FINANCIAL RESOURCES MANAGEMENT Explain how budgeting relates to financial planning Describe two kinds of financial reports prepared by businesses

Financial Plan An outline of your expenses, needs, and goals and how you expect to meet them One reason small businesses fail is they do not manage their finances properly. An important part of a business plan. Must include a way of keeping records on income and expenses. Helps keep business on track and determine what its financial state is at any given time.

Purchasing Assets Asset – any property of item of value that your business owns (cash, equipment, buildings, supplies, inventory, land) Research options, analyze and compare prices, get the best item for your money Determine the method you will use to purchase the items Cash, borrow money

Accounting Requirements Recognize the financial records you need to keep Financial forecast – an estimate of what business conditions will be like in the future Plan for changes in the economy that might affect your business Be conservative and estimate your income on the low side and your expenses on the high side Using this current information you can make informed, reasonable decisions.

Accounting The systematic process of recording and reporting the financial position of a business Accounting records and reports help a business operate efficiently. Tracks how much the business earns and spends Financial manager – the person in charge of a business’ financial planning, funding, and accounting Manage the funds and make sure the business is meeting its financial obligations Find sources for additional funds Plan long-range financial goals; outline the information you need to make decisions for the future

Budgeting Profit – what is left over after expenses are paid Budget – a written plan of what you expect you income and expenses to be over a certain period of time Helps you predict how much money you’ll need Helps control your spending Compare it periodically to your actual income and expenses to avoid financial problems Income(Revenue) – the money a business takes in or receives Most revenue or income comes from sales of products or services Credit – many sales not paid for 30 days or longer (is this still true?) Statement of Cash Flow – shows actual cash a business receives and has available on a daily basis Expenses – operating costs of the business Employee wages, benefits, advertising, rent, utilities, supplies, etc.

Start-up Budget – a plan for your income and expenses from the time you start the business to when it makes a profit Money for equipment, supplies, rent, paying employees Money for everything you might need for personal expenses Cash Budget – a plan for the actual money you expect to spend and earn on a daily, weekly, or monthly basis Salaries, utility bills, rent Tells you how much money is needed on hand at all times for day- to-day transactions Operating Budget – a plan for how much you expect to spend and earn over a given period of time Covers the total amount of regular transactions as well as other operating expenses (advertising, taxes, new equipment) Tells you how much money you need to keep you business running over the long term Gives a picture of the finances and becomes a “road map” for the company

Financial Records To keep track of how your business is actually doing financially, you need to keep accurate written accounts. tells how well you’re sticking to your budget and what your profits or losses are during a certain period. Investors and creditors also want to see your financial accounts Fiscal year – an accounting period which reports for one year Summarize the year with an income statement and balance sheet

Activity….. Calculate the net profit or loss for the month for Galaxy Comic Books: (use equation) Cash sales - $3560 Charge sales - $1240 Other revenue - $165 Salaries - $2450 Advertising - $200 Rent - $550 Supplies - $120

Income Statement A financial statement that shows revenues, expenses, and net income (profit) or loss for a period of time. Usually covers a period of 6 months or a year but may be shorter End-of-year statement shows how the business did for the entire year Basis for payment of taxes and decision-making

Balance Sheet A financial statement that lists a business’ assets (what a company owns) and liabilities (what a company owes) Shows what the business is worth on a particular date, usually the end of a year Shows owners equity (value of the owner’s investment in the business (also called net worth) Owner’s equity equation: Assets – Liabilities = Owner’s Equity

Overland Design Company Income Statement For the Year Ended December 31, 2012 Revenue Cash Sales $ 38,200 Charge Sales 180,600 Other Revenue 12,900 $231,700 Expenses Salaries and Wages $ 70,800 Marketing 22,250 Administrative Costs 31,900 Materials and Supplies 24,800 Other Expenses 19,100 Total Expenses 168,850 Net Income $ 62,850

Ex. Schribner’s Automotive, Inc. Balance Sheet In a balance sheet, both sides of the statement must be in balance Right-hand side shows the total of liabilities and owner’s equity to show that they equal the value of the assets on the left-hand side Ex. Schribner’s Automotive, Inc. Balance Sheet December 31, 2012 ASSETS LIABILITIES Cash $35,850 Accounts Payable $103,300 Investments 40,000 Payroll Taxes 22,000 Accounts Receivable 42,375 Mortgage 126,800 Buildings/Equipment 370,000 TOTAL LIABITIES $252,100 Owner’s Equity $236,125 Total Assets $488,225 Total Liabilities and Owner’s Equity

Maintaining Financial Records Accuracy Current Technology use Data files transfer easily Software capabilities What-if comparisons Mathematical calculations Updates records Comparisons