processes of financial management Flashcards
planning n implementin
What r the 5 steps to planning and implementing for a business’s financial processes
- determining financial needs
- developing budgets
- maintaining record systems
- identifying financial risks
- establishing financial controls
what is the acrynom for planning and implementing
Dont Destroy Me In English
What comes under determining financial needs?
financial info needs to be collected. 3 examples include business development plans, the finance statements, break even analysis, forecasts
financial needs r determined by……
- the size of business
- current phase of cycle
- future plans
- capacity to source finance
what comes under developing budgets - DESTROY
providing quantitative info about financial requirements
- budgets reflect the strats planning decisions (used in strategic, tactical and operational planning)
-business enables constant monitoring of objectives and provides a basis for administration control.
As a control measure/management tool, planned performance can be measured against actual performance and corrective action can be taken as needed.
what is maintaining record systems
A set of practises all employees must follow to ensure data is recorded properly
- The information provided by record systems must be accurate, reliable, efficient and accessible.
what comes under 4) identifying financial risks?
The risk that a business will be unable to cover their financial obligations such as debts that a business incurs leading to bankruptcy.
includes short term and long term. Both would affect the day to day running of the business. businesses should be proactive. to identify such risks, continuous research of the business environment must be taken
what comes under 5) establishing financial controls?
Policies and procedures put in place to reduce financial risks. Businesses must establish financial controls to minimise financial risks.
Control is particularly important in assets such as accounts receivable, inventory and cash. Some common policies and procedures that promote control within a business are :
- Clear authorisation and responsibility for tasks in the business
- Separation/ rotation of duties
- Control of cash, such as the use of cash registers, cash banked daily,
what are 4 pros to debt financing ?
- the ease of accessability
- interest pays r tax deductible, reducing costs
- imposes discipline and accountability on borrower
- does not dilute ownership of firm
what are disadvantages of debt financing (5)
- cost of borrowing can be high (interest, establishment/maintenance fees)
- variable interest rates r unpredictable
- regular interest n principal payments must be paid on specific dates
- security is required upon assets
- increases insolvency
what r pros of equity finance
-funds do not have to repaid
-no interest payments are gathered
-lowers gearing and hence risk of insolvency
-confidence given to lenders n creditors
-safest option against unexpected downturns
what r cons of equity finance
-not suited for raising funds to the unexpected
-lowers profits
-ownership is DILUTED
-expectations that owners will receive returns on investments places pressure
monitoring and controlling
why are financial statements important?
provide quantitative information and is an essential tool for monitoring and controlling business practises.
- managers: assess their business’s performance and take corrective actions accordingly
- shareholders & investors: make informed decisions about their involvement in business
what are the 5 aspects to balance sheets
current assets,non-current assets, current liabilities, non-current liabilities, owner’s equity.
balance sheet
what is the goal of balance sheets?
to ensure that assets= liabilities
Summarises the assets, liabilities and equity in a business at a given time (snapshot in time). It indicates the short- and long-term financial stability
