Managing Finance

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Chapter 13

• Managing Finance

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Cashflow Forecast

• Cashflow- the difference between the money
  flowing in and the money flowing out of a
  business or household.
• Cashflow Forecast- A statement predicting in
  advance the size the timing of income and
  expenditure to help them plan how to best manage
  their finances to ensure they live within their
  means.

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• Positive Cashflow- More money coming in than
  going out.
• Negative Cashflow- More money going out than
  coming in so the business needs to borrow

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Advantages

• Start-up finance- Shows a new business how much
  they need to get the business up running.
  Required by banks when seeking loans
• Borrowing- Acts as an early warning system of
  times of negative cashflow so the business can
  save to avoid borrowing or to arrange borrowing.
• Financial Control- Can be compared to actual
  cashflow statements to see how well they are
  controlling their cash flow.

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Cashflow Forecasts

• Realistic- underestimate income overestimate
  expenditure keep buffer finance
• Seasonal factors- Does it take into account busy
  times- Christmas/ dips in sales?
• Credit- should take into account delays in
  payment from debtors- can we still meet our
  expenses
• Bad debts- Make a realistic provision for bad
  debts.
• Taxes- Cashflow is affected by PAYE, VAT etc
  which is collected by the business sent onto
  the revenue commissioners

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Current Account

• Is a bank account which allows people to withdraw
  money with ATM card, cheque a laser (debit
  card)
• Cheque- gives permission to another person to
  withdraw an amount of money from your current
  account.
• Little or no interest
• Account fees

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Standing Order

• When the bank pays a FIXED amount out of your
  account to another account at the same time each
  week/ month/ year
• Eg. Rent

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Direct Debit

• When you authorise the bank to pay a bill of a
  variable amount for you directly out of your bank
  account.
• The timing may also vary
• Eg. Electicity bill

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Paypath

• When the business pays its workers wages directly
  from their bank account into the bank account of
  their workers.

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ATM Cards

• Allow the account holder to withdraw cash from an
  ATM machine also avail of other services such
  as see recent transactions, check account
  balance, pay bills etc
• http//www.moneymatterstome.co.uk/Interactive-Work
  shops/ATM.htm

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Laser Cards

• Also called DEBIT cards
• Allows the current account to be debited when the
  card is used in a store with pin no.
• (money taken directly from account when used to
  pay for goods)
• Cashback facility in many stores

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Bank Statement

• http//www.moneymatterstome.co.uk/4-Financial-reco
  rds-and-information/Sub1/BankStatement.htm

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Internet Banking

• See
• http//www.365onlinedemo.ie

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Overdraft Facility

• The bank may allow the customer to spend more
  money than is in their current account up to an
  agreed limit

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Opening a bank account

• Personal Customer
• Name address proof (passporrt/ drivers
  licence household bill)
• Occupation
• Employer name
• Income/ salary
• Business- name address of business proof
  directors, nature of business, company documents
  (memorandum of asscociation), copy of final
  accounts

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• Household
• Income
• Salaries, wages, social welfare, interest
• Expenditure
• Regular food
• Irregular clothing
• Discretionary holidays

• Business
• Income
• profits, grants, revenue from investments
• Expenditure
• Current wages, advertising, raw materials
• Capital fixed assets eg premises

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Sources of Finance(Pg 204-05)
Household Business
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Credit Purchases

• Buying goods now paying for them at the end of
  the month.
• Accrued Expenses- putting off bills for as long
  as possible using the money for another
  purpose. Eg. ESB bill

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Credit Cards

• Eg. Visa, Mastercard
• Buy goods services with the card up to an
  agreed limit.
• Bill arrives at the end of month
• Must pay bill by due date or charged high
  interest. Charged nothing if pay on time.

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Charge Card

• Pay for goods using card when bill arrives in
  the post you MUST pay it straight away. Does not
  offer credit.
• Eg. American Express, Diners card

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Medium Term Loan

• From Bank, Building society or credit union
• Interest charged
• Pay back amount borrowed interest in monthly
  installments

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Savings

• Major source of finance for individuals
• Eg save up to buy a new car
• Deposit accounts- pay interest on the amount
  saved depending on the amount saved the length
  of time saved for the notice needed to be given
  before withdrawals.

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Characteristics of the ideal investment

• Return - high
• Risk- low
• Convenience- easy to withdraw in an emergency.
• Tax (DIRT)

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Credit Union

• Members have Common Bond
• Savings
• Loans to members in proportion to savings.

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Long Term Loans

• Mortgages- from building society banks
• Annuity- borrower pays back lump sum borrowed
  interest in monthly installments.
• Endowment- interest only paid back during loan
  duration amount borrowed paid back at the end
  of the loan. Taken out in conjunction with a life
  assurance

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Choosing a Source of Finance

• Amount required
• Purpose of finance
• Cost (APR)
• Control
• Timing of repayments

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Similarities Differences

• Both prepare cashflow forecasts
• Raise finance to cover needs
• Budget spend wisely
• Use bank services eg. Cheques, standing orders..
• Complete similar forms
• Borrow when necessary

• Cashflow greater in a business
• Businesses aim to make a profit, households work
  to improve living standard
• More time spent in financial mgt by a business
• Businesses must legally keep accounts
• Businesses borrow greater amounts than a
  household.

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