1. Plan and Track Your Finances
9.1 Financing Your Business
9.2 Pro Forma Financial Statements
9.3 Recordkeeping for Businesses

2. Essential Question
How can you asses your financial needs and get funding?
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3. Lesson 9.1 Financing Your Business
Learning Objectives
9.1-1 Estimate your startup costs and personal net worth.
9.1-2 Identify sources of equity capital for your business.
9.1-3 Identify sources of debt capital for your business.
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4. Assess Your Financial Needs
Startup Costs (include: equipment and supplies, furniture, vehicles, remodeling, legal and accounting fees, licensing fees.
Financial Statement
Net worth (owner’s equity): The difference between assets (items of value that you own) and liabilities (amounts you owe to others)
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5. Sample Startup Costs
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6. Sample Personal Financial Statement
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7. Equity Capital
*Debt-to-equity ratio: The relation between the dollars you have borrowed (debt) and the dollars you have invested in your business (equity)
Debt-to-equity ratio = Total Liabilities ÷ Total Equity
Equity capital: Money invested in a business in return for a share in the profits of the business
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8. Equity Capital (continued)
Personal Contributions
Friends and Relatives
Venture Capitalists
VC are individuals or companies that makes a living by investing is startups
They usually only go after what they see as making above average profits or with a chance to go public
Crowdfunding (using internet to get investments for share in company, some investors give without anything in return to support a business or cause.
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9. Debt Capital
Debt capital: Money loaned to a business with the understanding that the money will be repaid within a certain time period, usually with interest
Friends and Relatives
Can loan for equity or a loan.
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10. Debt Capital (continued)
Commercial Bank Loans
Secured Loans (loans backed by collateral)
Collateral: Property that the borrower forfeits if he or she defaults on the loan
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11. Types of Secured Loans
Line of Credit: lend up to a certain amount of money whenever the borrow needs it. This is a program with a fee and interest, even If the money wasn’t borrowed.
Long term loan: loan payable over a period greater than a year.
Accounts receivable financing: businesses that allow customers to charge merchandise and services to pay later. Banks will loan companies up to 85% of those outstanding accounts.
Inventory financing: when banks use inventory as collateral
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12. Debt capital Unsecured Loans (not backed by collateral
Reasons a Bank May Not Lend Money
Business is a startup
Lack of solid business plan
Lack experience
No confidence in borrower
Inadequate investment in the business
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13. Other sources of loans
SBA: offer loan programs. This organizations is going to try to help
Small business investment companies
Department of housing and urban development HUD: provides grants to cities to help develop needing areas.
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14. Assessment 9.1
What are the challenges of getting equity financing from friends and family?
Why is secured loans easier to obtain vs unsecured loans?
What is the main advantage of going to a bank with a SBA guarantee?
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15. Lesson 9.2 Pro Forma Financial Statements
Learning Objectives
9.2-1 Prepare a pro forma cash flow statement.
9.2-2 Prepare a pro forma income statement.
9.2-3 Prepare a pro forma balance sheet.
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16. Cash Flow Statement Cash flow statement
An accounting report that describes the way cash flows into and out of your business over a period of time
Forecast Receipts and Disbursements
Prepare the Cash Flow Statement
Cash receipts – Cash disbursements = Net cash flow
Economic Effects on Cash Flow
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17. Forecasted Receipts
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18. Forecasted Disbursements
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19. Pro Forma Cash Flow Statement
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20. Income Statement Income statement Prepare a Pro Forma Income Statement
Shows the business’s revenues and expenses incurred over a period of time and the resulting profit or loss
Prepare a Pro Forma Income Statement
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21. Pro Forma Income Statement
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22. Balance Sheet Balance sheet
A financial statement that lists what a business owns, what it owes, and how much it is worth at a particular point in time
Assets = Liabilities + Owner’s Equity
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23. Balance Sheet (continued)
Prepare a Pro Forma Balance Sheet
Types of Assets
Accounts receivable: The amounts owed to a business by its credit customers
Types of Liabilities
Accounts payable: Amounts owed to vendors for merchandise purchased on credit
Reductions in Assets
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24. Pro Forma Balance Sheet
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25. Lesson 9.3 Recordkeeping for Businesses
Learning Objectives
9.3-1 Differentiate between alternative methods of accounting.
9.3-2 Describe the use of journals and ledgers in a recordkeeping system.
9.3-3 Explain the importance of keeping accurate and up-to-date bank, payroll, and tax records.
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26. Essential Question 9.3
Why should entrepreneurs establish, maintain, and analyze appropriate accounting and business records?
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27. Cash or Accrual Accounting Methods
Cash Method vs Accrual Method
Two methods of reporting a business’s revenue and expenses
The major difference between the two methods is the timing of when transactions, including sales and purchases, are recorded.
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28. Cash or Accrual Accounting Methods cont.
Cash Method
Revenue is not recorded until money is actually received, and expenses are not recorded until they are actually paid.
Cash Flow statement is prepared using this method.
Accrual Method
Transactions are recorded when the order is placed, item delivered, serviced rendered.
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29. Best method? Small businesses usually use the cash method.
Larger companies use the accrual method. If you make less than 5 million a year you can choose either method
Accrual gives a better picture of a business long term profitability
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30. Recording Transactions
Any business activity that changes assets, liabilities, or net worth
Journals
Accounting records of the transactions you make
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31. 5 different journals business use
Sales Journal: record only sales of merchandise on account. Customers get now pay later.
Cash Payment journals: records only cash payments transactions(cash, check electronic payment)
Cash receipts journal: Credit cards
Purchase journal: record only purchases of merchandise on account. Receive supplies today but pay later
General Journal: Used to record any kind of transaction. Some businesses use this to record all transactions, other use this on transactions that do not fit any of the 4 above.
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32. Recording Transactions (continued)
Ledgers
Account: Accounting record that provides financial detail for a particular business item, such as for cash, sales, rent, and utilities
Subsidiary Ledgers (more detailed record of general ledger accounts)
Aging Tables (use to track accounts receivable and provide detailed summaries of transactions for each supplier and customer)
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33. General Journal/Ledger
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34. Aging Tables
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35. Journals vs ledgers Journals separate transaction types
Ledgers separate transactions by account
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36. Business Records Banking Records
Check register: A booklet used to record the dates and amounts of checks as well as the names of people or businesses to whom you have written checks
Balance Your Account
Reconcile Your Account (when you receive your bank statement you should reconcile it with your cash register)
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37. Business Records (continued)
Payroll Records
Payroll: A list of people who receive salary or wage payments from a business
Tax Records
Income Tax (if you earn profits you must pay income tax or pay a penalty)
Payroll and Tax Deductions (you must deduct taxes from your employees and submit to govt. Also must pay for unemployment insurance.
Sales Tax: tax on goods or services
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38. Assessment 9.3
Why would you want to use the accrual method vs the cash method to record revenue and expenses?
Why is it important to keep accurate payroll records?
If a small business owner uses their personal checking account with business, how would you convince them to separate their accounts?
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