Chapter # 5 Financial Plan

Financial Plan for start up business A financial plan is a series of steps or goals used by an individual or business, the cumulative attainment of which are designed to accomplish a financial goal. The financial plan presents forecasts for the future of the business. The financial plan presents forecasts for the future of the business. Financial statements. Financial projections, Capital and Operating Budgets and other important documents related to company finances. Financial statements. Financial projections, Capital and Operating Budgets and other important documents related to company finances.

Financial Plan for start up business  The Financial Planning activity involves the following tasks:  Assess the business environment  Confirm the business vision and objectives  Identify the types of resources needed to achieve these objectives  Quantify the amount of resource (labor, equipment, materials)  Calculate the total cost of each type of resource  Summarize the costs to create a budget  Identify any risks and issues with the budget set

Financial Statements  Three important Statements referring to new business:  Income Statement  Cash Flows  Balance Sheet

Income Statement  Also refer to Profit & Loss Statement, Revenue statement, Statement of financial performance, Earning statement.  indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as Net Profit or the "bottom line")

Income Statement  The Income Statement shows your Revenues, Expenses, and Profit for a particular period. It's a snapshot of your business that shows whether or not your business is profitable at that point in time.  Revenue - Expenses = Profit/Loss.

Income Statement  While established businesses normally produce an Income Statement each fiscal quarter, or even once each fiscal year, for the purposes of the business plan, an Income Statement should be generated more frequently - monthly for the first year.

Sample Income Statement

Cash Flow Statement  The Cash Flow Projection shows how cash is expected to flow in and out of your business  A Cash Flow Projection will give you a much better idea of how much capital investment your business idea needs.

Cash Flow Projection vs. Cash Flow statement  The Cash Flow Statement shows how cash has flowed in and out of your business. In other words, it describes the cash flow that has occurred in the past. The Cash Flow Projection shows the cash that is anticipated to be generated or expended over a chosen period of time in the future.

Cash Flow Projection  Three parts:  Cash Revenues  Cash Disbursements  Reconciliation of Cash Revenues to Cash Disbursements

Sample Cash Flow Statement

Balance Sheet  The Balance Sheet presents a picture of your business' net worth at a particular point in time.  It summarizes all the financial data about your business, breaking that data into 3 categories; assets, liabilities, and equity.

Balance Sheet  Assets are tangible objects of financial value that are owned by the company.  A liability is a debt owed to a creditor of the company.  Equity is the net difference when the total liabilities are subtracted from the total assets.  All accounts in General Ledger are categorized as an asset, a liability or equity. The relationship between them is expressed in this equation: Assets = Liabilities + Equity.

Sample Balance sheet

Budgeting  Capital Budget  It is budget for major capital, or investment, expenditures. long term economics decision making is called capital budgeting.  Operating Budget  An operating budget is the annual budget projecting the expenses of activities required to help and keep the business in running condition.  Administrative Budget  A form of budget specifically developed for general administrative activity like staff salaries, wages, commissions etc