THC 3210 Entrepreneurship in Tourism and Hospitality

Topic: VI. Finance and Accounting: Understanding the Basics of Accounting and Financial
Management; Financing the Venture
• The Role Finance in an Enterprise
• Rules of Sound Financing
• Books Accounts
• Balance Sheet Classifications
• Cash Flow Statement
• Monitoring and Controlling the Cash Budget
• Sources of Capital
• The Initial Public Offering (IPO)
• The C’s of Credit

Prepared by: Group 5

Jeila Marie Martinez
Ashly Mae Martinez
Jhoana Mebato
Jethro Monfil
Honey Marie Nepangue
Rachel Nepangue
Sheila Nepangue
BSHM 3C
VI. Finance and Accounting: Understanding the Basics of Accounting and Financial
Management; Financing the Venture
 The Role Finance in an Enterprise
 Rules of Sound Financing
 Books Accounts
 Balance Sheet Classifications
 Cash Flow Statement
 Monitoring and Controlling the Cash Budget
 Sources of Capital
 The Initial Public Offering (IPO)
 The C’s of Credit

 The Role Finance in an Enterprise

The role of money in a business enterprise can be compared to the function of blood circulating
in the human body.
FUNCTIONS OF A FINANCIAL MANAGER:
A. Treasurership. To see to it that there are sufficient funds to provide for all needs of the
various operating units.
B. Comptrollership. To see to it that the funds are effectively and efficiently utilized.
Financial Planning a course of action for obtaining and using the money that is needed to
implement the goals of the business organization

THREE STEPS INVOLVED IN FINANCIAL PLANNING:

1. Establishing Objectives
2. Budgeting
3. Identifying the sources of funds.
USES OF FUND
FUNDS refer to money, or its equivalent, which is used in obtaining and bringing together
resources for the attainment of your business objectives.
Funds are used to obtain resources (Assets).
Assets can be classified as current or working capital (day-to-day) or fixed assets (long term)
SOURCES OF FUND
Sole Proprietorship - money comes from the one person (owner's capital or owner's equity)
Partner - several contributors of money (Partner's Capital)
Corporation contributed money (Stockholder's equity)
Some sources of fund:
1. Short-term financing (one year or less)
a. Trade Credit - goods can be paid withing 30 to 90 days.
b. Promissory notes - written pledge by a borrower to pay a certain sum of money to a lender at
a specific future date. (with interest)
c. Unsecured bank loans - Owners borrow at interest rates that vary in accordance with their
credit ratings. Borrowers with high credit ratings get lower interest rate.
d. Commercial Paper. This is short-term promissory note issued by big corporations.
Commercial paper is secured by the reputation of the issuing corporation.
2. Long-term financing (more than one year)
a. Loans. These require collateral.
b. Stock. This is a certificate of ownership.
c. Bond. This is a certificate of indebtedness.

 Rules of Sound Financing

Sound financing hinges on responsible resource management, encompassing budgeting, cost
analysis, risk assessment, and adherence to policies and regulations, ultimately aiming for
sustainable financial health.
Key principles for sound financing:
1. Budgeting and Planning:
Establish a Budget: Create a realistic and attainable budget that serves as a tool for financial
planning and control.
Thorough Analysis: Base the budget on a thorough analysis of anticipated revenues and
expenses, considering both short-term and long-term financial goals.
Regular Comparison: Compare actual financial results with the budget on a regular basis to
identify variances and take corrective action.
2. Cost Management and Control:
Optimize Resource Allocation: Ensure that resources are allocated efficiently and effectively,
maximizing value for every dollar spent.
Cost Analysis: Regularly analyze costs to identify areas for improvement and cost reduction
without compromising quality or effectiveness.
Transparency and Accountability: Maintain clear and transparent financial records to ensure
accountability and track financial performance.
3. Risk Management:
Identify and Assess Risks: Identify potential financial risks and assess their likelihood and
potential impact.
Mitigation Strategies: Develop and implement strategies to mitigate identified risks, including
diversification of investments, contingency plans, and insurance.
Regular Monitoring: Continuously monitor the financial situation and adapt strategies as
needed to address changing circumstances.
4. Adherence to Policies and Regulations:
Comply with Policies: Ensure that all financial activities comply with relevant policies, rules,
and regulations.
Seek Professional Advice: Consult with financial professionals or advisors when necessary to
ensure compliance and make informed decisions.
Maintain Ethical Standards: Adhere to the highest ethical standards in all financial dealings,
promoting transparency and integrity.
5. Monitoring and Evaluation:
Regular Review: Regularly review financial performance and identify areas for improvement.
Performance Measurement: Track key financial performance indicators (KPIs) to measure
progress towards financial goals.
Continuous Improvement: Implement continuous improvement processes to enhance financial
management practices and achieve sustainable financial health.

