Tag: FINANCIAL BASICS COURSE

 

IN THIS COURSE, WE HAVE FIRST OF ALL LEARNT THE DIFFERENCES BETWEEN DEBT FINANCING AND EQUITY FINANCING. THE MAIN WAY OF DEBT FINANCING OCCURS IF YOU TAKE A LOAN FROM A BANK, THE MAIN WAY OF EQUITY FINANCIN OCCURS IF YOU TAKE AN INVESTOR – WHETHER PASSIVE OR ACTIVE – AS A PARTNER INTO YOUR BUSINESS.

THERE ARE SEVERAL ORGANISATIONS IN GHANA APART FROM BANKS WHICH GIVE OUT LOW-INTEREST LOANS – OR EVEN GRANTS – MAINLY TO START-UP BUSSINESSES. ON THE OTHER HAND, THERE ARE ALSO ORGANISATIONS OF SO-CALLED “ANGEL INVESTORS” THAT WOULD INVEST IN SMALL AND MEDIUM ENTERPRISES, ALSO FOR START-UP BUSINESSES.

THERE ARE ADVANTAGES AND DISAVANTAGES FOR BOTH FORMS OF FINANCING. ONE ADVANTAGE OF DEBT FINANCING IS THAT IS THAT IT IS MORE SHORT TERM THAN EQUITY FINANCING, ONE DISADVANTAGE – ESPECIALLY IN GHANA – IS A HIGH INTEREST RATE FOR LOANS. ONE ADVANTAGE OF EQUITY FINANCING IS THAT YOU DOM’T NEED TO PAY ANT INTEREST, AND THE RISK IS SHARED. ONE DISADVANTAGE IS THAT YOU GIVE AWAY PART OF YOUR BUSINESS, AS LONG AS THE BUSINESS EXISTS.

AT THE LONG RUN, WHETHER YOU PREFER DEBT FINANCING OR EQUITY FINANCING DEPENDS ON THE NATURE OF YOUR BUSINESS, AND ESPECIALLY ON YOUR OWN RISK PROFILE. WHETHER YOU ARE READY TO TAKE A BIG RISK OR YOU ARE A LOW-RISK TAKER, ONE THING YOU MUST DO BY ALL MEANS: YOU MUST ANALYSE YOUR INTENDED BUSINESS, WHETHER AS OBJECTIVELY AS POSSIBLE THE BUSINESS WILL BE SUCCESSFUL.

 

1. INTRODUCTION

 

IN THE PAST, I HAVE WRITTEN SEVERAL TIMES ABOUT THE NECESSITY OF FINANCIAL LITERACY, AND THOSE OF YOU WHO FOLLOW RECKLING ENTERPRISE AND ITS BLOGS, WILL SURELY REMEMBER THAT..

I CONSIDERED IT IMPORTANT TO RENEW MY THOUGHTS ABOUT THIS MATTER, BECAUSE EVERY DAY I SEE THE STRUGGLE THAT ESPECIALLY PEOPLE IN THE INFORMAL SECTOR HAVE TO KEEP THEIR BUSINESSES ALIVE.

MOST SMALL BUSINESSES COLLAPSE IN THE FIRST YEAR OF THEIR EXISTENCE, AND IN MOST CASES, IT IS BECAUSE OF FINANCIAL REASONS. THE BUSINESSES ARE EITHER UNDER-CAPITALISED, OR THE BUSINESS OWNERS JUST “EAT” THE CAPITAL OF THEIR BUSINESS.

LET;S MAKE IT CLEAR: YOU CAN ONLY RUN YOUR BUSINESS SUCCESSFULLY IF YOU DON’T TOUCH YOUR WORKING CAPITAL. YOU MIGHT TAKE SOME OF YOUR NET PROFIT FOR CONSUMPTION (NET PROFIT EQUALS GROSS PROFIT MINUS ALL EXPENSES), BUT ONLY PART OF IT. THAT IS BECAUSE YOUR BUSINESS SHOULD NOT ONLY MOVE ON THE SPOT. IT SHOULD ALSO MOVE FORWARD, AND IT CAN ONLY MOVE FORWARD, IF THE WORKING CAPITAL INCREASES. YOU MUST SEE TO IT THAT YOU CAN ALWAYS OFFER MORE GOODS OR BETTER SERVICES TO THE PUBLIC.

