Module 8: Financial management/ accounting-funds, fixed capital and working

capital, coasting and pricing, long term planning and short-term planning, book
keeping, journal, ledger, subsidiary books, annual financial statement, taxation. (4
classes)
PPT 1 Topic
PPT2 Content
PPT3 Financial Management
Introduction-
Introduction to Financial Management for Young Entrepreneurs
As a young entrepreneur, understanding financial management is crucial for the
success of your business. Financial management involves the planning, organizing,
controlling, and monitoring of your business's financial resources. Proper financial
management can help you make informed decisions, ensure sustainability, and
achieve your business goals.
8.1 Financial management/ accounting-funds-
Here's an overview to get you started:
**1. Financial Planning:
Set Clear Goals: Define your short-term and long-term business goals. This will
guide your financial decisions and strategies.
Budgeting: Create a detailed budget outlining your projected income and expenses.
This helps you allocate resources effectively and avoid overspending.
Cash Flow Forecasting: Predict your cash inflows and outflows to ensure you have
enough liquidity to cover operational needs.
**2. Managing Expenses:
Control Costs: Monitor your expenses regularly and identify areas where you can cut
unnecessary costs.
Prioritize Spending: Allocate resources to critical areas like production, marketing,
and research while minimizing non-essential expenses.
**3. Revenue Generation:
Pricing Strategy: Determine how much to charge for your products or services,
considering factors like production costs, competition, and perceived value.
Sales Forecasting: Estimate your future sales based on market trends, historical
data, and other relevant factors.
**4. Funding and Capital:
Self-Financing: Use personal savings or contributions from family and friends to fund
your business initially.
External Financing: Explore options like angel investors, venture capital, or loans
from financial institutions to secure additional capital.
**5. Financial Recordkeeping:
Accurate Bookkeeping: Maintain organized records of all financial transactions,
including income, expenses, and taxes.
Accounting Software: Consider using accounting software to streamline
recordkeeping and generate financial reports.
**6. Risk Management:
Emergency Fund: Set aside funds for unexpected expenses or downturns in your
business.
Insurance: Assess the need for business insurance to protect against potential risks.
**7. Financial Analysis:
Financial Ratios: Calculate and analyze ratios like profitability, liquidity, and solvency
to assess your business's financial health.
Break-Even Analysis: Determine the point at which your total revenue equals your
total costs, helping you understand when your business becomes profitable.
**8. Long-Term Sustainability:
Reinvestment: Allocate a portion of profits for business growth, research, and
development.
Debt Management: If you have loans, manage repayments to avoid excessive debt
burdens.
**9. Regular Evaluation:
Review your financial statements and reports regularly to track your progress and
identify areas for improvement.
**10. Seek Professional Advice:
Consider consulting with financial advisors or accountants for expert guidance on
complex financial matters.
Remember, financial management is an ongoing process. As your business
evolves, so will your financial strategies. Developing strong financial
management skills early on can significantly contribute to your business's
success and your growth as an entrepreneur.
PPT- 4 FIX/WORKING CAPITAL
8.2-Fixed Capital and Working Capital-
Fixed capital and working capital are two important concepts in the field of business
finance that refer to different types of assets a company possesses to support its
operations. They play distinct roles in a company's financial health and operations.
Fixed Capital: Fixed capital, also known as long-term capital or permanent capital,
refers to the assets that a business invests in for the purpose of generating income
over an extended period. These assets are used in the production process and are
not intended for immediate resale.
Fixed capital includes items like land, buildings, machinery, equipment, vehicles, and
other long-lasting assets that have a relatively long lifespan.
