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Financial Management
entrepreneurs have two decisions which are crucial in the business
Financial decisions
where to source the fund
Investment decisions
where to invest the funds
Debt Financing
borrowing of money and paying it back with interest
Equity Financing
selling a portion of the company in exchange for the capital needed
Debt
Money loaned to a business to be repaid within a period
Paid with Interest Rates
Lender is independent and have no control in business
No profit sharing
Equity
Money invested in return of a share in the profits
Paid in DIVIDENDS
Investor becomes a part-owner
May have sharing of profits
Personal contributions
pooled from the savings of the entrepreneur himself
Friends and Relatives
Love Money
Entrepreneurs can borrow or seek equity to secure capital from their PERSONAL networks
Financial Institutions
organizations which business model is earning by managing people’s money.
Government and Non-Profit Organization Grants
grants provided by the public sector as loans to support entrepreneurs
Venture Capitalists
businesses, firms or individuals that manages pooled funds and invest it to start-ups
sees the possibility of growth of the business, and earn with their share of it.
Angels
individuals, often successful business people who uses their own fund to invest in early-stage companies.
Crowdfunding
capital is raised from contributions of large number of individuals willing to finance new ideas.
Capital Expenditures
expenditures to laid out, create benefits in the future. This includes assets or things which have a useful life.
Includes: Machineries, tools, software, gadgets, equipment, land, vehicle, property
Direct Costs
expenses that are tied directly to the production of goods and delivery of services
Include: Raw Materials, ingredients, packaging supplies, labor
Indirect Costs
The cost of doing business
expenses related to running the business but not directly to the production of goods and services
Working Capital
Funds that will cover expenses that will be incurred initially if it can’t be paid for by the revenues which are yet to be earned.
Initial Investment
encapsulates the amount the entrepreneur will need in setting up the business.
Initial Investment = Capital Expense + Working Capital
Revenue
amount generated by the sale of goods or services
Revenues = Quantity sold * Price
Income
the financial gain computed as the difference between the amount generated and the amount spent in buying, operating, or producing something in a specific period
Income = Revenue - Operating Expense
Return of Investment
This is computed as income for a specific period divided by the Initial Investment
Return of Investment = 100*(Income/Initial Investment)