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David Stokes
Nicholas Wilson
Small Business Management and Entrepreneurship
Fifth Edition
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Lecture outline Financial needs of small businesses
Sources of funds
Control of financial resources
Financial lifecycle of a firm
Managing finance
Stocks
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Financial needsA small business needs finance in a variety of areas.
What does a small firm need money for?
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Permanent capital equity capital
Expansion and development
Innovation Refinancing
Working capital short term finance
Debtors/creditors gap
Seasonal fluctuations Bridging finance
Short lived assets
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Asset finance medium to long term finance
Plant and machinery
Equipment and furniture Building
Vehicles
International trade finance
Growth through international trading
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Sources of funds Internal finance
Personal savings
Friends and family External finance
Debt finance /overdraft bank lending
Personal interviews
Evaluation of risks Financial projections/ cash flows and ratios
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External equity finance
Other forms
Leasing
Hire purchase
Export finance
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Control of financial resources Market failure
Difficulty in making appropriate assessments of riskwhen possessing limited information
Finance gap
Unwillingness on the part of suppliers of finance tosupply it on the terms and conditions required by smallbusinesses
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Financial lifecycle of a firmStage Likely source of finance Financial issuesConception Personal investment Under capitalization
lack of track record whichhinder raising finance
Introduction Bank loans, overdraft Lack of Control of costsand information
Development Hire purchase, leasing Over t-trading, liquiditycrises
Growth Venture capital Equity gap, appropriateinformation systems
Maturity All sources Weakening return oninvestment
Decline Sale ofbusiness/liquidation
Finance withdrawn. Taxissues if business is sold
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Managing finance Cash flow, debtors and stocks
Debtors control
They absorb cash and increase funding requirements The longer debt is alive, the greater the risk of bad debt
The cost of chasing bad debt may be greater than theamount of money being pursued
Small firm may not have control system to identifyindividual debtor problem before they become critical
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Stocks Management of stocks
Excessive stocks represent poor investment for a smallfirms financial resources although running short ofstocks can be even more of a problem
Stock management is therefore about balance, and theoptimization of resources
Raw materials
Work in progress
Finished stock
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Liquid assets and current liabilities
Costs and pricing
Fixed costs Variable costs
Mark-up
Gross margin
Break-even analysis Discounting
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Thank you guys!! Thank you for bearing me for the whole semester
It was a pleasure teaching you this course
I really hope you have learned from this course whatwas meant to be taught
Wish all of you all the very best in your life andrespective professions.
I am just a call away if you need any help or assistanceat any phase of your life.
Good luck for your exams!!
Enjoy!
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