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Summary EI Man 214 Chapter 9
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Chapter 9 of prescribed textbook
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Ei man 214: Chapter 9 – Financing and entrepreneurial ventureDetermining the financial requirements of the business venture
Business plans
o Used to set planning towards realistic goals
o Tool for determining financial requirements & its an analysis of your business, market, products &
finances required
o MAIN PURPOSE: attract money to finance the business
Financial plans
o Referred to as budgeting
o Budget: a forecast of future events
o Financial forecasts are put to use in constructing a financial plan
o Plans culminate in the preparation of a cash budget and a set of pro forma statements for a
future period in the business’s operation
o Budgets and financial plans are only as good as the person who makes them
o Incorrect information & unreasonable estimates will result in unduly high/low performance
targets & harmful financing & investment decisions
o Incorrect performance targets will frustrate the entrepreneur and staff, and harmful financing &
investment decisions can lead to bankruptcy
, The financial planning process
Steps to predict financing needs
1. Prokect the firm’s sales, revenues & expenses over the planning period
2. Estimate the levels of investment in current & fixed assets that are necessary to support the
projected sales
3. Determine the firm’s financing needs throughout the planning period
Sources of short term finance
Finance normally repayable or reviewed within 12 months
Trade credit
o Credit extended by one firm to another in the normal course of business
o To obtain credit from supplier:
o Complete supplier’s credit application form
o Supplier will verify your creditworthiness and do a credit check
o Result leads to credit being granted or not
o If credit is granted – there will be limits & terms
o Credit limits: amount allowed for purchases on credit
o Credit terms: influence by economic nature of product
o Perishable goods are sold on short credit terms
o Goods that are harder to sell are sold on longer credit terms
o When buying on credit, the seller will invoice the buyer
o Should the buyer not make payment on due dates, the supplier will be free to cancel the credit
facility & to institute legal action to recover the money due
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