1. POB 4.01 PARTS 1 & 2 4.01 Understand financial planning.

2. Financing Terms  Revenue – all income a business receives over a period of time  Expenses – costs of operating a business  Profit – occurs when revenue is greater than expenses  Loss – occurs when expenses are greater than revenue

3. Financial Planning for Businesses  Beginning of a Business  Money needed to start  Financing sources  Money to operate until profitable  Sources of sales  Expenses

4. Financial Planning for Business, cont  Ongoing  Paying employees  Supplies & materials  Maintaining the building and equipment  Technology updates

5. Financial Planning for Business, cont  Business Expansion  Reasons to expand – serve more customers, reach unserved markets, or sell new products  Costs associated with expansion – research, new employees, marketing activities  Need to determine if revenue will be greater than costs

6. What is a Budget?  Budget – detailed plans for the financial needs of individuals, families, and businesses.  Purposes of a Budget  Anticipate sources and amounts of income  Predict types and amounts of expenses  A budget is successful when revenue > expenses

7. 4 Steps in Planning a Budget  1. Prepare a list of each type of income and expense  2. Gather accurate info for each type of income and expense  3. Create a budget and calculate income, expenses, and net profit or loss  4. Explain the budget to those who make decisions

8. Types of Budgets  Start-Up – plans income and expenses from the beginning of the new business or a major expansion until it becomes profitable.  Includes buildings, equipment, inventory, supplies, materials, employees, utilities, licenses, advertising and transportation

9. Types of Budgets, cont  Operating Budget – a financial plan for ongoing operations of the business for a specific period of time  Usually 3 months, 6 months or 1 year

10. Types of Budgets, cont  Cash Budget – estimate of actual money received and paid out for a specific period.  Need to determine if there will be enough money to pay bills or if the business will need to borrow money