This document provides an overview of finance concepts for non-finance professionals. It discusses the purpose of understanding finances in business and how money flows in and out. Key points include: 1) Money comes into a business from owners' capital, profits retained, borrowing, and credit terms. It goes out to buy assets, inventory, and expenses before sales. Remaining money stays in the business. 2) Cash flow and profit forecasts are important planning tools to ensure sufficient cash flow. Cash flow considers the timing of payments and receipts which can differ from accounting profits. 3) The accounting equation balances assets with liabilities and equity. The balance sheet provides a snapshot of what a business owns and owes at a point

1. FINANCE FOR NON-FINANCE
PEOPLE
PRESENTATION BY: FRANCIS LEPIPI
MOLEMO DEVELOPMENT
FOUNDATION

2. Purpose of Presentation
1.1. To increase knowledge about Finances
among the participants.
1.2. To assist existing and potential
entrepreneurs in Lesotho to appreciate the
usefulness of MONEY in business

3. Introduction of training Workshop
• People in business have to make money!Our
ambitions,although significant,are subsidiary.
REMEMBER,IN BUSINESS,YOU MUST MAKE PROFIT.
We are aware that MONEY everyday.We have all,since
very early days,spent MONEY.For most of our lives we
have all earned MONEY.
It is strange;therefore,that it causes so many business
problems.Most busines people understand the product
they make or the service they provide.They appear
rarely to understand how to control MONEY.
The inability to understand finance is the major cause
of business failure.

4. Today you can begin to put yourself in control
of your financial affairs: We shall consider:
2.1 How MONEY flows and how you can use
this vital resource to your maximum
advantage.
2.2 Where MONEY comes from and where it
goes to.
2.3 How forecasts can be produced and actual
performance measured

5. 2.4 Working capital
2.5 Good business practices for controlling of
debtors,creditors,AND stocks.
2.6 How MONEY is used in business.

6. 3. IN BUSINESS-HOW DOES MONEY
FLOW?
3.1 THREE THINGS MONEY DOES IN
BUSINESS?
3.1.1 MONEY COMES IN
3.1.2 MONEY GOES OUT
3.1.3 MONEY NOT SPENT STAYS IN
THE BUSINESS
3.2 LIST OF ALL THE RESOURCES OF
MONEY CAN THINK OF

7. 3.2 LIST OF ALL THE RESOURCES OF
MONEY CAN THINK OF
3.2.1 MONEY INTRODUCED BY OWNERS
From time to time ,and certainly
when a new business starts, the
owners introduce MONEY. This is
called the OWNER’S CAPITAL.
3.2.2 MONEY MADE AND RETAINED(Called Profit)
The objective of all businesses is to buy and sell
goods and services AT A PROFIT. In other words,
the MONEY RECEIVED must EXCEED the MONEY
SPENT. In simple terms, if this is achieved then the
profit is made.

8. More MONEY is available after trading than
before.For the business rather than individuals
to benefit,this money must be left in the
business.If it is withdrawn by the owners hen
is not available to the
business.Remember,money can only sensibly
be withdrawn once profits are made.

9. 3.2.3 MONEY BORROWED FROM OTHER PEOPLE
many businesses borrow MONEY as a
matter of course.Financial institutions like
(banks) and development corporations are
examples of lenders.More often than
not,they will require SECURITY for the
WARNED :if you pledge your PERSONAL
ASSETS to secure a BUSINESS LOAN you
could LOSE THEM.

10. • Control you borrowing. It is one thing to use
other people’s money to finance profitable
expansion. It is quite another for a business to
borrow money to support losses or to provide
the owners with higher standard of living.
3.2.4 CREDIT GRANTED BY SUPPLIERS
When our suppliers grant us credit terms
e.g (date plus 30 days)this is a SOURCE
OF MONEY.

11. 3.3LIST OF ALL THE USES OF MONEY
ONE CAN THINK OF
3.3.1MONEY SPENT BUYING THINGS TO KEEP
Many of the things we need to run
businesses last for more than one year.
Examples include motor vehicles, plant
and machinery, premises, computers,office
equipment and furniture. We commit
some of the available MONEY buying these
things that we will be using for a number
years.

