1. Marketing Principles
FINANCE FUNCTION

2. Marketing – Finance Function
Successful marketing provides a regular flow of revenue to pay for business operations.
Companies need to plan a budget for marketing programs that strengthen customer loyalty help to secure long-term revenue, while also funding product development programs to open new revenue streams.
Financing also plays a role in marketing success by offering customers alternative methods of payment, such as loans, extended credit terms or leasing.

3. Finance Terms in Marketing
Revenue- total amount of money the business receives from its customers for its products and services.
Expenses- the cost of operating a business
Net Income - what remains after expenses and taxes are subtracted from revenue. Sometimes referred to as net profit
Budget- calculating details about revenue and expenses to develop a plan
Cash Flow - the cash going in and out during a company's day-to-day operations
Finance Terms in Marketing

4. BASIC FINANCIAL EQUATION
Revenue – Expenses = Profit or Loss
Profit
Revenue is greater than expenses
Revenue > Expenses = Profit
Loss
Revenue is less than expenses
Revenue < Expenses = Loss
BASIC FINANCIAL EQUATION

5. How much $ do companies spend on marketing?
Marketing can be very expensive
Companies on average spend 11-12% of revenue on marketing budgets
Budgets vary depending on industry sector and the products/services the company sells

6. How much $ do companies spend on marketing?
Marketing activities affect the revenue of a company
Target markets and marketing mixes are studied to identify ways to increase revenue and control costs which result in increased profits for the company
Budgets vary depending on industry sector and the products/services the company sells
Information on the next slide shows the marketing spend in different industries and the revenue growth from the money spent on marketing activities

7. Examples – Tech Companies

8. Examples – SAAS Companies
Software as a service (SAAS) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. It is sometimes referred to as "on-demand software"

9. Examples – Manufacturing and Education

10. Additional Marketing Costs
Marketing costs also include capital expenses, operating costs and creating financial forecasts.
Capital Expenses – expense to create a benefit in the future
Buying machinery and other equipment
Operating Expenses -  required for the day-to-day functioning of a business
Wages, maintenance and repair of machinery, utilities, rent
Financial Forecast - estimates the amount of money you expect to flow in (receipts) and out (payments) of your business, including projected income and expenses.

11. Financial Record Keeping
Financial statements are reports about a business’s financial health and cash flows.
There are three basic statements:
Balance Sheet
Cash Flow Projection - also sometimes called a Cash Flow Statement
Profit and Loss Statement - also known as a P&L or Income Statement
Financial Record Keeping

12. Balance Sheet A snapshot of a business at a specific point in time
Lists Assets (on the left) and Liabilities or Debt (on the right)
The totals on both sides must be the same

13. Cash Flow What is cash flow? Two primary definitions:
Balance of cash received less the amount of cash paid out over a period of time
Moving cash in or out of a business
Cash Flow Projection
Company cash flowing in and out
Future cash flow during a specific time period
Project whether cash receipts (in flows) will be sufficient to cover projected cash disbursements (out flows).
Cash Flow

14. Why Do A Cash Flow Projection?
Set sales and expense goals
Determine breakeven point
Plan equipment purchases for replacement or expansion
Determine cash needed to purchase inventory for seasonal cycles
Track liquidity when accrual accounting masks cash realities.
Helps you determine the need for financing
Show lenders your ability to plan and repay financing. (Frequently required with loan applications.)

15. Cash Flow Projection Sample
Sources of Cash
Opening Balances*
Month 1
Month 2
Beginning Cash
Cash Sales
Collections on A/R
Interest income
Loan Received
Equity Contribution
Total Cash Available
Operating Uses of Cash
Contract labor
Wages
Payroll Taxes
Rent
Phone
Office Supplies
Utilities
Travel
Insurance
Licenses
Marketing
Professional Fees
Other
Total Op Uses
Net Cash
Non-Operating Uses of Cash
Debt Service
Equipment Purchases
Self Employment Taxes
Owner's Draw
Inventory Purchases
Ending Cash
Cash Flow Projection Sample
Sources of Cash
Operating Uses of Cash
Non-Operating Uses of Cash

16. Income Statement Revenue- Income, money coming in
Expenses- Cost of business, money going out
Net Income- Income after taxes (R>E)
Net Loss- Loss after taxes (R<E)

17. INCOME STATEMENT EXAMPLE

18. Financial Statements: Profit and Loss (P&L)
A Profit and Loss statement:
Measures revenues and expenses over a period of time
Tracks profitability: whether the business is making a profit on what it sells
Shows how successfully the buying and selling process has been managed
Measures the ability of your business to grow, repay debt service and support you
The P&L statement is the best tool for knowing if your business is profitable. A P&L statement measures revenue (also called sales or income) and expenses over a month, quarter or year. With it you know if you have made a profit (and how much) or if you have incurred a loss.

