FINANCIAL PLANNING

FINANCIAL PLANNING

MANY NEW BUSINESSES

ONGOING OPERATIONS

OPERATIONS

• Revenues > income a biz receives
• Expenses > costs of operating a biz
• REVENUE - EXPENSES =PROFIT or LOSS
• Revenues are greater, you make a profit
• Expenses are greater, you suffer a loss

DEVELOPING A BUDGET

BUSINESS BUDGET GOALS

• Anticipate sources/amounts of income
• Predict types/amounts of expenses

PREDICTING THE UNPREDICTABLE

• If an existing business, use prior records
• If a new business, find other resources
• Small Business Administration
• Private businesses that collect/publish
• Industry publications, professional associations

CREATING THE ROADMAP

• List ea income/expense
• Gather accurate info from sources
• Create by calculating inc/exp/net income/loss
• Explain to those who make financial decisions

TYPES OF BUDGETS

START-UP BUDGET

• Plan for the beginning of the business
• Major expansion of a business
• One-time
• Buildings, equipment, inventory, supplies
• New employees, expenses for ongoing operations

CASH BUDGET

• Estimate of actual money rec'd & paid out
• Anticipates that cash will come in and be paid out
• Must have adequate cash on hand to pay for expenses
• Determines if a biz has adequate financial resources
• Can lead to investment opps when there is a lot on hand

OPERATING BUDGET

• Plan for ongoing day-to-day expenses
• Usually for 3-month, 6-month, or 1 year
• Review previous budgets, look for changes

RECORDS

RECORD TYPES

ASSET

DEPRECIATION

INVENTORY

RECORDS OF ACCTS

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CASH

PAYROLL

TAX

MAINTENANCE

STATEMENTS

3 MOST IMPORTANT ELEMENTS

• Assets > things of value OWNED
• Liabilities > what a company OWES
• Owner's Equity > value of the owner's investment

ASSETS = LIABILITIES + OWNER'S/SHAREHOLDER'S EQUITY

BALANCE SHEET

INCOME STATEMENT

SHOW ME THE MONEY...

COMPENSATION

• Insurance options
• Salary vs Hourly
• Bonuses
• Overtime

BENEFITS

• Insurance options
• Paid vacation
• Personal time-off
• Retirement accounts
• Education assistance

TAX RECORDS

• Income taxes
• Federal
• State (not all states)
• Social Security & Medicare
• Unemployment

PREPARING PAYROLL

PAYROLL VOCAB

• RECORDS > process & record pay history
• PAYCHECK > traditional payment type; net pay
• DIRECT DEPOSIT > transfers net pay direct to bank acct
• EARNINGS REPORT > current and ytd of pay/deduct info
• PAY STUB > an earning report attached to a paycheck

USING FINANCIAL INFO

FINANCIAL RATIOS

CURRENT RATIO

• Current Assets/Current Liabilities
• Tells you if the business can pay its debt
• Should be at least 1:1
• Means at least as many assets as debts

DEBT TO EQUITY RATIO

• Total Liabilities/Owner's Equity, no > 2:1
• Tells you how reliant the business is
• on money borrowed from others
• that will need to be paid back
• instead of provided by the owners

RETURN ON EQUITY RATIO

• Net Profit/Owner's Equity
• Shows rate of return on money invested

NET INCOME RATIO

• Total Sales/Net Income
• Compared for a time period, 6mo or a year
• Shows how much profit is being made
• by each dollar of sales for the same period
• Will show if additional sales are as effective

FINANCIAL SUCCESS

• Prepare a budget
• Use the budget as a guide for operations
• Make adjustments if discrepancies are found
• Prepare new statements