12. This money is no longer available. We have
exchanged it for other things, called FIXED
ASSERTS.
3.3.2 MONEY SPENT BUYING/MAKING THINGS
TO SELL
More often than business has to spend
money before it has a product to sell. Lets
look at two examples:

13. • A manufacturer must buy raw materials .Pay his
workers, pay his electricity, and so on, BEFORE HE HAS
A PRODUCT TO SELL.
• A RETAILER MUST FIRST BUY GOODS,THEN SELL THEM
3.3.3 CREDIT GRANTED TO CUSTOMERS
When we allow our customers to pay us later, we
are in effect lending them money and this is a USE
OF MONEY. It is normal business practice but
must be very carefully controlled.

14. • 3.3.4 DRAWING BY THE OWNER OF THE
BUSINESS
You ,as a business person,operate TWO SEPARATE sets of
finances or,two money pots:
• MY OWN PERSONAL financial affairs
• MY BUSINESS financial affairs.
- You must first pay your business commitments
(wages,creditors,loans,expenses,etc)
- Then you must lease enough money in the business to take
account of contigencies AND TO ENABLE IT TO GROW
- You really should DRAW A FIXED AMOUNT each week/ month.

15. • IF YOU ACCEPT THE ABOVE,HOW CAN A
BUSINESS PERSON TRUELLY UNDERSTAND
AND PLAN BOTH SETS OF FINANCIAL AFFAIRS
IF BOTH OPERATE THROUGH THE SAME BANK
ACCOUNT?

16. 4.CASH FLOW AND CASH FLOW
FORECASTING
4.1 We have discussed how important it is in
business to control the MONEY. You must
know that MONEY is available and how
this MONEY is being used. This involves
making decisions. Not ‘on the spot’
decisions such as should I pay this creditor
or that creditor. YOU MUST PLAN YOUR
BUSINESS ACTIVITIES.
Formal business planning is vital in any
successful business.

17. • It is not just good enough to say’’ it will be
alright tomorrow” or I get on well with the
bank manager-he’ll see me through.
• There are many good books on business
planning. If you are not sure of the processes,
make sure you read one of these.
• It is important to remember, however,that
Business plan is not a form provided by your
bank and completed by your Accountant.

18. What then is a Business Plan?
- Where the business is now
- Where the business wants to be after a
period of time say one year or two years.
- A detailed plan of how the
owner(s)propose achieving the objectives
set out above.
- The financial forecasts of the results of
these efforts.

19. 4.2 PROFIT AND CASH FLOW
PLANNING
Lack of CASH can arise for a number of reasons:
4.2.1 Unplanned or poorly planned CASH
requirements
4.2.2 Poor profit margins
4.2.3 Over-trading or, in simple terms, growing
too quickly
4.2.4 Not collecting your debts quicker enough
4.2.5 Paying your debts quicker than you need to
4.2.6 carrying too much stock

20. We can summarize this as POOR PLANNING AND
CONTROL
So how do you ensure you don’t run out of
MONEY?
You can never be certain-nothing is in business!
The best way is to plan your business affairs. In
much the same way as you would plan your
holiday.First produce a PROFIT FORECAST, and
then a CASH FLOW FORECAST.

21. 4.3 The Cash Flow forecast
Profit forecast and cash flow forecasts are
very different animals. Profit is ‘visible’,
cash flow lurks in the dark and when it
bites, It has very sharp teeth!
Think of things like:
4.3.1 If you sell on credit, your sales forecast
for any one month may well be VERY
DIFFERENT to the money you collect.

22. 4.3.2 If you buy materials on credit, the cost of
materials used in any one month may be
VERY DIFFERENT to the money you have to
pay your supplier.
4.3.3 Loan repayments are not in your
forecasts(correctly so)but they will be in your
cash flow.
4.3.4 Drawings are not in your profit forecasts
(correctly so)but they will be in your cash
flow.

23. 6.THE ACCOUNTING EQUATION
This is the foundation of double-entry
bookkeeping. It is established that:
Asserts + Expenses = Liabilities + Income
This is not sleight of hand but the result of
recognizing that each transaction has two sides.
Another way of stating this duality is to note that
the items listed on the right side of the balance
sheet, liabilities plus shareholder’s equity can be
viewed as the source of the asserts listed on the
left side of the balance sheet or as claims against
those assets.

24. Similarly, should income exceed
expenses,there is likely to be a greater
value of cash(left hand side) and the
surplus of income over expenses will be
called profit, which to the business, is a
liability for it is money owed to the
owner(s).

