small business finance course

small business finance course

Mastering Small Business Finance: A Comprehensive Course

1. Introduction to Small Business Finance

The materials related to teaching small business management develop concurrently through annual conferences for new project directors, specialized faculty conferences, and the Small Business Management Education Professional Development Workshop. These materials include problems, short cases, simulation exercises, field-study exercises, intercollegiate case problems, and collected departmental course syllabi. Their planned use is to support the array of structured problems designed for the SBI projects and, thus, to provide both classroom content and instructional value to meet departmental or discipline requirements to the extent to which each department can choose to use the program. The SBI program materials are now considered to be a continuing and operating collection growing from fiscal year to fiscal year and including planning materials, operating materials, and materials for evaluation, dissemination, and implementation of the program as well as for management purposes.

The SBI projects are used in a wide range of academic disciplines from small business management to business policy and have been integrated into the curricula of business and non-business students. These projects are the single most important aspect of the SBI program. It is now recognized that the creation of college classrooms that parallel the management problems of small business in terms of severity and complexity throughout the length of the semester, and for a wide variety of college academic disciplines, is also a significant characteristic associated with the SBI program. The belief is that there are major small business problems suitable for the diverse course offerings found in a college environment and that specialized and rare classroom problem material, suited to needed discipline depth requirements, are to be found through the course offerings. These materials can be integrated with other teaching aids.

The Small Business Institute Program It is frequently difficult to find problems for small business management courses that place a significant or severe demand on the student’s thinking. Frequently, the problems contained in textbooks are not severe enough or are not sufficiently current. In the SBI program, there is a fundamental commitment to the utilization of already existing business problems as an integral part of classroom instruction. The cornerstone of the SBI program is the SBI project. Since 1951, more than 43,000 business firms have accomplished significant and assigned business projects undertaken by college students, with the help of more than 1,000 business management teachers in college classrooms.

This manual is a facsimile of the original course manual for the Small Business Institute (SBI) program, “Mastering Small Business Finance: A Comprehensive Course.” The course takes the participant from pre-venture planning through the ultimate decision of whether and when to start or acquire the business. The manual and the course are designed to serve as the villain and capstone of the SBI program and to be integrated into the traditional business curriculum. This third element of the SBI program, using major small business problems for classroom instruction, ensures that the program content will be up to date.

Mastering Small Business Finance: A Comprehensive Course

Introduction to the course

2. Financial Statements and Analysis for Small Businesses

The purpose of this lesson is to present an explanation of the common types of financial statements prepared for small businesses and to point out in detail the factors that should be closely examined by the persons studying each. Although present economic conditions and the expanded horizons of American business have greatly increased the complexity of financial statements, you will be dealing primarily with statements established as ideal by the accounting profession. In some cases, it has been necessary to combine ideal thinking with practical methods of reporting, drawing from concepts established by legal acts, electronic data processing techniques, and generally established customs current in the operation of many sound operations managed by the types of persons.

Whenever we start discussing financial statements, there always seems to be a need to take several steps backward and explain from scratch. This is because some businesses have been open for such a short time and their owners are not familiar with the terms usually found in financial statement discussions. As a result, most owners are in no way prepared to read or understand financial statements of their businesses. Many successful small business operators get all the way through a normal lifespan without ever learning to read financial statements because many probably would not even understand from a principle’s point of view exactly what financial statements are or what they are supposed to show. It is surprising to discover that even with all of the status and sophistication that some businesses have achieved, they are still operated, financed, and controlled by owners who do not have any idea of what is happening unless they can touch it and count it.

3. Budgeting and Forecasting for Small Businesses

For small business, and large businesses as well, for that matter, the overall financial planning process begins with the creation of a master budget, proceeds with a forecast of a company’s financial statement activities in future periods, and stems from the company’s global financial, sales, and profit planning activities. Prior to completing the master budget, a company’s management must accomplish such monumental tasks as producing sales plans, profit plans, and financial activity plans. These activities, as I stated, are performed by the management team.

Mastering Small Business Finance: A Comprehensive Course is part of the Small Business Financial Mastery Toolkit and is specifically designed for business owners, managers, business students, and other non-financial professionals. It includes courses on generating sales and profits, managing cash, budgets and financial forecasts, controlling physical assets, and managing corporate equity. Market leaders are not born. As early as a century ago, there were books and lecturers that helped train many for positions of power and leadership in business.

The backbone of financial planning is constructed around the use of budgets and financial forecasts. Budgets and forecasts are a financially educated guess of what to expect during a future period of time. While for large businesses, these activities are accomplished by teams of executives, managers, accountants, quantitative specialists, and outside consultants. For small businesses, all these jobs are done by the business owner, his or her company’s management and accounting staffs.

4. Financing Options for Small Businesses

Equity financing is usually limited for small and mid-sized businesses to the owners, their family and business associates, and possibly a small circle of “angel” investors who seek an ownership position in the company. For larger, more established companies, private equity investment is also available from venture capital funds or other business angel networks. Institutional investors, such as mutual funds, public pension funds, and other large institutions may also purchase the company’s common stock or partial shares if and when the company has “au fait” and the stock is traded on a stock exchange.

The various financing options for a small or mid-sized business can be roughly divided into two primary categories: equity financing and debt financing. The basic distinction between the two is that the former entitles the investor to the right to participate in the profits and governance of the company, while the latter obligates the company to pay the investor a set amount of interest and the principal of the loan when due. Most business finance involves a mixture of the two, as well as the direct investment by the owners. The requirements that are imposed by an equity investor are relatively flexible, but carry a risk premium, since the investors assume the risk of losing their capital if the business fails. Debt finance is less flexible, since the company only has to pay a set amount of interest and principal, but it is also less costly for the business owner over time, assuming that the business is successful. The bankruptcy laws limit the downside risk to the business owner and other debt investors.

5. Risk Management and Financial Decision-Making for Small Businesses

The attachment of management to all of the effort of a business influences the amount of shares of the total proceeds in many different ways. Not the least of its roles is that of instilling its own value system and its prerequisite to the business and its behavior. The making of decisions about the effective number and individuals, their composition, and their degree of authority are further finance functions. They serve, as do the other functions of finance, to fulfill the second half of the real purpose of the business – namely, to make as much money as it possibly can. That attitude is a clear commentary on the reason for the existence of a business and on what is wrong with the many critics of the operations of free enterprise.

The purpose of your business is to generate the best return on your total expenditure – nothing else. That represents the supreme and ultimate goal. In the strictest sense, the finance function concerns all aspects of discovering the best available courses of action for achieving that goal with the expenditure of whatever funds and resources you are committed to the business. Financial management carries this process through from the beginning to the end and makes sure that the best potential return is actually achieved. In the short term, the finance function determines what course of action is to be taken under existing conditions or what conditions have to be created for a better course of action. Policies are thus part of the financial function.