Finance

What is Finance?

Finance is the management of large amounts of money, especially by governments or large companies.

What does a business need to consider when starting a business

Non current assets, number of employees, raw material needed

What is the finance that a business needs when starting up

Start up capital

When expanding businesses need to consider

Capital, equipment needed, employees, takeover

What is working capital

Finance needed for day to day expenses

Examples of working capital

Rent, wages, salaries, bills

Short term finance needs

Raw material, wages and salaries, rent, electricity, tax, interest

Long term finance needs

Assets, buildings, land, machines, equipments

Retained profit

Profit the business keeps after taxes and dividends

What is non current assets

Non-current assets are long-term investments that a business expects to hold for more than one year, such as property, equipment, and intangible assets.

Revenue from assts sales

Finance raised by a business selling some of its assets that it no longer needs

Revenue from inventory sales

Finance raised by selling some of its raw materials and components that it keeps as inventory

Savings from the owner

Finance raised by using the owners savings for additional capital when needed

Cash into the business

Cash inflow

Cash out of the business

Cash outflow

Cash inflow can come from

Products sold for cash, trade receivables paying money back for the product they purchased earlier, money borrowed from external source, selling assets

Factors when choosing a source of finance

Size and type of business, the purpose of the business and the time period, the amount of finance needed, risks nd gearing

Sources of Cash outflows

Payment of Rent, raw material, wages, salaries, fixed costs, loans, other expense

How to construct cash flow forecast

Cash inflow, cash outflow, net cash flow, opening balance, closing balance

Cash inflow formula

Total revenue from sales + other income

Fórmula of Cash outflow

Total expenses + loan repayment + assets purchased + other outflows

Fórmula of Net cashflow

Cash inflow - cash outflow

Fórmula of Opening balance

Closing balance of previous balance

Fórmula of Closing balance

Opening balance + net cash flow

Fórmula of Total cost

Variable cost + fixed cost

Profit formula

Revenue - total cost

Gross profit formula

Sales revenue - cost of goods

Cost of goods

Opening inventory + purchases - closing inventory