BECAUSE THERE IS A LOT OF MISUNDERSTANDING ABOUT RUNNING A BUSINESS – ESPECIALLY THE FINANCIAL ASPECT OF IT – RECKLING EBTERPRISE HAS DECIDED TO OFFER THE GENERAL PUBLIC A BASIC COURSE ON FINANCING. THE COURSE IS DESIGNED FOR BEGINNERS IN THE AREA OF FINANCING, WITH STRESS ON ENTREPRENEURS IN THE INFORMAL SECTOR OF THE ECONOMY.

 

ONE THING MUST BE SAID BEFORE WE START: THE PURPOSE OF THIS COURSE IS NOT TO EDUCATE PEOPLE ABOUT THEORIES OR DIFFERENT MODELS OF FINANCING; THE PURPOSE OF THIS COURSE IS TO GUIDE THE LEARNER TO FIND THE BEST WAY TO FINANCE A START-UP BUSINESS AND TO RUN AN EXISTING BUSINESS. THE USER OF THIS COURSE WILL LEARN TO UNDERSTAND THE DIFFERENT ROLES WITHIN A FINANCING AND ECONOMIC FRAMEWORK. NOW LET’S START:

 

THIS COURSE CONTAINS THE FOLLOWING LESSONS:

• INTRODUCTION AND DEFINITION
• FORMS OF FINANCING – OVERVIEW
• DEBT FINANCING
• EQUITY FINANCING
• WHICH FINANCING OPPORTUNITIES ARE THERE IN GHANA?
• WHICH FORM OF FINANCING IS THE RIGHT ONE FOR YOU?
• CONCLUSION

 

EVERY LESSON IS SEPARATED INTO THREE PARTS. THE FIRST IS THE TEXT, OF WHICH YOU SHOULD UNDFRSTAND THE CONTENTS.THE SECOND PART CONSISTS OF UP TO FIVE QUESTIONS ABOUT THE CONTENTS OF THE TEXT; YOU SHOULD DISCUSS AND ANSWER THESE QUESTIONS. IN THE THIRD AND FINAL PART, SEND YOUR ANSWERS TO RECKLING ENTERPRISE. WE WILL CHECK THE ANSWERS AND, IF NECESSARY, CORRECT THEM. WHEN YOU HAVE COMPLETED THE LESSONS SUCCESSFULLY, WE WILL SEND YOU A CERTIFICATE FOR COMPLETION.

NOW LET’S START WITH THE DEFINITION OF FINANCING:

 

 

 

 

 

1. DEFINITION

 

BEFORE WE START DISCUSSING THE SUBJECT, AND HOW YOU DEAL WITH IT IN THEBEST WAY, WE MUST FIRST OF ALL FIND OUT WHAT FINANCING IS. THEREFORE, IT IS BEST TO START WITH THE DEFINITION OF FINANCING:

 

Financing is the process of providing funds for business activities, making purchases, or investing. Financial institutions, such as banks, are in the business of providing capital to businesses, consumers, and investors to help them achieve their goals. The use of financing is vital in any economic system, as it allows companies to purchase products out of their immediate reach. (COURTESY OF INVESTOPEDIA)

WE SEE FROM THE DEFINITION THAT FINANCING IS NOT A ONE-TIME EVENT, BUT A PROCEDURE. AND THIS DOES NOT ONLY APPLY TO THE INVESTMENT OF THE MONEY INTO THE BUSINESS, OR STARTING A NEW BUSINESS WITH IT. IF YOU ARE NOT LUCKY AND RECEIVE THE MONEY FROM FAMILY MEMBERS OR FRIENDS AS A GIFT, WE REALISE THAT THE ACQUIRING OF THE MONEY IS ALSO A PROCEDURE. AND THIS ACCOUNTS WHETHER TOY CHOOSE DEBT FINANCING OR EQUITY FINANCING (MORE ABOUT THE DIFFERENCES BETWEEN DEBT FINANCING AND EQUITY FINANCING IN ONE OF THE NEXT LESSONS).