These assets are considered fixed because they are not easily converted into cash
without disrupting the company's operations. Fixed capital investments are crucial for
a company's long-term growth and profitability, as they contribute to the company's
production capacity and efficiency.
Working Capital: Working capital, on the other hand, refers to the short-term assets
and liabilities that a business needs to operate on a day-to-day basis. It's the
difference between a company's current assets (like cash, accounts receivable, and
inventory) and its current liabilities (like accounts payable and short-term debts).
Working capital is a measure of a company's operational liquidity – its ability to meet
short-term financial obligations and continue its daily operations without interruption.
Having a healthy working capital is essential for a business to manage its daily
expenses, pay suppliers, cover operational costs, and handle unforeseen financial
needs. Insufficient working capital can lead to cash flow problems and hinder a
company's ability to function effectively.
In summary, fixed capital represents the long-term assets a company invests
in to support its overall operations and growth, while working capital reflects
the short-term liquidity required to keep the business running smoothly on a
day-to-day basis. Both fixed capital and working capital are vital components
of a company's financial structure and are closely monitored by financial
managers to ensure the company's financial stability and success.
PPT 5- Coasting and Pricing
8.3- Coasting and Pricing, -
Coasting and pricing are important concepts in business that pertain to
understanding costs and setting prices for products or services.
Let's break down each concept and provide an example:
1. Costing: Costing involves calculating the total expenses incurred in producing a
product or delivering a service. This includes both direct costs (materials, labour,
etc.) and indirect costs (overhead expenses like rent, utilities, administrative salaries,
etc.).
Example:
Costing for a Handmade Jewellery Business Imagine you run a handmade jewellery
business. For a specific necklace, the costing might break down as follows:
Materials (beads, wire, clasp): 10
Labor (time spent crafting the necklace): 5
Overhead (rent, utilities, packaging materials): 3
Total Cost: 10 + 5 + 3 = 18
2. Pricing: Pricing involves determining the selling price of a product or service
based on the costs incurred, desired profit margin, market demand, and competition.
Example: Pricing for the Handmade Jewellery Necklace Now that you have the
costing information, you need to decide on a pricing strategy. Let's say you want to
maintain a 40% profit margin on each item.
Desired Profit Margin (40% of Rs18): 7.20
Selling Price: Cost (18) + Desired Profit Margin (7.20) = 25.20
In this example, you would set the selling price of the handmade jewellery necklace
at 25.20 to achieve the desired profit margin.
It's important to note that businesses often employ different pricing strategies based
on various factors, such as market competition, perceived value by customers, and
elasticity of demand. Some businesses might choose to set prices higher than the
calculated cost-plus-profit approach, especially if their products are unique or hold a
premium position in the market.
Ultimately, accurate costing and effective pricing strategies play a crucial role in
determining the profitability and sustainability of a business. They help ensure that
the business covers its expenses while generating a reasonable profit.
PPT 6- Long/Short term plan
8.4-Long term planning and Short-term planning-
A business' plan needs to incorporate both long-term and short-term planning
because these two types of planning serve different purposes and help the business
achieve its goals effectively. Here's why both are important and the factors to
consider while planning:
1. Long-Term Planning: Long-term planning involves setting goals and strategies
that span over several years, typically three to five years or even more. It provides a
roadmap for the overall direction of the business and ensures that the company is
working towards its vision and mission. Here's why long-term planning is crucial:
Vision and Goals: Long-term planning helps define the company's vision and
establishes clear, overarching goals that guide the business's growth and
