2. Budgeting
Is the allocation of monetary funds based on a determined structure
What does this mean?

3. Budgets Plan for organization of revenues and expenditures
Plans for how you spend and save money
Are numerical records which predict spending for a specific time period
Are used as a planning guide and control device

4. Reasons for Budgeting Provide company or personal financial stability
Guide efficient business decisions
Establishes Goals
Control expenses and liabilities
Helps monitor your money

5. Basic Parts of a Budget Income Expenses sales Investments Example?
fixed
variable

6. Gross Income
Is the amount of income received before costs of goods and taxes
Is also known as “pre-tax” income

7. Net Income
Is the amount of income after costs of goods and taxes are deducted
Is also known as “after-tax” income

8. Creating a Budget Track spending List monthly income
List monthly expenses
Balance the budget

9. 1. Track Spending Keep receipts for all purchases and expenditures
Maintain a record of all checking account withdrawals
Save cash-spending records

10. 2. List Monthly Income
List all categories of income (sales or investments)
Determine the gross monthly income by adding all income together
Subtract the cost of goods sold from gross monthly income to determine the net monthly income
Net Income = Gross income - Expenses

11. 3. List Monthly Expenses List all categories of expenses
What expenses are the same every month?
What expenses are necessary but vary each month?
What expenses are unnecessary?
List all categories of expenses
Divide list of expenses into two categories:
fixed
variable
Eliminate unnecessary expenses

12. Fixed Expenses Remain the same regardless of business activity
Stay constant for a specific period of time
Examples include:
rent
insurance
equipment leases
Create a subtotal for fixed expenses by adding all fixed expenses together

13. Variable Expenses May change or fluctuate
Are sometimes hard to predict
Examples include:
cost of supplies
advertising expenses
utilities
Create a subtotal for variable expenses by adding all variable expenses together

14. 4. Balancing the Budget List the net income
Add the fixed and variable expenses together to find the total expenses
Subtract the total expenses from the total income
Net Income – Total Expenses =
if negative, a loss has occurred
find ways to decrease spending or increase income
if positive, a profit was made
move extra money to savings or miscellaneous account

15. Increasing Savings Make saving a priority Set a savings goal
Pay yourself first by putting aside a set amount
experts suggest 10 to 20 percent of gross income

16. What is Your Business Worth?
Owners need to know how much their business is worth
for additional purchasing and growth opportunities
to evaluate the financial health of a business
to plan for future business

17. What is Your Business Worth?
A business’s worth is determined by evaluating two main factors
assets
items of ownership convertible into cash
liabilities
money owed; debts

18. Assets
Include:
cash
equipment
buildings

19. Liabilities
Include:
equipment loans
charge accounts
rental fees

20. Net Worth Is the difference between what is owned and what is owed
Net worth = assets - liabilities
Is the most important factor when assessing a business’s financial strength