1. Financial Plans, Accounting and Start Up costs
Entrepreneurship
Financial Plans, Accounting and Start Up costs

2. Plan and Track Your Finances
Finance Your Business
Pro Forma Financial Statements
Record Keeping for Businesses

3. Skim chapter 13 and pay close attention to the HIGHLIGHTED terms
Warm Up
Skim chapter 13 and pay close attention to
the HIGHLIGHTED terms

4. Goals Estimate your startup costs and personal net worth.
Finance Your Business
Goals
Estimate your startup costs and personal net worth.
Identify sources of equity capital for your business.
Identify sources of debt capital for your business.

5. Terms net worth debt-to-equity ratio equity capital
venture capitalists
debt capital
collateral

6. Assess Your Financial Needs
Itemize startup costs.
Determine the amount of capital required to start your business.

8. Personal Financial Statement
net worth =
assets ─ liabilities
personal financial statement =
personal assets ─ personal liabilities

10. Why is the net worth of an entrepreneur important to potential investors in the business?

11. Equity Capital debt-to-equity ratio
the relation between the dollars you have borrowed and the dollars you have invested in your business
The higher percentage of your own money that you have invested, the easier it will be for you to get others to invest.

12. Sources of equity include:
equity capital
the money invested in a business in return for a share in the profits of the business
Sources of equity include:
Personal Contributions
Friends and Relatives
Venture Capitalists
individuals or companies that make a living investing in startup companies

13. What are some of the ways entrepreneurs can get equity capital?

14. Debt Capital debt capital Friends and Relatives
money loaned to a business with the understanding that the money will be repaid
usually with interest
Friends and Relatives
determine how the loan will affect your relationship
prepare a formal agreement regarding repayment terms

15. Commercial Bank Loans secured loans collateral
loans that are backed by collateral
collateral
property that the borrower forfeits if he or she defaults on the loan

16. Types of secured loans include the following:
line of credit
long-term loan
accounts receivable financing
inventory financing

17. unsecured loans loans that are not guaranteed with collateral
only made to creditworthy customers

18. Reasons a bank may not lend money include:
The business is a startup.
A lack of:
a solid business plan
adequate experience
confidence in the borrower
personal investment

19. Other sources of loans include:
Small Business Administration
Small Business Investment Companies
Minority Enterprise Small Business Investment Companies
Department of Housing and Urban Development
The Economic Development Administration
State Governments
Local and Municipal Governments

20. Where can entrepreneurs look for debt financing?

21. Lesson 9.2 Pro Forma Financial Statements
Goals
Prepare a pro forma cash flow statement.
Prepare a pro forma income statement.
Prepare a pro forma balance sheet.

22. Terms cash flow statement Liability income statement Owner’s Equity
balance sheet
Current Assets
Revenue
Accounts Receivable
Costs of Goods Sold
Long Term Assets
Gross Profit
Accounts Payable
Net Profit
Current Liabilities
Assets
Long Term Liabilities

23. 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

24. Forecast Receipts and Disbursements
estimate
monthly cash receipts
monthly cash disbursements

27. Prepare the Cash Flow Statement
net cash flow =
cash receipts ─ cash disbursements
Tracking monthly cash flow statements
enables you to anticipate periods of positive and negative cash flow

29. Economic Effects on Cash Flow
Changes in the economy can dramatically effect the cash flow of businesses.
Business owners should make conservative estimates.

30. What does a cash flow statement show?

31. Income Statement income statement
shows revenues and expenses incurred over a period of time
shows the profit or loss for the time period

32. Prepare a Pro Forma Income Statement
The long-term growth of your business can be demonstrated by a pro forma income statement prepared for multiple years.

33. The pro forma income statement consists of:
Revenue
Cost of goods sold
Gross profit
Operating expenses
Net income before taxes
Taxes
Net income/loss after taxes

35. What does an income statement show?

36. Balance Sheet balance sheet assets = liabilities + owner’s equity
a financial statement that lists
what a business owns
what a business owes
how much a business is worth at a point in time
assets =
liabilities + owner’s equity

37. Prepare a Pro Forma Balance Sheet
fixed assets
used for many years
current assets
items that are used up in normal business operations
accounts receivable
the amounts owed to a business by its credit customers

38. long-term liabilities
debts that are payable over a year or longer
current liabilities
debts that must be paid in full in less than a year
accounts payable
amounts owed to vendors for merchandise purchased on credit

39. allowance for uncollectible accounts
the amount a company estimates it will not receive from customers
depreciation
the lowering of an asset’s value to reflect its current worth

41. Recap:
Income Statement
For a PERIOD of time
Shows profit or loss
Includes revenue and expenses
Balance Sheet
For a specific POINT in time
Shows the worth of a business
Includes assets, liabilities, and equity
Must balance on both sides

42. Name one example each of a current liability, a long-term liability,
a current asset, and a fixed asset.

43. Record Keeping for Businesses
Goals
Describe the use of journals and ledgers in a recordkeeping system.
Explain the importance of keeping accurate and up-to-date bank, payroll, and tax records.

44. Terms
transaction
journals
account
check register
payroll

45. Recording Transactions
any business activity that changes assets, liabilities or net worth
journals
accounting records of the transactions you make for
sales
cash payments
cash receipts
purchases
general

46. ledgers account A general ledger is made up of accounts.
an accounting record that provides financial detail for a particular business item

47. subsidiary ledger aging table
used for accounts payable to show in detail the transactions with each vendor from whom merchandise is purchased on account
aging table
a record keeping tool for tracking accounts receivable
shows how long it takes customers to pay their bills

49. What is the difference between a journal and a ledger?

50. Business Records A business checking account should be established.
check register
booklet (or electronic register) where you record information for each check written
amount
date
name of person or business receiving your payment
Chapter 9

51. Reconcile Your Account
Balance Your Account
You should balance your account each time a transaction occurs.
Reconcile Your Account
Each month you should reconcile your bank statement with your check register.

53. Payroll Records payroll
a list of people who receive salary or wage payments from a business

54. Payroll Taxes and Deductions
Income Tax
Businesses that earn a profit must pay income tax.
quarterly
Payroll Taxes and Deductions
deduct taxes from employees paychecks
submit taxes to the government
unemployment insurance taxes
Social Security taxes
voluntary deductions

55. Sales Tax Sales taxes are based on a percentage of sales.
Each month you deposit sales tax into a government owned account.
Chapter 9

56. What kinds of bank, payroll, and tax records do you have to keep?