25. 7.A CLOSER LOOK AT THE BALANCE
SHEET
The balance sheet provides a ‘snapshot’ of
a firm’s financial position.Prepared at a
point in time, the balance sheet shows
what the firm owns (assets) and
owes(liabilities owed to outsiders plus the
residual interest owed to
shareholder/owners).

26. 7.1 ASSETS
An asset is something the firm owns that has future
economic benefit. An item cannot be recorded as
an assert unless the company owns it. Equipment
leased under a short term operating lease or a
building that is rented would, therefore, not be
considered an assert. However, ownership is not
enough: the item, whether tangible (you can stub
your toe on it) or intangible (no physical
substance) ,must have future economic benefit.
An example of something a company owns that
has no future economic benefit is obsolete
inventory.

27. In most financial statements, assets are divided
into at least two categories namely current
and noncurrent. Current assets comprise
those that are expected to be converted into
cash or used up within one year or the
operating cycle. Non-current assets chiefly
include property, plant and equipment (PP &
E). These are not acquired with the intent to
resell them; rather, they provide the
productive capacity to earn revenue.

28. Current Assets:
Cash:
Cash and cash equivalents including currency,
bank deposits, and various marketable
securities that can be converted into cash on
short notice. Only securities that are
purchased within 90 days of their maturity
dates may be classified as cash.

29. Accounts Receivable:
Amount due from customers that have not yet been
collected. Accounts receivable should “turn over” or be
collected within the firm’s normal collection period, usually
30 to 60 days. An increase in the collection period may
signal either a customer’s inability to pay or the company
inability to collect. Managers and readers of financial
statements are interested in the estimated cash that will be
generated from collection of accounts. Since some
customers may fail to pay amounts due, an allowance for
doubtful accounts is deducted from accounts receivable to
derive the net amount of cash that the company believes
will be collected.

30. Inventory:
Represents items that have been
manufactured or purchased for resale to
customers. They are valued at the costs
assigned to them by the firm’s management.
So in a company like Edgars for example,
inventory comprises the purchase price paid
by Edgars to all its suppliers for the inventory
held at any point in time.

31. Fixed Assets (Non-Current Assets)
Property, Plant, and Equipment:
The most common non- current asset, (anything “non
current” has a value that does not change materially within
a full year, except for depreciation and additions or
disposals) is PP&E. This generally includes such long-lived
elements as land, buildings, machinery, equipment,
furniture, and motor vehicles. PP&E is recorded at historical
cost and shown at that cost less accumulated depreciation
except land.
The term ‘accumulated depreciation’ represents all
depreciation expense to date for each depreciable asset
included in PP&E.

32. LIABILITIES
Liabilities are obligations to pay or convey
assets in the future based on past
transactions. Liabilities are divided into
current and non-current. Current liabilities are
those obligations that will be satisfied within
one year or the operating cycle; non-current
liabilities are debts due after one year.
Regardless of their classification as current or
non-current, liabilities represent a claim, not
an ownership interest.

33. Current Liabilities:
Accounts Payable:
The amounts the company owes to regular
business creditors from whom it has bought
goods and services on open account. Often called
“trade debt,” accounts payable represents the
short-term, unsecured debt that arises in the
normal course of trade or business. The firm may
also owe the Receiver of Revenue tax payments,
and these would reflect as a current liability owed
by the business to the Receiver as creditor.

34. SHAREHOLDERS’ EQUITY
Shareholders’ Equity:
Shareholders’ equity is the ownership interest
of those who have invested in the company
through the purchase of capital stock.
Shareholders’ equity account classifications
include shares (in a company) interest (in a
close corporation), and retained earnings.

35. Members’ contributions:
In the context of a close corporation as the legal
entity by which a business is represented, the
member(s) will make a contribution to float the
close corporation. The total initial contribution
could be as little as R10, for the member or
members can elect to float the business with a
loan in their personal capacity, made to the CC.
This would be a member's loan.

36. Retained Earnings
Any profits made by the business that are not
drawn by the owner/partners/members in the
form of a dividend/distribution/profit share,
are obviously retained in the business. These
retained surplus profits are referred to as
retained earnings.

38. A CLOSER LOOK AT THE CASH
FLOW,INCOME STATEMENT AND
BALANCE SHEET