WE ALSO SEE THAT FINANCING IS THE BASE OF EVERY ECONOMIC ACTIVITY.

Economic Activity is the activity of making, providing, purchasing, or selling goods or services. Any action that involves producing, distributing, or consuming products or services is an economic activity. Economic activities exist at all levels within a society. (DEFINITION FROM BING)

YOU SEE THAT NEARLY EVERYTHING YOU – OR OTHER PEOPLE – DO IS AN ECONOMIC ACTIVITY. IF YOU HAVE YOUR BREAKFAST, YOU ARE INVOLVED IN AN ECONOMIC ACTIVITY. THAT’S BECAUSE YOU CONSUME WHAT OTHER PEOPLE PRODUCE (ALSO AN ECONOMIC ACTIVITY).

AND ALL ECONOMIC ACTIVITIES NEED MONEY. WHETHER PEOPLE PRODUCE, DISTRIBUTE, OR CONSUME ANY GOOD OR SERVICE, THEY NEED MONEY TO DO IT.

IF YOU BUY SOMETHING, YOU FINANCE THE PURCHASE FROM YOUR INCOME, OR, MOSTLY IN CASE OF LARGER PURCHASES, THROUGH A LOAN.

AND, AS THE LAUNCHING OF A BUSINESS – AND THE RUNNING OF THE BUSINESS FOR THAT MATTER – IS CERTAINLY AN ECONOMIC ACTIVITY ACCORDING TO THE DEFINITION MENTIONED ABOVE, IT SURELY NEEDS FINANCING (EVEN IF YOU HAVE THE MONEY FOR IT UNDER YOUR BED OR BETTER, IN THE BANK).

HERE IN THIS COURSE, WE ARE NOT TALKING ABOUT BUSINESSES WHICH ARE FINANCED WITH MONEY THAT YOU ALREADY HAVE, BUT WITH MONEY FROM DIFFERENT SOURCES. THESE SOURCES ALSO GIVE OUT THE MONEY AS A BUSINESS, WHICH IS ALSO AN ECONOMIC ACTIVITY. MORE TO THAT IN THE NEXT LESSON.

THIS ECONOMIC ACTIVITY FINANCING IS, ACCORDING TO THE INVESTOPEDIA DEFINITION “VITAL FOR THE ECONOMIC SYSTEM…”

LET ME GIVE YOU AN EXAMPLE: IF THERE WOULD NOT BE ANY FINANCING, THE AUTOMOBILE INDUSTRY WOULD NOT BE ABLE TO SELL AS MANY CARS AS THEY DO, BECAUSE NOT MANY WOULD-BE OWNERS OF A CAR HAVE THE MONEY TO PURCHASE A CAR RIGHT AWAY. THEREFORE, THEY NEED FINANCING.

I THINK THAT NOW YOU KNOW ENOUGH WHAT FINANCING IS; LET’S GET TO THE QUESTIONS:

 

 

QUESTIONS

 

• WHAT ARE YOUR EXPECTATIONS CONCERNING THIS COURSE?
• THE DEFINITION SAYS THAT FINANCE IS A PROCESS; EXPLAIN WHY.
• WHICH ARE THE TWO CATEGORIES OF FINANCING?
• GIVE AN EXAMPLE OF AN ECONOMIC ACTIVITY EXCEPT FINANCING.
• GIVE ANOTHER EXAMPLE WHEN YOU WILL NEED FINANCING, APART FROM LAUNCHING YOUR BUSINESS OR BUYING A CAR.EXPLAIN IN DETAILS WHY YOU WILL NEED FINANCING.

NOW ANSWER THE QUESTIONS, IF POSSIBLE WITHOUT LOOKING AT THE TEXT.

THE NEXT LESSON WILL FOLLOW WITHIN ONE WEEK.