Business Finance 1 01 What is business Business

Business Finance 1. 01 What is business – Business is any economic activity undertaken to make profit. 1. 02 Finance is simply talking about money! v Where the money will come from i. e. source, cost v How it is going to be spent – on what v Management of it.

2. 00 Business Organization 2. 01 A business organization is an organization engaged in economic activity/activities with the sole intent of making profit in any sector of the economy. 2. 02 Types of Business Organization Individual/Sole Proprietor The only difference between a Sole Proprietor and an individual is simply the registration of Sole Proprietorship at CAC

• Easy to set up • Bears liabilities alone • Shares profit with no one • Small capital needed • No perpetual succession • Does not keep proper financial records • Cannot raise finance from the capital market • Access to large amount of credit facility is limited • Death of sole proprietor brings an end to the business.

Partnership • Consists of two or more members not exceeding 20 who have come together with a view of making profit (in exceptional cases, membership can exceed 20 e. g. lawyers, accountants or any other professional body • There must be a partnership deed which will state name of the firm, business of the firm, power and duties of partners. • Can be created by express agreement, by conduct or by estoppels.

• No separate legal entity. • Liability is unlimited (except limited partner) • Banks invoke doctrine of joint and several liabilities. • Cannot raise fund from the capital market. • Not subjected to company tax but partners are taxed according to their earnings. • Must be registered at CAC.

COMPANY (ENTITY) • Could be private or public. • Membership is minimum of 2 and maximum of 50 for private; while membership for public is minimum of 7 and maximum is unlimited. • Must have Memo and Articles of Association. • Must be registered at CAC. • Has separate legal entity subject to lifting of veil of incorporation.

• Can sue and be sued. • Can borrow which must be supported by board resolution. • Can guarantee. • Must hold AGM (especially PLE/PLC). • Must file annual return at CAC (especially PLC/PLE). • Can access fund from capital market (only for PLC/PLE). • Must have Board of Directors.

Agents • commission agents e. g. del credere agents who guarantees the buyer of the goods of his principal • Brokers. • Auctioneers. • Estate Agents. • Manufacturers’ representative. • Forwarding and clearing agent. • Factors (buy and sell goods based on price given to him by his principal).

3. 00 Once you have decided to go into a business you have to prepare feasibility study/ business plan. See Luke 14: 28 -33 Contents of a good feasibility study/business plan • Make an introduction. • Describe the business (services or production). • The strategy you intend to come into the market, advertising, pricing e. g. penetrating pricing etc.

• Brief about ownership/management team. • Financial implication/analysis – include cash flow profit and loss projection. • Funding – sources, cost of it. • Expected take off time. • Other current issues that will aid the success of implementation of your F/S e. g. environment. 3. 01 Seek advice – nothing new under the sun. • Use SWOT analysis to appraise yourself and the business which you have in mind.

4. 01 Factors affecting sources of Finance • Cost of Finance – equity is the cheapest. • Availability of a particular source. • Government policy. • Economic conditions. • Socio/cultural factors.

4. 02 Sources of Finance. • Personal savings. • Sales of Assets e. g. shares, gold, items not needed, land, proprietary rights. • Inheritance • Trade Finance. • LPO Finance. • Equity • Private placement, Angel Investors/Venture Capital.

• Leasing. • Bills discounting (note Dishonoured cheques Act, Bankruptcy Act) • Upfront payment for your services. • Hire Purchase. • Allowances e. g. car, housing allowances. • Retained Earnings. • Factoring/Accounts receivable financing.

• Grants e. g. Dangote, Elemelu Foundation, Women Funding from Ministry of Women Affairs, CBN grants funded by Federal Government. • Bankers Acceptance • Commercial Paper

• Borrowing from financial Intermediaries. You will not be the first person to borrow. Dangote the richest man in Africa borrowed to start his business. Examples are also in the Bible of people who borrowed. You can borrow from the following sources: q. Informal credit sector e. g Esusu/Ajọ etc.

q. Financial institutions e. g. Deposit Money Banks, Merchant Banks, Non-Interest Banks e. g. JAIZ Bank Plc, Micro Finance Bank, Development Banks e. g. BOI, BOA, FMBN, NEXIM. q. Insurance Companies, q. Asset Management companies. q. Cooperative Societies.

If you have decided to borrow – do a self appraisal. Financial institutions have their own templates to appraise your proposal for credit facility (loan or overdraft). Any bank’s template for appraisal will comprise any of these acronyms – 5 CS or CAMPARIDIO is highly recommended because it includes all the consideration for approval of loan/overdraft.

C – Character A – Ability M – Means P – Purpose A – Amount R – Repayment I – Interest – If loan is amortized, you will pay the same amount even though your loan is reducing D – Duration I – Insurance – insurance here refers to type of security/collateral O – Other considerations

Types of securities acceptable • Self recognition • Cash • Guarantee – a minor cannot guarantee an adjudged bankrupt cannot person of mental disorder cannot If a wife wants to guarantee her husband, independent legal advice is recommended.