 Books Accounts
Journal (Original Entry) is a chronological record of the business transactions of the enterprise.
General Ledger is a collection of accounts, usually bound, showing the different transactions
affecting the items in the balance sheet. General ledger provides a summary of all the changes
that affect each particular account.
Chart of Accounts shows the list of accounts and their arrangement in the ledger.
Financial Statement are the means of conveying to interested parties, such as the owner,
management, and other interested outsiders, the performance of the enterprise for a given period
(Income Statement), and its financial condition as of a specific date (Balance Sheet).
 Balance Sheet Classifications
The balance sheet is a formal statement that presents the financial condition of the company as
of a specific date.
Balance Sheet Classifications
A. Assets are items of value owned by the enterprise and include such item as cash, claims from
customers, goods for sale, land, building, machinery and equipment, and other property owned
by the firm.
 Current Assets
 Fixed Assets
 Other Assets
B. Liabilities are the amounts owned by the business.
These are classified into current and long-term.
 Current Liabilities
 Long-term Liabilities
C. Owner's Equity refers to the amounts invested by the owner/owners in the firm and includes
profits retained in the business

 Cash Flow Statement

Cash is the most liquid of all assets and the efficient use of cash is one of the most important
tasks of management.
The cash flow statement is a supporting document that shows the sources and purpose of cash
payments during an accounting period.
INCOME STATEMENT
The income statement shows the revenues realized by the business, as well as the costs and
expenses incurred in the realization of said revenues. This is also called profit and loss statement.
Transactions that increase the owner's equity are referred to as revenues.
REVENUES of a business consist of the sale of goods or services during the period for which
the statement was prepared.

EXPENDITURES consist of production, selling, and other expenses incurred in generating the
revenues. This expenditure are as follows: Cost of Sales, Selling expenses and General and
Administrative expenses.

 Monitoring and Controlling the Cash Budget

Monitoring and controlling a cash budget involve regularly tracking actual cash inflows and
outflows against the planned budget, analyzing variances, and taking corrective actions to ensure
financial goals are met and resources are used efficiently.
1. Tracking Actuals:
 Regularly record and compare: Track actual cash inflows (revenue, investments, etc.)
and outflows (expenses, payments, etc.) against the budgeted figures.
 Use technology: Utilize accounting software or spreadsheets to automate the tracking
process and generate reports.
2. Analyzing Variances:
Identify discrepancies: Compare actual cash balances and transactions with the budgeted
amounts to identify any significant variances (positive or negative).
Investigate the causes: Determine why variances occurred (e.g., unexpected expenses, delays in
payments, changes in sales).
3. Implementing Corrective Actions:
Adjust the budget: If necessary, revise the budget based on actual performance and emerging
trends.
Take proactive measures: Implement strategies to address variances, such as renegotiating
contracts, optimizing spending, or improving cash flow management.
Communicate changes: Inform relevant stakeholders about any budget adjustments and the
rationale behind them.
4. Forecasting Future Cash Needs:
Project future cash flows: Use historical data, current trends, and anticipated events to forecast
future cash inflows and outflows.
Plan for contingencies: Identify potential risks and develop contingency plans to address
unexpected cash shortages or surpluses.
5. Best Practices: Make variance analysis part of cash reporting practices: Regularly compare
actuals to budget and analyze the differences.
Make cash budget reporting routine: Establish a regular schedule for preparing and reviewing
cash budgets.
Plan for shortfalls and cash surpluses: Develop strategies to manage both situations.
Use technology to make tracking easier: Utilize accounting software or spreadsheets to
automate the tracking process.

