SPORT AS A BUSINESS

Adam Trunks

Outcomes You will be able to understand the basic

terminology's used in a business/sports business

You will be able to relate these topics to your own sports business

You will be able to complete a cash flow forecast for your business

CASH FLOW What is cash flow?

- I want you to come up with a sentence you think best describes cash flow in a business.

Cash Flow – Is the sum of cash inflows to the organisation minus the sum of cash outflows, over a specific period of time.

CASH FLOW Cash flow forecasts

- These are detailed estimates of a firm’s future cash flow inflows & outflows per month. This allows a firm to plan.

E.G. This maybe arranging overdrafts when a short-term negative cash flow is expected.

Task – Complete the cash flow forecast for your business or own personal account.

Cash Flow Sources of cash flow problems:

- Overtrading- Stockpiling- Allowing too much credit- Unexpected events- Lack of planning

A successful cash flow would mean that a firm has enough cash to meet immediate needs, but not so much that resources are held in unproductive assets.

Cash Flow Statements Cash flow statements should help business’ to

foresee any cash flow problems. It can help highlight cash shortages where

borrowing will be required and also cash surpluses where investment can be arranged

Although cash flow statements are helpful to business’ – most entries are estimates and therefore cannot be 100% accurate

RECESSION!!!!

Overdraft An overdraft occurs when some one

withdraws from a bank account and they exceed the available balance. In this situation a person is said to be "overdrawn".

Personal or business accounts will likely have a overdraft limit in place which has been agreed with the bank previously, with the individual agreeing to an interest rate provided by the bank.

Overdraft What is likely to happen if the business goes

over the allocated overdraft limit, and what are the consequences' this might have on the business in the future?

Why might a business require an overdraft rather than a loan?

Loans Long term – more than 5 years Medium term – 1-5 years Short term – less than 1 year

Loans will in most cases help a business run its day to day business (also know as working capital). Companies will have assess what type of loan will be best suited to the business. Comparison of rates will need to be judged before agreeing any deal.

Loans Current liabilities

- Are short – term loans which must be repaid within a year or less. They will include a bank overdraft and any trade credit.

Trade Credit- Is a loan to the business from suppliers, known as

creditors. There is often a time lapse between receiving goods and services and settling the bills. Creditors are in effect providing an interest free loan.

Loans Long Term Loans

- Also known as long term liabilities Bank loans MortgagesAPR

– Annualised percentage rate. Measures the interest charges on a loan or credit as a percentage of a loan amount outstanding.

TV adverts – quick quid 2000%!!

Loans Loans are most often obtained from banks. Banks

are especially interested in lending when the economy is growing healthily. Why?

Interest rates can be fixed, variable or renegotiable at agreed dates.

The scheduling of repayments may also be flexible and related to the expected stream of income generated by the business.

In general – a longer term will carry a higher element of risk and therefore will carry a higher rate of interest and a greater demand for security by the bank.

Loans Dragons Den - Venture Capital. A venture capitalist is a person who invests in a

business venture, providing capital for start-up or expansion. Venture capitalists are looking for a higher rate of return than would be given by more traditional investments.

Generally, venture capitalists are looking for returns of 25 percent and up.

Assets Companies who may fail in finding a suitable

short term or long term loan may look to selling or leasing its FIXED ASSETS.

- Vehicles - Premises (only if it is owned by the company)- Machinery

- Equipment

Purchases Buying Groups - Alliance

- Foremost

A hire purchase agreement- A firm purchasing a particular asset pays a deposit to a finance house which then settles the amount outstanding in return for a stream of repayments by instalment, typically over 3-5 years. After all repayments are made, the product becomes the property of the business.

Rent Types of property rental agreement

You can rent premises by leasing them or if you require premises for a short term - for instance, to complete a large order - then consider a licence rather than a lease.

Leasing Leases typically have agreements of between

three and 25 years and can offer long-term stability. However, lease lengths are getting shorter and recent research suggests that the average length of a business lease is below eight years.

You will probably be able to negotiate this with your landlord and should certainly check before signing the contract.

Leasing Other than the rent itself, key areas of

the contract that you should study include:

lease length break clauses service charges dilapidations (an amount payable to the

landlord at the end of the lease) responsibility for maintenance and

repairs to the building and external areas

Licensing A licence could be of benefit to a small

business looking for a short-term property solution, of up to one year. Licences generally offer more flexibility and can usually be terminated at short notice on both sides. However, you would not have an automatic right to renew a licence, and it is always advisable to seek professional advice, from a chartered surveyor or solicitor.

Capital What is capital?

Capital consists of machinery, equipment and the buildings which can be used in the production process

Working Capital – means the finance needed to keep the company’s day-to-day business going. It includes all current assets but can be covered partly or wholly by short – term loans

Capital Share Capital

- Is the value of the sum invested in the business by the shareholders. They cannot get their money back, so managers know for certain that they will always have these funds.

Capital Employed- Is a total long-term finance for the business and includes share capital, retained profits and loans with more than one year to run