• Land/building – The land on which the property is erected must have C of O or Deed of conveyance, an approved building plan is a must • Life polices – must have insurable interest and has acquired a surrender value. • Hypothecation of goods • Shares/stock/bond certificate • Assignment of book debt • Contract fees • Bill of Lading • Future earning from a life tenant

5. 01 How to access finance from Financial Intermediaries. From Deposit money Banks, Merchant Banks, Microfinance Bank • Must have an account with the Bank • Submit proposal including FI/BP • Do not forget to ask for moratorium if needed. • If request is approved examine critically terms of the offer before acceptance

From Development Banks e. g. BOI, BOA, NEXIM, FMBN. The development banks are funded by the Federal government • Form a cooperative society where at least 7 of you are members (BOI and Dangote prefer this). • Deposit money Banks can be approached to get details or go to the Development Banks. BOA is at Total Garden, Ibadan, BOI is in Akure for the south west, NEXIM is in Lagos.

Some biblical verses on borrowing AGAINST IN SUPPORT Deuteronomy 28: 12 Luke 6: 35 The Lord shall open unto thee his good Exodus 22: 25 -27 treasure, the heaven to give the rain unto thy Matthew 5: 42 land in his season and to bless all the work of thine hand thou shall lend unto many nations and thou shall not borrow. Hebrews 13: 5 Let your conversation be without covetousness and be content with such things as ye have for he hath said I will never leave thee nor forsake thee. Where is your faith!!!

6. BASIC FINANCIAL RECORDS/BOOK KEEPING Any business organisation involved in trading must record all financial transactions Important records that must be kept are: • Cash Book • Purchases Book • Sales Book • Accounts Payable • Accounts Receivable • Stock Book

• Expenditure Book (may have different sub-divisions) e. g. car maintenance, generator maintenance, entertainment etc. • Wages/Salaries • Bank Book From the above you will be able to prepare profit and loss account/statement, statement of financial affairs or balance sheet.

• Statement of Financial Affairs or balance sheet will have Assets and Liabilities. • Assets are categorised into Fixed Assets (Land, Building, Vehicles, Machineries) and current Assets (cash, credit balance in bank, debtors, stock, prepaid expenses) while Liabilities are categorized into Equity/Capital and Current Liabilities (creditors, accrued expenses, Bank overdraft/loan) Your current assets must be more than your current liabilities, the acceptable ratio is 2: 1. However the acid test ratio of 1: 1 is the best. Gearing Ratio (debt to equity) should be 0. 67: 1

7. ADVICE 1. Put everything to PRAYER. 2. Embrace Financial Discipline, keep financial records. 3. Be honest and have integrity, ensure that your F/I has confidence in you. Choose a good name rather than riches. Favour is better than silver or gold. Dishonest money dwindles away. Prov 13: 11 4. Monitor sales and lodgment of sales proceeds in the banks. 5. If you offer credit sales, payment for the credit sales is received at least 5 days. before repayment date of facility if it is loan

6. Learn how to manage financial success or breakthrough. 7. Ensure quality products are produced. 8. Advertise your product visibly and loudly. 9. Belong to a network of people or organizations in similar business. 10. Learn how to be humble 11. Treat customers as kings. 12. Accept criticism.

13. From time to time you may experience an unfavourable period. Philippians 3: 13 -14 “But one thing I do, forgetting what is behind and standing toward what is ahead. I press on toward the goal”. 14. Honour church Obligations 15. Seek advice.

Thank you

Appendix I PERSONAL INCOME BUDGET Prepare your personal budget for the month of under the following headings. % of Take Home Pay Other Income Church obligation Feeding Rent Electricity/Generator Car Maintenance/ Transport School Fees House Boy/ Girl DSTV/ Startimes etc. Social Commitments Refuse Collection Dependants Contingency- Pocket Money Savings Loan Repayment and Clothing/Dry Cleaner Net Disposable Cash Total Expenses Income

Appendix 2 CASH FLOW PROJECTION Period From MONTH To 1 2 3 CASH INCOME 1. Capital and/or Loans introduced 2. Sales proceeds (Cash received) 3. Other income (give deatials) (A) CASH EXPENDITURE 4. Loan Repayment 5. On Fixed Asset (i) Land Buildings 4 5 6 7 8 9 10 11 12 (ii) Plant and Equipment (iii) Others (give details) 6. Operating Expenses (i) Raw Materials (incl. Duty and charges) (ii) Packing Materials (incl. duty and charges) (iii) Stock (trading Concerns) (iv) Salaries Wages and Bonus, NPF etc. (v) Transport and Freight (vi) Excise Duties (vii) Factory Expenses (viii) Office Expenses Contigencies 7. Income Tax 8. Other Expenditure (i) Interest Charges (ii) Other Bank Charges (iii) Miscellanous (Specify) B 9. Summary Cash Expenditure (B) Opening Bank Balance Closing Bank Balance