Financial Planning
What are (1) forecasting ST/LT financial needs, (2) developing budgets to meet needs, and (3) establishing financial controls to manage towards goals.
What is trade credit?
These are promissory notes that requires the borrower to repay the loan in specified installments and are usually accompanied by collateral requirements and loan covenants or restrictions that firms must observe.
What are term loans (or bank loans)?
This term refers to raising needed funds through borrowing to increase a firm's rate of return (i.e. grow faster).
These are the three most common reasons a firm fails financially.
These types of documents set forth management's expectations for revenues & allocates resources to pursue those expectations. These become the primary guide for the firm's financial operations and needs.
What are budgets?
Historically, this is perhaps the most common means of securing short term financing for a small business, even though it could make Thanksgiving a little awkward.
What are friends & family?
These debt financing instruments, especially popular government entities, are like an IOU with a promise to repay the amount borrowed, with interest, on a certain date.
What are bonds?
This is the rate of return a company must earn in order to meet the demands of it lenders and expectations of its equity holders (i.e. owners)
What is the cost of capital?
These are major investments in either tangible long term assets, such as land, buildings, and equipment, or intangible assets such as patents, trademarks, and copyrights.
What are capital expenditures?
These are the three most common types of a budget in a firm's financial plan.
What are a capital budget, a cash budget, and an operating or master budget.
What is a secured loan?
This type of long-term financing makes funds available when owners of the firm sell shares of ownership to outside investors.
What is equity financing via sale of stock? Usually involves extention of voting rights.
This is perhaps the biggest downside to long term financing through issuing shares of stock.
What is ownership dilution - would you rather split our (future) valuation of $100M 10 ways or 100 ways?
What's the upside?
This short term financing method is an agreement by a bank to lend a specific amount of money to a business at any time, if the money is available.
What is a line of credit?
This budget forecasts a firm's spending plans for major asset purchases that often require large sums of money, like property, buildings, and equipment.
What is the capital budget?
This relatively expensive source of short-term funds involves a business selling money owed to it in the future for cash today.
What is factoring?
This, most-favored source of equity financing, for those established enough to use it, creates no new owners, interest payments, dividends, or underwriting fees.
This is perhaps the biggest downside to borrowing money for long term financing.
This invoice term is used to extend a 2% discount on owed balances due in 30 days if the customer pays within 10 days of delivery of goods or services.
What is 2%/10, net 30?
This is a process in which a firm periodically compares its actual revneus, costs, and expenses with its budget.
What is financial control? Identified variances can reveal areas of under/over investment vs. plan (accounts, departments, managers), may signal marketplace chances, and prompt discussions to changing plans.
A very popular, but potentially very risky, source of short-term financing for small businesses that can't get approved for bank loans.
What are credit cards?
This type of equity financing is primarily used by new or emerging companies that can convince investors of great profit potential such that investors provide financing for ownership.
What is venture capital?
This is the concept that money today is worth more than the same amount of money in a year from now.
What is the Time Value of Money?