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Financial Capital and its Importance

  • Financial Capital: Essential resources for entrepreneurs, considered the lifeblood of an enterprise.

Financial Management

  • Definition: Activities related to securing money and using it effectively.
  • Nature: Combination of the art and science of managing money.
  • Scope: Involves both individual and collective skills in acquiring and utilizing financial resources.

Entrepreneurs' Background

  • Examples of Entrepreneurs:
    • Henry Sy: Former shoe salesman, now owner of SM.
    • Tony Tan Caktiong: Founder of Jollibee.
    • Other examples include business leaders associated with local products and services.

Essential Knowledge for Financial Managers

  • Economic Theories: A good understanding of economics is critical, including:
    • Law of Diminishing Returns
    • Production Theory
    • Law of Supply and Demand
  • Goal: Efficient resource allocation to maximize productivity and customer satisfaction.

Financing an Enterprise

  • Seed Capital Issues: Many aspiring entrepreneurs face challenges due to insufficient seed capital, especially in micro-businesses like street vending.

Sources of Funds for Entrepreneurs

  • Cooperatives: Low-interest loans and financial support ideal for micro-businesses.
  • NGOs and Government Institutions: Provide financial aid and technical support.
Formal Financing Options

  • Short-Term Financing (up to 1 year):

    • Trade Credit: Goods delivered to retailers based on trading terms.
    • Promissory Notes: Written pledge from a borrower to pay back a loan at a specified date.
    • Unsecured Bank Loans: Loans granted without collateral, reliant on borrower’s creditworthiness.
    • Commercial Paper: Short-term unsecured promissory notes issued by corporations.

  • Long-Term Financing (more than 1 year):

    • Loans: Firms finance long-term activities through bank loans.
    • Stock Issuance:
    • Common Stock: Shareholders can vote and influence corporate decisions.
    • Preferred Stock: Priority regarding dividends but typically no voting rights.

Necessity of Financial Management

  1. Financing Portfolio: Aligns with organizational obligations and goals.
  2. Spending Control: Budgeting should reflect planned expenses.
  3. Funding Availability: Ensures adequate funding in the present and future.
  4. Resource Utilization: Funds should be secured and utilized effectively.
Steps in Financial Planning
  1. Establishing Objectives: Clear and specific targets to guide financial decisions.
  2. Budgeting: Creating a projected program of expenses and incomes over a specific period.
  3. Identifying Sources of Funds:
    • Income from sales
    • Owner’s investment and sale of stock
    • Loans from friends, family, and financial institutions
    • Sale of enterprise property as a last resort.