planning and implementing Flashcards
what is the process of determining financial needs
the process of determining the funds required to allow a business to operate and achieve its goals
what are the factors influencing the financial needs of a business
size, life cycle, future plans and capacity to source finance
what is the process of developing budgets ( like what does it do)
budgets provide quantitative information about the financial requirements of a business
what are the types of ‘developing a budget’
operating budgets
project budgets
financial budgets
what does operating budgets refer to
the main activities of a business
what does project budgets relate to
capital expenditure and research and development
what does financial budgets cover
the overall financial situation of a business including predictions of operating and project budgets
why is having specific budgets do for a business
by having specific budgets it allows the business to understand how its money is being used
why are budgets essential
budgets are essential financial management tools for coordinating departments, planning for the future, compare planned and actual performance
what do record systems refer to
a set of practices all employees must follow to ensure data is recorded properly - so it can be accurate and reliable
what does identifying financial risks refer to
it refers to the risk a business will unable to cover their financial obligations
what is financial controls
policies and procedures aimed at reducing financial risk
what are the 5 steps of the financial planning process
determining financial needs
developing budgets
maintain record systems
identifying financial risks
establishing financial controls
determining financial needs
what is the acronym for the 5 steps to financial planning process
blue and red corner
B
R
C
N
R
what is RBCNR
r- record systems
b- budgets
c - financial controls
n - financial needs
r - financial risks
how long does the Australian Taxation office (ATO) requires businesses to keep certain financial records
5 years
what are the advantages of debt financing
funds are readily available
can be acquired on short notice
does not dilute ownership of the business
repayments are predictable
what are the disadvantages to debt financing
must pay interest
establishment fees and maintenance costs
repayments must be made by a set time and date, or late fees will be incurred
loans must be secured against an asset
financial risk is high
define equity
funds raised by inviting new owners into the business as shareholders
what are the advantages of equity
funds are not repaid
no interest or additional fees
investors are willing to wait for a return on their investment
if the business fails, the funds do not need to be repaid to investors
financial risk is low
what are the disadvantages of equity
must share some profits with investors
dividends are not tax deductible
connecting with new investors is costly
does dilute the ownership of the business
why matching the sources of finance to business purposes essential
the term of a loan should match the economic lifetime of the asset being purchased
short term finance should be used to fund current assets as less than 12 months and same for long term and non current assets. if the term of the loan does not match the asset, serious problems can arise
