Module 5 - Managing the Small Business Finance.docx -...

TOPIC 1: FINANCIAL PLANNING FOR SMALL BUSINESS
TOPIC 2: WHAT IS A BUDGET
Sources and application are two of the most important concerns of the small
business owner. Error in decision-making regarding these two concerns could put the
jeopardy the existence and survival of the firm.
Importance of Financial Planning
Financial planning provides the small business operator with a detailed approach
to managing the financial activities of the firm. Decisions can be made in advance, thus
minimizing the risk of errors brought by making choices in the middle of operations
without the benefit of careful analysis.
What is Financial Planning
Financial planning involves an analysis of possible future events and how these
events might affect the firm. It is an activity that involves analyzing the financial flows of
the firm as a whole, forecasting the consequences of various investments, financing,
profit decisions, and weighing the effects of various alternatives.
For the small firm, financial planning will mean knowing the profit objectives of
the firm, identifying the sources and uses of funds, and making decisions on various
financing alternatives. The preparation of a budget will satisfy most of the requirements
for financial planning in small business.
A budget is an estimate of the income and expenditures for a future period of
time, usually one year. A budget must be made with the objective of satisfying the
target market, employees, and management goals.
Steps in Budget Preparation
1. Build the foundation for the budget.
Module 5
Managing the Small Business
Finance
TOPICS
Financial Planning for Small Business
What Budget
Types of Budget Applicable to Small Business
Financial Analysis
Sources of Financing
LEARNING OUTCOMES
At the end of the lesson, you should be able to:
apply the guidelines in starting up business; and
discuss the functions of a financial manager, uses and sources of funds, the rules of
sound financing and financial record keeping.
1

TOPIC 3: TYPES OF BUDGET APPLICABLE TO SMALL BUSINESS
a. Project the best estimate of the volume products and services (or both) expected
and the revenue that will be received.
b. Divide the estimate into monthly figures.
c. Obtain an estimate of monthly cost of sales or rentals, by product or service.
2. Determine anticipated fixed cost.
3. Establish projected non-operating income and costs.
Listed below are the type of budgets and the type of business they are most
applicable to:
1. Cash budgets – for all types of forms;
2. Production budgets – for small manufacturing firms; and
3. Sales budgets – for small service firms.
The Cash Budget
A cash budget is a forecast of a future cash receipts and cash disbursements
over various intervals of time. It is also alternately referred to as cash receipts and cash
disbursement statement.