development.
Resource Allocation: It assists in allocating resources, such as finances, personnel,
and technology, in a way that supports the business's long-term objectives.
Risk Management: Long-term planning allows for a better assessment of potential
risks and challenges the business might face, enabling proactive risk management
strategies.
Strategic Decision-Making: It facilitates strategic decision-making by providing a
foundation for making choices that align with the company's long-term direction.
Factors to Consider in Long-Term Planning:
Market Trends: Understand the industry trends and anticipate changes that might
impact the business's long-term viability.
Competitive Landscape: Analyse competitors' strategies and assess how the
business can position itself effectively.
Technology and Innovation: Consider how technological advancements and
innovation can shape the business's long-term competitiveness.
Financial Projections: Develop realistic financial projections that take into account
potential growth, investments, and revenue targets.
2. Short-Term Planning: Short-term planning focuses on the immediate future,
typically covering a time frame of one year or less. It breaks down the long-term
goals into actionable steps and ensures day-to-day operations run smoothly. Here's
why short-term planning is important:
Execution: Short-term plans provide a clear roadmap for executing the tasks
required to achieve the long-term goals.
Adaptability: It allows the business to adapt to changing market conditions and make
quick adjustments to strategies as needed.
Resource Management: Short-term planning helps allocate resources efficiently for
short-term goals and projects.
Performance Evaluation: It provides a basis for evaluating the company's
performance against short-term targets.
Factors to Consider in Short-Term Planning:
Operational Efficiency: Ensure that daily operations are streamlined and optimized
for maximum efficiency.
Tactical Decision-Making: Make decisions that support the immediate goals and
respond to current market conditions.
Resource Allocation: Allocate resources effectively to meet short-term demands
without compromising long-term objectives.
Measurable Objectives: Set specific, measurable, achievable, relevant, and time-
bound (SMART) objectives for the short term.
Balancing Long-Term and Short-Term Planning:
Balancing both long-term and short-term planning requires aligning short-term
actions with long-term objectives. Consider the following tips:
Alignment: Ensure that short-term goals are aligned with the overall long-term
strategy.
Flexibility: Maintain flexibility in short-term plans to adapt to unforeseen changes
without deviating from long-term goals.
Communication: Foster open communication between departments to ensure
everyone understands how their efforts contribute to the big picture.
Regular Review: Regularly review and update both long-term and short-term plans
to incorporate new information and insights.
In conclusion, both long-term and short-term planning are essential for a business's
success. Long-term planning sets the strategic direction, while short-term planning
ensures efficient execution and adaptation to changing circumstances. Balancing
these planning approaches requires careful consideration of market trends,
competition, resources, and alignment with the company's vision.
PPT 7- RECORD KEEPING
8.5-Book keeping, Journal, Ledger, Subsidiary books, -
Businesses, regardless of their size, often maintain various financial records and
books to accurately track their financial transactions and operations. These records
help them manage their finances, comply with legal requirements, make informed
decisions, and assess their financial health.
Let's break down the different types of books and their purposes:
Bookkeeping: This is the process of recording financial transactions in a systematic
manner. Bookkeeping includes various activities like recording, classifying, and
summarizing financial data.
Journals: Journals are the first place where financial transactions are recorded.
They provide a chronological record of transactions in the order they occur. Entries in
a journal include the date, accounts involved, amounts, and a brief description of the
transaction.
Example: On July 15th, a business pays Rs500 in cash for office supplies. The
journal entry would look like:

