Module 8 • The fi nancial plan
Tips when borrowing money • Check to make sure that your micro-lender is registered with MFRC. Ask to see the registration certificate.
• Never work with a lender who insists on keeping your ID document or bank card, or who demands your bank account PIN number.
• Never sign blank documents when applying for a loan. This means that the lender could add conditions to which you have not agreed.
• Compare interest rates from several different lenders before deciding where to borrow. • You are entitled to statements showing the costs of the loans, any payment made, and the remaining balance.
• You should be aware of any penalties that might be applied if you miss a payment. • Never borrow money from one lender to pay another. This means that you have too much debt.
Source: Saturday Argus
Questions to clarify your financial needs: (when your business is in operation) 1. Are credit customers stretching the thirty-day limit to ninety days or more, putting pressure on your capital resources?
2. If customers stick to their part of the agreement, what will be the effect on money available? 3. How effectively are your expenses controlled? 4. Are all the assets fully utilised? 5. Will extra finances generate sufficient income to cover the repayments and make a profit? 6. Can your financial needs be met in some way other than a loan? For example: • •
Leasing Renting
Activity 3 Greg’s Manufacturing is a small engineering business that is growing very quickly. Greg
needs to increase the production capacity and purchasing of raw materials if he wants to satisfy the growing demand of his customers. He went through the previously mentioned questions and realised that he would have to obtain external financing. If you were Greg’s assistant, what would your advice be? Motivate your answer.
2. Financial management
Applying for a loan is a very important and serious step for any entrepreneur. Your application for capital must convince the potential lender of its importance. It must reflect your business commitment both in face validity and content validity. This means that your proposal must look professional and contain all the necessary information. One of the biggest shortcomings or weaknesses of a small business is inadequate control over its finances. The “Financial Management Plan” is often compared with a map. It tells you how to get to your destination, provides alternatives, and warns you about certain obstacles like mountain passes and indicates the types of roads. Your financial management system will also assist you in arriving at your destination. Your business’s chances of success will be much higher provided you keep adequate financial records.
REMEMBER
Included in your business plan must be a cash-flow statement and a motivated list of all the machinery and equipment that you have and need.
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