1. FINANCIAL PLANNING Beginning a business Startup Money source
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FINANCIAL PLANNING
Beginning a business
Startup
Money source
Cost to maintain
Profitable when?
Expenses
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2. FINANCIAL PLANNING Ongoing operations Revenue -
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FINANCIAL PLANNING
Ongoing operations
Revenue -
All income received over a period of time
Expenses –
Costs of operating a business
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3. BASIC FINANCIAL EQUATION
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BASIC FINANCIAL EQUATION
Revenue – Expenses = Profit
Revenue – Expenses = Loss

4. FINANCIAL PLANNING Business expansion Expand to serve more Research
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FINANCIAL PLANNING
Business expansion
Expand to serve more
Research
More employees
More costs
Poor planning = failure
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5. DEVELOPING BUSINESS BUDGETS
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DEVELOPING BUSINESS BUDGETS
Budget
Detailed plans for financial needs
Budget purposes:
Anticipate sources/amounts of income
Predict types/amounts of expenses
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6. Sources of Budget Information
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Sources of Budget Information
Established Business
Past financial records
New Business
SBA
Company Publications
~ Dun & Bradstreet ~ Value Line ~Standard & Poor’s
Business Magazines
~ Fortune ~ Forbes ~ The Wall Street Journal
Professional associations
~National Federation of Independent Business
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7. Budget Preparation Developing a budget ~ Most important step
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Budget Preparation
Developing a budget ~ Most important step
Fundamental steps
Prepare list of types of income & expenses
Gather accurate information
Create budget
Explain the budget
Skills
Understand financial information
Computer skills
Mathematical ability
Effective communication
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8. TYPES OF BUDGETS Start-up budget Operating budget Cash budget
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TYPES OF BUDGETS
Start-up budget
Plans income/expenses from the beginning of a new business or expansion
Operating budget
Financial plan for ongoing operations of a business for a specific period
Cash budget
Estimate of the actual money rec. and paid out for a specific period.
Start up – most require thousands of dollars. Buildings/equip must be purchase, Inventory, supplies and materials, new employees hired or retrained. Expenses for utilities, licenses, advertising, transportation. Sources of financing.
Operating – cost of daily operations
Cash – estimate of cash coming in and out on a weekly basis
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9. CHAPTER 12
FINANCIAL RECORDS
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Used to record & analyze the financial performance of a business.
Types of records
Asset records
Building & equipment
Depreciation records
Amount assets have decreased in value
Inventory records
Type & number of products on hand
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10. FINANCIAL RECORDS Types of records (con’t) Records of accounts
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FINANCIAL RECORDS
Types of records (con’t)
Records of accounts
Identify all purchases & sales
Accounts payable
Purchases made from other companies
Accounts receivable
Customers that made purchases using credit
Cash records
All cash received & spent by business
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11. FINANCIAL RECORDS Types of records (con’t) Payroll records Tax records
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FINANCIAL RECORDS
Types of records (con’t)
Payroll records
Information on all employees
Tax records
All taxes collected, owed & paid
Maintaining financial records
Must be accurate & up to date
Used to be manual & time consuming
Technology has improved process
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12. FINANCIAL STATEMENTS Assets Liabilities Owners’ equity
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FINANCIAL STATEMENTS
Assets
What a company owns
Liabilities
What a company owes
Owners’ equity
Value of the owners’ investment
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13. FINANCIAL STATEMENTS The balance sheet The income statement
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FINANCIAL STATEMENTS
The balance sheet
Assets, liabilities, & owner’s equity for a specific date
Usually prepared every six months
The income statement
Reports the revenue, expenses, and net income or loss for a specific period.
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14. CHAPTER 12
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15. CHAPTER 12
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16. PAYROLL
…the financial record of employee compensations, deductions, and net pay
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17. PAYROLL SYSTEMS Actual Income Benefits Payroll taxes Income taxes
Social Security and Medicare (FICA)
Unemployment taxes (FUTA)
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18. PREPARING A PAYROLL Payroll records Preparing paychecks Direct Deposit
…the form used to track each employee’s pay history.
Preparing paychecks
Includes earnings report
Direct Deposit
Employer transfers net pay electronically into the employee’s bank account.
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19. AN EMPLOYEE’S PAYCHECK AND EARNINGS REPORT
Sample Earnings Report
Sample Paycheck
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20. USING FINANCIAL INFORMATION
Important financial information
Understanding financial performance ratios
Current ratio
Current assets/current liabilities
Can company pay when debts are due
Best ratio is 1:1
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21. USING FINANCIAL INFORMATION
Understanding financial performance ratios
Debt to equity ratio
Company liabilities /Owners’ equity
How much company is relying on outside money
No higher than 2:1
Return on equity ratio
Net profit/ Owners’ Equity
Rate the Owners’ are getting on their money
Compare to other private investments
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22. USING FINANCIAL INFORMATION
Understanding financial performance ratios
Net income ratio
Total sales/Net Income
Profit for each dollar of sales for a specific period
Compare to past ratio
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23. MAKING FINANCIAL DECISIONS
1st Prepare a budget
2nd Use budget to guide operations
3rd Look for discrepancies between actual and budgeted performance
4th Make needed adjustments
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