19. Financial Statements: Profit and Loss (P&L)
What is the basic formula for a Profit and Loss Statement?
+ Sales
Cost of Goods Sold
= Gross Profit
Overhead
= Net Profit
Net profit pays for:
Owner’s Draw (sole proprietor)
Future expansion and equipment
Principal loan repayment
Income taxes
+ Sales
– Cost of Goods Sold
= Gross Profit
– Overhead
= Net Profit
Sales (also called Income or Revenue): Total amount from selling your product or service that month or quarter.
Cost of Goods Sold: Total expenditure for inventory items which customers buy. Cost of Goods Sold consists of the cost of purchasing the items, freight, manufacturing costs, modification costs, and packaging. For services, this is the cost of providing the services, including labor, material used, and transportation.
Gross Profit: Sales less Cost of Goods Sold.
Overhead: Expenses associated with your ongoing business operation.
Net Profit: Gross Profit less Overhead.

20. Profit & Loss Statement (P&L)

21. Accepting Customer Payments
Businesses need to offer their customers options for making payments.
We can make payments in many ways
The method of payment used depends on:
– The item we are buying
– The cost of the item
– The methods of payment accepted by the seller
These options can include payment plans, using credit or debit card, online payments, checks, cash, money orders, cashiers checks, or automatic withdrawals
Accepting Customer Payments

22. Cash Payment using banknotes and coins Most common method of payment
Advantages
Widely accepted
Fast and convenient
Disadvantages
Cash can be lost or stolen when we carry it
Coins are heavy to carry around
Have to exchange currency when we visit another country
Cannot be used for online transactions

23. A cash value is stored in the card and payments are deducted from this value
Advantages
Convenient to carry around
Quick and easy to use
Disadvantages
Lost card can be used by anyone
Not all stores accept stored-value cards
Need to top up the card whenever the stored value runs low
Cash Value Card

24. Debit Card A card issued by the bank
The purchase amount is deducted immediately from bank account when we pay with debit card
Advantages
Convenient to carry around
Quick and easy to use
Disadvantages
Lost card can be used by anyone
May forget PIN to be able to use card

25. Checks Advantages Convenient and safe to carry around
Can be issued for any amount and is useful when paying for expensive items
Can be sent through the mail
Disadvantages
Signature on check can be forged
Some stores do not accept check
Banks impose a charge for check books
A written and signature- authorized payment slip
Issuing check = instructing the bank to deduct money from bank account to pay the person or company listed on the check

26. Electronic Transfer Payment using electronic means
Amount is deducted from bank account once transaction is approved
Advantages
Quick and easy to use
Payment can only be authorized by a Personal Identification Number (PIN)
Disadvantages
Cannot make payment if the amount in bank account is insufficient
May forget PIN and not be able to make payment
Electronic Transfer

27. Credit Card Advantages Convenient to carry around
Most credit cards can be used overseas
Can be used for online transactions
Disadvantages
Interest will be charged for late payment
May buy on impulse
Signature on the card can be forged if card gets stolen
There is usually a credit limit for each card
A form of borrowing which allows the buying of goods and services on credit
The card holder is usually billed once a month for the amount spent using the card

28. Installment Payments
Payment in parts or percentage over an agreed period of time
Used in the payment of expensive items such as cars, electrical appliances, furniture
Advantages
Need not make full payment at the time of purchase
Allows us to pay a manageable amount at regular intervals
Disadvantages
The total cost paid for the product can be higher than the original price due to the interest charged
For hire purchases, the item will be repossessed and extra costs such as termination fee may be charged if payment is not completed
For instalment purchases, there can be a late payment charge

29. Special electronic payment systems have been developed to pay for goods electronically on the Internet.
Credit cards account for 55 percent of online payments in the United States and about 50 percent of online purchases outside the United States.
Online credit card transactions are processed in much the same way that in-store purchases are, with the major differences being that online merchants never see the actual card being used, no card impression is taken, and no signature is available.
When disputes arise, the merchant faces the risk that the transaction may be disallowed and reversed, even though he has already shipped the goods or the user had downloaded a digital product.
Electronic Commerce

30. Electronic Commerce Payments Examples