2 Preparing Financial Documents SECTION 36.1Preparing Financial DocumentsWhat You'll LearnThe purpose of preparing financial documentsHow to develop a personal financial statementHow to determine start-up costs for a business
3 Preparing Financial Documents SECTION 36.1Preparing Financial DocumentsWhy It's ImportantThe most common reason for writing a business plan is to obtain financing for a business. In order to get the money you will need to start your business, you will need to prepare financial statements.
5 Preparing Financial Documents SECTION 36.1Preparing Financial DocumentsThe Financial Part of a Business PlanA major purpose of the business plan is to put together financial information relating to your business. Five important financial documents are:the personal financial statementthe start-up cost estimatethe income statementthe balance sheetthe cash flow statement
6 Preparing Financial Documents SECTION 36.1Preparing Financial DocumentsThe Personal Financial StatementThe personal financial statement is a summary of your current personal financial condition. It compares your assets to your liabilities at a particular point in time.An asset is anything of monetary value that you own.A liability is a debt you owe.
7 Preparing Financial Documents SECTION 36.1Preparing Financial DocumentsEstimating Start-Up CostsStart-up costs are a projection of how much money you will need for your first year of operation. You also need an estimate of operating costs after the first year.Slide 1 of 3
8 Preparing Financial Documents SECTION 36.1Preparing Financial DocumentsEstimating Start-Up CostsStart-up costs vary for each type of business, but are based on factors:The nature of your proposed business.The size of your business.The amount and kind of inventory needed.The estimated time between starting the business and earning income from sales.The operating expenses that must be paid before income is received.Slide 2 of 3
9 Preparing Financial Documents SECTION 36.1Preparing Financial DocumentsEstimating Start-Up CostsBusiness start-up costs may be one-time costs or continuing costs.One-time costs are expenses that will not be repeated after you begin operating the business, such as installation and deposits for telephone service.Continuing costs are operating expenses you will pay throughout the life of the business, such as rent and payroll.Slide 3 of 3
10 Preparing Financial Documents SECTION 36.1Preparing Financial DocumentsPersonal CostsYour personal costs are those expenses that are necessary for you to live during the start-up phase. You will need to project your monthly living expenses and household cash needs for at least the first year of business. You should have enough money available to pay for up to six months of living expenses.
11 Preparing Financial Documents SECTION 36.1Preparing Financial DocumentsFinancing SourcesThere are several funding sources used to start-up a business. Why are the sources divided into primary and secondary sources?
12 Reviewing Key Terms and Concepts ASSESSMENT36.1Reviewing Key Terms and Concepts1. Why is financial information included as part of a business plan?2. What items should be identified on a personal financial statement?3. What is the difference between an asset and a liability?4. What are start-up costs?5. What is the difference between one-time costs and continuing costs?
13 ASSESSMENT Thinking Critically 36.1 Why are friends and family usually consulted first when looking for loans?