 Sources of Capital
Businesses can raise capital from a variety of sources, including equity, debt, grants, and other
funding
Equity capital
 Angel investors: Wealthy individuals who provide financing in exchange for an equity
stake in the company
 Venture capital: Investment firms that focus on businesses with high-growth potential
 Retained earnings: Profits that are left in the business to be reinvested
 Debt capital
 Bank loans: Loans that are usually less expensive than other short-term options
 Debt securities: Corporate bonds, promissory notes, debentures, and leases that are
issued to the public
 Grants
 Government grants: Free money from the government for research-related businesses

Other funding
Crowdfunding- Small contributions from many people in exchange for an equity interest in the
company
Business incubators- Organizations that fund startups and provide advice, training, and office
space
Working capital- The money needed to pay day-to-day expenses and meet obligations
Capital structure- On a balance sheet, borrowed money appears as a capital asset, while the
amount owed appears as a liability.

 The Initial Public Offering (IPO)

Initial Public Offering (IPO)- is the term for the first time that a private company sells shares
of its stock to the public on a stock exchange. The event means that the company has
transitioned from private to public ownership, which is why an IPO is often referred to as
"going public."

Key Takeaways

 An initial public offering (IPO) refers to the process of offering shares of a private
corporation to the public in a new stock issuance.
 Companies must meet requirements by exchanges and the Securities and Exchange
Commission (SEC) to hold an IPO.
 IPOs provide companies with an opportunity to obtain capital by offering shares through
the primary market.
 Companies hire investment banks to market, gauge demand, set the IPO price and date,
and more.
 An IPO can be seen as an exit strategy for the company’s founders and early investors,
realizing the full profit from their private investment.

What Is the IPO Process?

The IPO Process essentially consists of two parts.

The first is the pre-marketing phase of the offering, while the second is the initial public
offering itself. When a company is interested in an IPO, it will advertise to underwriters by
soliciting private bids or it can also make a public statement to generate interest.

The underwriters lead the IPO process and are chosen by the company. A company may
choose one or several underwriters to manage different parts of the IPO process collaboratively.
The underwriters are involved in every aspect of the IPO due diligence , document preparation,
filing, marketing, and issuance.

Steps to an IPO

1. Proposals. Underwriters present proposals and valuations discussing their services, the
best type of security to issue, offering price, amount of shares, and estimated time frame
for the market offering.
2. Underwriter. The company chooses its underwriters and formally agrees to underwrite
terms through an underwriting agreement.
3. Team. IPO teams are formed comprising underwriters, lawyers, certified public
accountants (CPAs), and Securities and Exchange Commission (SEC) experts.
4. Documentation. Information regarding the company is compiled for required IPO
documentation. The S-1 Registration Statement is the primary IPO filing document. It
has two parts—the prospectus and the privately held filing information. The S-1
includes preliminary information about the expected date of the filing. It will be revised
 often throughout the pre-IPO process. The included prospectus is also revised
continuously.
5. Marketing & Updates. Marketing materials are created for pre-marketing of the new
stock issuance. Underwriters and executives market the share issuance to estimate
demand and establish a final offering price. Underwriters can make revisions to their
financial analysis throughout the marketing process. This can include changing the IPO
price or issuance date as they see fit. Companies take the necessary steps to meet
specific public share offering requirements. Companies must adhere to both exchange
listing requirements and SEC requirements for public companies.
6. Board & Processes. Form a board of directors and ensure processes for reporting
auditable financial and accounting information every quarter.
7. Shares Issued. The company issues its shares on an IPO date. Capital from the primary
issuance to shareholders is received as cash and recorded as stockholders' equity on the
balance sheet. Subsequently, the balance sheet share value becomes dependent on the
company’s stockholders' equity per share valuation comprehensively.
8. Post IPO. Some post-IPO provisions may be instituted. Underwriters may have a
specified time frame to buy an additional amount of shares after the initial public
offering (IPO) date. Meanwhile, certain investors may be subject to quiet periods.

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 The C’s of Credit
5C’s- a system used by lenders to gauge the credit worthiness of potential borrowers
1. Capital- Lenders also analyze a borrower's capital level when determining
creditworthiness. Capital for a business-loan application consists of personal investment
into the firm, retained earnings, and other assets controlled by the business owner.
2. Capacity- The borrower’s ability to repay the loan based on their income and debt.

3. Conditions- refer to the terms of the loan itself as well as any economic conditions that
might affect the borrower.

4. Character- refers to a borrower's reputation or record regarding financial matters. The

old adage that past behavior is the best predictor of future behavior is one that lenders
devoutly subscribe to.

5. Collateral- Personal assets pledged by a borrower as security for a loan are known as
collateral. Business borrowers may use equipment or accounts receivable to secure a
loan, while individual debtors often pledge savings, a vehicle, or a home as collateral.