Operating Finance

Need to know: Opening the bank account Taxation Insurance

Opening a Bank Account Complete a bank mandate form Authorised signatures Copy of Memorandum and Articles of Association Certificate of Incorporation Name of the account

Taxation Income Tax – Sole Traders and partnerships Corporation Tax – Limited Companies on profits Value Added Tax – All Businesses in excess of certain threshold PAYE/PRSI – Employees etc.

Calculating Taxable Profits Taxable profits are calculated by deducting allowable business expenses from turnover. These include: Purchase of goods for resale Wages, rent, rates, repairs, lighting, heating Running costs of vehicles or machinery used in the business Accountancy and audit fees Interest paid on any monies borrowed to finance business expenses Lease payments on vehicles or machinery for business

PAYE/PRSI Operates on the basis that an employer deducts tax at a specified rate from an employee’s pay. Must register for PRSI/PAYE Need to make payments and returns to Collector-General

VALUE ADDED TAX Taxable Persons Rates of VAT Register for VAT Returns to the Collector General

NEED TO KEEP… Records Returns Information for Revenue Audits Record of transactions Quality Credit Control Correct financial books Trading Account, P&L Account, Capital Account, Balance Sheet Financial Software

Insurance Business Insurance Fire Burglary/theft All risks Public liability Product liability Employer’s liability Motor Insurance

Financial Statements

Types of Statements Cash Flow Profit & Loss Balance Sheet Break Even Analysis Initial Investment Sources of Funding Proposal

Cash Flow Statements

Managing Small Business Accounts Cash Method Only records income when cash is received Only records expenses when payment is made But what about credit? Accrual Method Sales recorded as sale made or items ordered Expenses recorded when order made

Cashflow Forecast Gives a monthly snap shot of the amount of money coming in and going out of the company’s bank account Note the positive or negative cash flow

Opening Balance Jan Feb March April Income Cost of Sales Rent Heating, Lighting, Water Tel., Internet Professional Fees Bank Charges Wages Material Equipment Transport Total Cost Closing Balance

Notes to Cash Forecast Opening Balance for each month to be brought forward amount from the previous month’s closing balance Sales may be up front, payment with purchase or 1, 2 or 3 months after sale – depends on type of business Office rent usually one month in advance Heating, Lighting and water usually give one month credit Telephone, Internet usually one month credit Professional Fees usually two months credit Bank charges and credit cards usually one month credit

Notes to Cash Forecast Wages and salaries usually same month Material costs – varies but usually one month Equipment – varies – 1, 2 or 3 months Transport costs – varies – up front etc.

Stocking / Destocking Stocking – Gearing up of materials and stock to supply increasing sales (may take a few months before positive effect realised) Destocking – Winding down of stock as sales reduce (effect seen immediately)

Information required for cash flow forecasting Easy to get for some expenses e.g. insurance, selling, administrative etc. Owner/manager source of information Trade Journals Note seasonality Avoid Estimating - aim for factual information as much as possible

Profit & Loss Account Sales (volumes or values) Cost of Sales Fixed Overheads Variable overheads

Business Name Profit & Loss Account Year 1 Year 2 Year 3 Year 4 Sales Cost of sales Gross Profit Gross Profit % Overheads Staff Production Premises Transport Selling and promotion General Expenses Finance Depreciation Total Overheads Net Profit/ (Loss) Tax on profit / (Loss) Profit retained for Business

Break-even Analysis Sales Price: Can this be increased? Sales Volume: Can this be increased? Cost of sales: Can this be reduced? Overheads: Can this be reduced?

Break-even Analysis Fixed Costs Machinery, salaries, rent, marketing Variable Costs Labour, materials and variable overheads Income Turnover

Break-even Analysis Contribution per unit sale Equals: Income per unit sales-variable costs Breakeven Point Fixed Costs Contribution per unit sales

Balance Sheet A snap shot of the balance between the company’s assets and the company’s liabilities on any particular day Fixed Assets Capital items not yet paid for Current Assets Actual cash in hand, actual amounts owed (debtors), Stock-in-hand (Unpaid stock as liability under creditors)

Balance Sheet Capital Shareholders capital –amount invested in business Retained earnings – profit or loss as recorded Term Liabilities Loans not due for repayment in this current year

Balance Sheet Current Liabilities Bank overdrafts, Tax payable Creditors

2007 2006 2005 BALANCE SHEET Fixed Assets Property Plant, Machinery, Vehicles TOTAL FIXED ASSETS Current Assets Bank Accounts Stock Debtors TOTAL CURRENT ASSETS Capital Shareholders Capital Retained Earnings TOTAL CAPITAL Term Liabilities Loans Current Liabilities Bank Overdraft Tax Payable Creditors TOTAL LIABILITIES

Initial Investment Summary € € Fixed Assets Property Renovations Fixture & Fittings Transport Machines and equipment Goodwill, security deposits Other Total Fixed Assets 2. Current Assets Stock of raw material Stock of finished goods Work in progress Debtors Total Current Assets 3. Liquid Assets Cash Bank Total Liquid Assets 4. Start-up costs Prepaid expenses Promotion, opening Total Start-up costs Margin for unforeseen costs

Investment : Sources of Funding € Internal Personal Assets Fixed assets Car Additional private mortgage Deferred loans (family) Other Total person assets Introduced as: Equity Loans External External equity Agreed Source Y/N External Debt (Long term) Agreed Mortgage Y/N Loan Y/N Leasing Y/N Other Y/N External Debt (Short term) Agreed Overdraft Y/N Suppliers' credit Y/N Payments received in advance Y/N Subsidies/Grants Agreed Agency Y/N Enterprise Board Y/N

Project Accounts WBS Breaks down the work into different packages. Each package can be assigned to a department or person Business Plan Short term estimates Long term estimates Feasibility of Project

Project Accounts Estimate Direct Costs Indirect Costs Labour Costs Procurement Costs Time related costs Unit Rates Factoring Estimating factoring

Project Accounts Sources of Finance Personal Investors State Agencies Partners Angels Venture Capital

Business Plan should help answer following questions: Who are you? What is your product or service? Who are your customers? Why will your customers buy my product or service? What price will your customers pay for your product or service?

Business Plan should help answer following questions: At this price, how many products/services will your customers buy? How many products/services can you make? How much does it cost to make/deliver each unit of product/service? How much start-up investment does the business need? Is this a viable business?