1. Ch 13 Unit 4 Finance Cash Forecasts Household budgeting
Sources of Finance E.g Overdrafts to Mortages
Choosing a Finance option for a business
Household V Business

2. Budgeting (Use Excel spreadsheets)
If you run out of cash you can ‘t pay bills.
Therefore you need good credit control e.g discounts to get cash payments in on time. Sell shares assets or more sales. Spread your payments out E.g Insurance pay per month rather than all at once or use HP for buying fixed assets. Cut your expense costs, offer shares rather than dividends to shareholders.
Cut back on discretionary(Luxury) spending first.
Work overtime, rent a room out, buy cheaper non branded goods

3. Quests
Why is budgeting nb?

4. Three Sources of Finance
Short: Bank overdraft, Accrued expenses, Credit card, Factoring, Trade Credit
Medium: HP, Leasing(Renting), personal loan (5Yrs), Term Loan (Business 5 yrs).
Long Term: Mortgage, Savings, retained earnings, grants, Debentures and equity capital.
We ll examine some of the more difficult ones here and you read the rest in your books.

5. Quests
What are the three sources of finance and give examples??

6. Short term sources of finance
Accrued expenses are expense bills that you hold back on payment. E.g Don’t pay your telephone or electricity bill until its nearly cut off.
Factoring: Money that the business needs to get from customers is outsourced to another specialist business to chase up on your debts and they take a cut. E.G a bank take a 20% cut.
With recourse- our business must pay back the bank if our business customers still don’t pay up.
Without recourse means we don’t have to pay back the banks if our customers don’t pay up.
Trade Credit: Buy stock without cash now but pay later. E.g a lot of companies give their customers 30 days before payments are due.

7. Quests
Explain the three types of short term finances mentioned and e.gs?

8. Medium term sources of finance
Hire Purchase: You only own the item once the last installment has been paid. E.g a car can be repossessed by the car company up until last payment cos its not yours yet.
Leasing: Renting. You never own it. E.g Computers are quickly out of date so sometimes its better to rent them.
Terms. 5 yr business loans with tax deductible interest lower than HP and you need security to give them if you can’t pay loan back.

9. Quest HERE
Explain the three types of medium sources of finance and give e.g’s

10. Long Term sources of finance
Use your savings first as this is cheaper than paying interest.
Mortgage: Large loan over 35 yrs at 3.5% pay back.
Retained earnings: Reserves or profits from last year to reinvest.
Grants: interest free , no pay back but must adhere to conditions.
Debentures: Long term company loan. Tax deductible. Don’t loose control of your business like you would with selling equity(shares).
Equity: One share one vote and get paid dividends, less chance of bankruptcy, advertising share sales are costly.,

11. Quests
Explain LT finance and the adv and disadvantages of each type??

12. How to get a loan
Character: How long at a given address and jobs and what reputation have you.
Capacity: Earnings versus Costs.
Collarteral: value of assets. Balance sheet
Credit Rating: Online or magazines or references check.

13. Quest
Whats will the bank look at before giving loans?

14. How to choose which finance option
Cost – shop around for best APR’s
Purpose: Long term: Fixed assets , Medium: cars and computers. Short: Stock or holiday
Security: Weight up the risk of losing your premises
Tax implications: Interest is tax deductible whereas dividends are not. Tax relief on Mortgages.
Control: Selling shares/Equity you loose some control.

15. Questions
You own aerlingus but you need money to buy new aircraft. What are your best options and why?
Ur a small sales company and you need up to date computers? What option and why?
You want a holiday what option and why?

16. Household V Business Management
Common; Forecasting, both control (E.g run out of stock or food), communications (Instruct employees or children) Also externally to banks and revenue commissioners.
Different: Taxes, VAT returns, Manpower planning, professional management, making products and marketing them.

17. Quests
What s the difference and similarities of management finance for a home and a business??

18. What to do about Cashflow deficits
To increase cash:
Credit control, offer discounts for early payments
Sell investments to raise cash
Increase sales by sales or promotions
To reduce cash payments;
Spread payments out over longer period .E.g HP or leasing
Reduce expenses by changing suppliers
Offer free shares rather than more dividends