Illustrate the importance of and procedures for managing cash flow.
MONEY MONEY MONEY.... NOT SO FUNNY !
Cash flow has been described as the lifeblood of a business. In simple words cash flow is the net amount of money that is brought into a business including any non-cash expenses and after deducting operating costs. Cash flow is important because if you do not have enough money to operate your business - you will be out of business, as simple as that.
So what do you need?
The three primary financial records that are needed by small business owners are:
- Track record of prior business success – this will assist a business owner in showing investors that he is a competent manager.
- Financial statements that show a solid record of earning. Showing investors that investing their money in the business has low risks.
- Ability to make money to attract money – a business owner will have to show investors he can put personal capital into the business.
Once the business has been established, the business owner will have to have financial statements like a balance sheet, income statement and a statement of cash flow.
still don't get it ? (don't worry, you're not alone ! ) - check out this cool website for all kinds of accounting definitions
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Chapter 9 - Small Business Financing
So by now you must think: here's another posting from hell. Financing.
It's not that bad, actually.
Check out this chapter's objectives. You should be able to:
- Determine the financing needs of your business.
- Define basic financing terminology.
- Explain where to look for sources of funding.
Something you should know before starting your own small business:
Initial capital requirements is a process of determining the required financing for the purpose of opening a new business. It is composed of several stages / requirements:
1. listing a businesse's assets essential for its proper function
2. Determining the market value of each asset
3. Identify how much capital can an owner provide
4. subtracting the total of the owner provided funds from the total of the assets required.
Some personal thoughts.....
I hate standing in debt... If there's something that worries me and keeps me awake at night (for about 15 minutes, then I fall a sleep usually ;-) ) - it's credit card debts.
I guess banks don't like it too much either, but this is how they make their money - interests etc'.What if I was a small business owner ? will I have another choice ? and what about small businesses' suppliers? Why do they extend credit to clients ? why do they allow you, the small business owner, to stand in debt?
Well firstly, because they want to establish a relationship with you, the small business owner.
Having you stand in debt, or having them extend a line of credit - means you have established a relationship, a commitment. They also want your business. Want it ? they depend on it ! their existance depends on you, the small business manager. So why not encourage you to spend more or to make plans to spend more - by extending a line of credit ?
Not all businesses / suppliers will do that. You will have to prove you've got the Five C's of credit :
- Capacity – the applicant’s ability to pay a loan
- Capital – personal financial strength
- Collateral – Assets owned by the applicant that can serve as financial securities.
- Character – Applicant’s willingness to pay his debt
- Conditions – General factors that can effect a lender’s decision to grant a business owner with a loan, such as deteriorating political situation, economic recessions etc’
Check out this link for a more elaborate explanation about the Five C's of credit:
And check out this website for information about Debt financing
posted by Shirley Friedman at 8:29 AM
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