Finance I Everything you wanted to know about finance but were afraid to ask!

Finance Balance Sheet or Profit and Loss? – Sales – Equipment – Travelling Expenses – Debtors – Cash – Depreciation

Finance Profit & Loss Account – Always covers a period of time – Generally broken down into two areas Income minus Cost of Sales = Gross Profit Less Overheads = Net Profit – EBITDA – Core principal – match income and costs over he same period Balance Sheet – Always stated at a point in time – Records the worth of the company – break up value – Three main areas Assets Liabilities Capital & reserves Management Accounts V Statutory Accounts

Finance Dosh Limited Profit & Loss Account Sales100,000 Cost of Sales (30,000) Gross Profit 70,000 Overheads(20,000) Net Profit 50,000 Which company would you prefer to trade with? Brassic Limited Profit & Loss Account Sales100,000 Cost of Sales (30,000) Gross Profit 70,000 Overheads(20,000) Net Profit 50,000

Finance Dosh Limited Balance Sheet Debtors 30,000 Cash 20,000 Net Assets 50,000 P&L 50,000 Brassic Limited Balance Sheet Debtors100,000 Overdraft (50,000) Net Assets 50,000 P&L 50,000 Does this help?

Finance Dosh Limited Balance Sheet Debtors 30,000 Cash 20,000 Net Assets 50,000 P&L 50,000 Brassic Limited Balance Sheet Debtors100,000 Overdraft (50,000) Net Assets 50,000 P&L 50,000 As you can see Dosh collects its debts, Brassic does not, although there is a possibility that Brassic billed everything very late in the year.

Finance Cost an hourly rate for Sally – Salary £20,000 – Travel Allowance £2,000 – 5 weeks Holiday (inc. Bank Holidays) – 8 Hour day – What does Sally cost us and how much should we charge her out at per hour? (ignore NI & PAYE)

Finance Sally 1. Work out how many hours she could work in a year: 52 weeks less 5 weeks holiday 47 Times 40 hours per weekx 40 = 1, This is because we need to work out the costs over the same period that we can charge her out. Cost per annum 22,000divided by 1,880 = Therefore we must charge a minimum of per hour. Check: 1,880x ,000 If we had used 52 x 40 it would have been 22,000 divided by 2,080 hours If that was treated as the minimum charge we would recover: 1,880hours x10.58= 19,890 So we would have under-recovered 2,110

Finance 1.Our Overheads are £1.5m and we have 50 staff – how does that affect what we charge Sally out at? 2.If the average chargeability across the team is 75% what do we charge Sally out at?

Finance Overhead Loading 1. Divide the overhead over the available chargeable hours in the company. 2. Assuming that all work the same hours as Sally 50Staff working 1,880Hours = 94, Overhead load per hour 1,500,000divided by total hrs 94,000 = 15.96ph 4. So minimum charge is salary cost plus overhead recovery This only recovers cost and requires everyone to be chargeable for their entire time

Finance Chargeability 1. If the team is obly 75% chargeable then we need to further reduce the hours we can recover costs over 2. Full chargeability from before 94, Reduced to75% Divide overhead by the new total hours 1,500,000divided by reduced chargeable70500 = Add Salary cost 22,000divided by reduced chargeable 1,410 = Total charge to recover costs= 36.88

Finance We add £10 to the final cost figure. What is the margin? What is the mark up?

Finance Mark Up =Sales value - Cost Cost In our example Mark Up =27.11% Margin =Sales value - Cost Sales value Margin =21.33%

Finance P&L 1.Sally starts in business on 1/1/16 2.She puts £1,000 into the business as capital 3.Gets a contract paying her £50 an hour for 50 hours in January 4.Pays rent of £1,000 and a rent deposit of £1,000 5.Pays PI of £100 per month 6.Wants a salary of £20,000 pa 7.Pays travel of £400 8.Signs up to a “Virtual PA” service for £250 per month with 32 Days credit 9.She buys a laptop for £2,000 on 31 st January on her credit card but doesn’t pay it off until end of February 10.What is her Balance sheet on 1 st January 11.What is her P&L at the end of January 12.What is her Balance Sheet at the end of January

Finance Sally Balance SheetAs at 01-Jan-16 Current Assets Cash 1,000 Net Assets 1,000 Shareholders Funds Share Capital 1,000

Finance Sally Profit and Loss For the period 1 January to 31 January 2016 £ Sales2,500 Overheads Rent1,000 PI100 Salary1,667 Travel400 Virtual PA250 3,417 Net Profit/(Loss)(917)

Finance Sally Balance SheetAs at 31-Jan-16 Fixed Assets Laptop 2,000 Current Assets Cash0 Sundry Debtors1,000 Current Liabilities Bank Overdraft667 Trade Creditors2,250 2,917 Net Assets/ (Liabilities)83 Shareholders Funds Share Capital1,000 Profit & Loss(917) 83

Finance Cashflow – Using the figures from previous slide – Sally pays herself and all her costs immediately but the customer pays on 90 days. – She has no other work until April – What is her cashflow broken into months Jan- March.

Finance Sally Cashflow JanuaryFebruaryMarch Opening Balance0(3,167)(8,583) Receipts Capital1,000 Sales000 Total Receipts1,00000 Payments Rent1,000 Rent Deposit1,000 PI100 Salary1,667 Travel400 Virtual PA250 Laptop2,000 Total Payments4,1675,4173,417 Net Cashflow(3,167)(5,417)(3,417) Closing Balance(3,167)(8,583)(12,000)

Finance KPIs Gross Profit Project profitability Chargeability Net profit What else would you like to know?