2. The Importance of Understanding Finance The Parsley Patch! Problem? Solution? Outcome?

3. What is Financial Management? Responsibilities include –Buying merchandise on credit (accounts receivable) –Collecting payment from customers (accounts receivable) –Minimize taxes being paid

4. Financial Planning Short-term and Long-term Overall objective: –To optimize the firm’s profitability and make the best use of its money 3 major steps ForecastingBudgetingControlling

5. Estimate sales Estimate expenses Use past for projections Forecasting Financial Needs

6. Budget=financial plan Closely tied with forecasting Capital Budget Major asset purchases Cash Budget Monthly cash inflows/outflows Operating Budget MASTER BUDGET Ties together all other budgets Summarizes all proposed financial activities Working with the Budgeting Process

7. Compare revenue & expenses to estimates (budget) Identify variances Establishing Financial Controls

8. 1.Day-to-Day Needs Salaries, etc. Challenge? Meet needs / maximize profits by making use of investments

9. 2. Controlling Credit Operations Problem with selling on credit? Challenge? Efficient collections! Cash discounts for early pay Accept credit card payments

10. 3. Acquiring Needed Inventory Challenge? Sufficient inventory to meet demand Maintaining inventories = expensive JIT inventory control system

11. 4. Making Capital Expenditures Major Investments Land, Buildings, Equipment, etc. Evaluate appropriateness Ex: buy vs. rent

12. Alternative Sources of Funds ACQUIRING / MANAGING FUNDSFinance = ACQUIRING / MANAGING FUNDS Best source of funds for needed capital?  Equity Financing  Debt Financing  Retaining Earnings PG 494Short-term vs. Long-term financing PG 494 What is VENTURE CAPITAL? PG. 503What is VENTURE CAPITAL? PG. 503 Conditions for each? Pg. 502