business finance

• Strategic role of financial management includes:

  • Setting financial objectives and ensuring the business achieves them
  • Distributing funds to other parts of the business
  • Maintaining sufficient cash flow
  • Sourcing finances
  • Preparing budgets (forecasting future finances)
  • Preparing financial statements
• Objectives of financial management:

  • Profitability: Maximising profits in the short term to satisfy shareholders and in the long term for business viability and growth
  • Liquidity: Ability to meet short-term financial obligations
  • Efficiency: Minimising costs while maximising profit
  • Growth: Increasing the size of the business effectively
  • Solvency: Ability to meet long-term financial obligations
• Interdependence of other key business functions:

  • Finance + Marketing: Finance relies on marketing to promote products and generate sales; Marketing relies on finance to establish budgets and forecasts
  • Finance + Operations: Finance relies on operations to create value in the transformation process; Operations relies on finance to allocate adequate funds
  • Finance + HR: Finance relies on HR to employ suitable staff efficiently; HR relies on finance to provide funds for wages and HR strategies
• Internal sources of finance:

  • Retained profits: Funds put back into the business from profits for future expansion
• Strategic role of financial management includes:

  • Setting financial objectives and ensuring the business achieves them
  • Distributing funds to other parts of the business
  • Maintaining sufficient cash flow
  • Sourcing finances
  • Preparing budgets (forecasting future finances)
  • Preparing financial statements
• • Leasing: Payment for use of equipment, machinery, or property owned by another party
• External sources of finance:

  Debt finance (short term and long term):

  • Overdraft: Allows businesses to overdraw accounts for temporary cash shortfalls
  • Commercial draft: Short-term loans for large amounts for 30-180 days
  • Factoring: Immediate cash flow by selling accounts receivable at a reduced rate
  • Mortgage: Loan secured by a business for properties
  • Debentures: Issued promises to repay money with fixed interest rate
  • Unsecured notes: Loan not secured against business assets
• Objectives of financial management:

  • Profitability: Maximising profits in the short term to satisfy shareholders and in the long term for business viability and growth
  • Liquidity: Ability to meet short-term financial obligations
  • Efficiency: Minimising costs while maximising profit
  • Growth: Increasing the size of the business effectively
  • Solvency: Ability to meet long-term financial obligations
• External equity:

  • Ordinary shares: Sold on ASX to investors for part ownership in a public company
  • Private equity: Investors become shareholders in a private company
• Influence of Government:

  • Australian Securities and Investments Commission (ASIC): Reduces fraud and unfair practices in financial markets
  • Company taxation: Tax paid on profits at 30% before distribution to shareholders
• Global market influences:

  • Globalisation has resulted in greater interdependence between economies and businesses
  • Global market outlook, availability of funds, and interest rates are key factors
• Interdependence of other key business functions:

  • Finance + Marketing: Finance relies on marketing to promote products and generate sales; Marketing relies on finance to establish budgets and forecasts
  • Finance + Operations: Finance relies on operations to create value in the transformation process; Operations relies on finance to allocate adequate funds
  • Finance + HR: Finance relies on HR to employ suitable staff efficiently; HR relies on finance to provide funds for wages and HR strategies
• Internal sources of finance:

  • Retained profits: Funds put back into the business from profits for future expansion
• External sources of finance:

  Debt finance (short term and long term):

  • Short term: Overdraft, Commercial draft, Factoring
  • Long term: Mortgage, Debentures, Unsecured notes, Leasing
• External equity:

  • Ordinary shares: Sold on the ASX to investors for ownership in a public company
  • Private equity: Investors become shareholders in a private company
• Processes of financial management:

  Planning and implementing -->

  • Determining financial needs: based on business size, life cycle phase, growth plans, and capacity to borrow or raise equity
  • Budgets: Financial documents estimating future revenue and expenses
  • Record systems: Mechanisms to ensure accurate, reliable, and accessible financial information
  • Financial risks: Factors causing financial loss to a business
  • Financial controls: Policies and procedures to monitor and control resource allocation and use
• Influence of Government:

  • Australian Securities and Investments Commission (ASIC): Aims to reduce fraud and unfair practices in financial markets
  • Company taxation: Tax paid on profits at 30% before distribution to shareholders
• Global market influences:

  • Globalisation has led to greater interdependence between economies and businesses
  • Factors include global market outlook, availability of funds, and interest rates
• Processes of financial management:

  • Planning and implementing:
  • Determining financial needs based on business size, life cycle phase, growth plans, and capacity to borrow or raise equity
  • Budgets: Estimate future revenue and expenses for planning and monitoring objectives
  • Record systems: Ensure accurate, reliable, and accessible financial information
  • Financial risks: Factors causing financial loss like credit risk, market risks, liquidity risks, and operational risks
  • Financial controls: Policies and procedures to monitor and control resource allocation and use
• Financial management involves the planning and monitoring of a business's financial resources to achieve its financial objectives
• Strategic plan: combined strategies used by a business to achieve its long-term goals
• Strategic role of financial management: ensures the long-term financial viability and growth of a business
• Financial management


  The planning and monitoring of a business's financial resources in order to achieve its financial objectives
• Strategic plan


  The combined strategies used by a business to achieve its long-term goals
• Strategic role of financial management

  Ensuring the long-term financial viability and growth of a business
• Types of strategic plans

  • Strategic planning (3-5 years, up to 10 years)
  • Tactical planning (1-2 years)
  • Operational planning (day-to-day)
• Strategic planning


  • Become a market leader in the aviation industry
• Tactical planningexample


  • Increase the size of the fleet in a company
• Operational planning example


  • Undertake new research of new technology and train staff
• Strategic role of financial planning

  • Setting financial objectives and ensuring the business achieves them
  • Distributing funds to other parts of the business
  • Maintaining sufficient cash flow
  • Sourcing finances
  • Preparing budgets (forecasting future finances)
  • Preparing financial statements
• Key financial objectives


  • Profitability
  • Growth
  • Efficiency
  • Liquidity
  • Solvency
• Profitability


  Maximising a business' profits by carefully monitoring revenue and expenses. In the short term: profits satisfy shareholders. In the long term: profits allow for the long-term viability and growth of a business.
• Liquidity


  Businesses ability to meet short-term financial obligations (less than 12 months). Important to have enough inventory to sell and turn into cash if required.
• Efficiency


  Minimising costs whilst maximising profit by using the least amount of assets
• Growth


  Increase the size of the business by effectively using financial resources
• Solvency


  Business' ability to meet long-term financial obligations (more than 12 months). Particularly important to the owners, shareholders and creditors as it is an indication of the 'risk' to their investment.
• Finance + Marketing


  Finance relies on marketing to promote products well and subsequently generate sales. Marketing relies on finance to establish budgets and forecasts.
• Finance + Operations


  Finance relies on operations to create value in the transformation process of a good or service. Operations relies on finance to allocate adequate funds eg, for machinery.
• Finance + HR


  Finance relies on HR to employ suitable staff who complete set tasks efficiently. HR relies on finance to provide funds for wages and HR strategies such as training and development.
• Internal sources of finance

  Owner's equity: funds from the business owners, new investors who become owners/shareholders, the selling of unproductive assets or the issuing of private shares. Retained profits: also known as retained earnings. This is when some or all of the profits are put back into the business.