Date Account Debit Account Credit Amount

2023-07-15 Office Supplies Expense Cash $500

Ledgers: Ledgers are a collection of accounts that show the balances and changes
in those balances for each account. They provide a more detailed view of
transactions and help track individual account activity.
Example: The above journal entry would be posted in the relevant ledger accounts:
Office Supplies Expense

Date Debit Credit

2023-07-15 500 0
Cash

Date Debit Credit

2023-07-15 0 500

Subsidiary Books: Subsidiary books are specialized journals that focus on specific
types of transactions, such as sales, purchases, cash, and more. They help organize
transactions and simplify the overall recording process.
Example: A subsidiary sales book records all sales transactions. Let's say on July
20th, the business makes a credit sale of Rs1000 to Customer A. The subsidiary
sales book entry might look like:

Date Customer Invoice No. Amount

2023-07-20 A INV-001 $1000

Maintaining these records is essential for several reasons:

Legal Compliance: Businesses are often required by law to maintain accurate
financial records for tax and regulatory purposes.
Financial Management: Accurate financial records allow businesses to track
income, expenses, and profits, helping them make informed decisions.
Audit and Verification: Properly maintained books facilitate external audits and
internal reviews, ensuring financial accuracy and accountability.
Historical Analysis: Businesses can analyse past performance and trends to plan
for the future.
Investor Confidence: Accurate financial records enhance investor and stakeholder
confidence in the business's financial stability.
In modern times, technology has significantly streamlined and automated the
process of maintaining these records through accounting software, making it more
efficient for businesses to manage their finances.
PPT 8- Annual Financial statement
8.6-Annual Financial Statement-
The company's annual financial statement, also known as the annual report or
financial report, is a comprehensive document that provides an overview of a
company's financial performance and position over a specific period, usually a year.
It serves as a key tool for stakeholders, including investors, creditors, analysts, and
regulators, to assess the company's financial health and make informed decisions.
The annual financial statement typically consists of several key components:
Balance Sheet (Statement of Financial Position): This section presents the
company's assets, liabilities, and shareholders' equity at a specific point in time. It
provides a snapshot of the company's financial position, showing what it owns
(assets), what it owes (liabilities), and the residual interest of the owners (equity).
Income Statement (Profit and Loss Statement): This section details the
company's revenues, expenses, and net income or loss over the reporting period. It
provides insights into the company's ability to generate profits from its operations.
Cash Flow Statement: This statement outlines the company's cash inflows and
outflows during the reporting period, categorized into operating, investing, and
financing activities. It helps assess the company's liquidity and ability to generate
and manage cash.
Statement of Changes in Equity: This statement illustrates how the company's
equity has changed over the reporting period due to various transactions, such as
issuing or repurchasing shares, paying dividends, and recording net income.
Notes to the Financial Statements: These are detailed explanations and
disclosures accompanying the main financial statements. They provide additional
context, explanations, and information about accounting policies, significant events,
contingent liabilities, and other important financial data.
Management Discussion and Analysis (MD&A): This narrative section provides
management's perspective on the company's financial performance, its strategic
initiatives, significant events, and future prospects. It offers insights that go beyond
the numbers in the financial statements.
Auditor's Report: If the financial statements are audited by an external auditor, this
report provides an independent assessment of the accuracy and fairness of the
financial statements. It enhances the credibility of the provided information.
Other Information: Depending on the company and its industry, the annual report
might include additional information such as corporate governance practices,
sustainability initiatives, risk management, and more.
Overall, the annual financial statement serves as a crucial communication tool
that enables stakeholders to assess the company's financial health,
performance, and prospects, aiding in decision-making, investment analysis,
and regulatory compliance.
PPT9-Tax
8.7 Taxation-
Taxation is necessary for all product manufacturing companies and service providers
primarily because it serves as a means for governments to generate revenue.
This revenue is then used to fund various public services and infrastructure, such as
roads, schools, healthcare, defence, and social welfare programs.
Here are a few reasons why taxation is essential:
Public Services and Infrastructure: Taxes fund the development and maintenance
of essential public services that benefit society as a whole.
For instance, taxes collected from both product manufacturing companies and
service providers contribute to building and maintaining roads, bridges, public
transportation, and other crucial infrastructure.
Regulation and Oversight: Taxes can be used as a regulatory tool to influence
economic behaviour.
For example,
governments may impose higher taxes on products or services that are considered
harmful to public health, like tobacco or alcohol, in order to discourage their
consumption.
Redistribution of Wealth: Taxes can help redistribute wealth and reduce economic
inequalities. By collecting taxes from those with higher incomes or profitable
businesses, governments can allocate resources to support lower-income individuals
and communities through social welfare programs, education initiatives, and
healthcare services.
Public Goods: Some goods and services, known as public goods, are non-
excludable and non-rivalrous, meaning they are available to everyone and one
person's use doesn't diminish their availability to others. Examples include street
lighting, public parks, and national defence. Taxes are crucial to fund these public
goods that benefit the entire population.
Economic Stability: Taxes can be used as a tool to stabilize the economy. During
times of economic downturn, governments might implement tax cuts or incentives to
encourage consumer spending and business investment, which can stimulate
economic growth.
Example: Let's consider a manufacturing company that produces smartphones. This
company benefits from various public services like transportation infrastructure
(roads, ports), an educated workforce (public education), and protection of
intellectual property (legal and regulatory systems). Additionally, the company relies
on a stable and secure environment provided by the government. In return for these
benefits, the company pays various taxes, such as corporate income tax, sales tax
on its products, property tax on its facilities, and potentially other industry-specific
taxes or import/export duties. These taxes collectively contribute to the government's
ability to provide the necessary services and maintain a conducive business
environment.
Similarly, service providers like a software development company benefit from the
legal framework, education system, and public infrastructure that allows them to
operate efficiently and securely. They also contribute to the tax system through
income tax, payroll taxes, and other relevant levies.
In summary, taxation is a fundamental aspect of a functioning society, allowing
governments to provide essential public services, regulate economic
behaviour, and ensure economic stability. It applies to both product
manufacturing companies and service providers, as they benefit from the
societal infrastructure and environment that taxes help sustain.
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