Principles of Business, Marketing, and Finance Financial Planning Copyright © Texas Education, 2011 . All rights reserved

Copyright © Texas Education, 2011 . All rights reserved  “Copyright and Terms of Service Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as the property of the Texas Education Agency and may not be reproduced without the express written permission of the Texas Education Agency, except under the following conditions: Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of the Materials and Related Materials for the districts’ and schools’ educational use without obtaining permission from the Texas Education Agency; 2) Residents of the state of Texas may reproduce and use copies of the Materials and Related Materials for individual personal use only without obtaining written permission of the Texas Education Agency; 3) Any portion reproduced must be reproduced in its entirety and remain unedited, unaltered and unchanged in any way; 4) No monetary charge can be made for the reproduced materials or any document containing them; however, a reasonable charge to cover only the cost of reproduction and distribution may be charged. Private entities or persons located in Texas that are not Texas public school districts or Texas charter schools or any entity, whether public or private, educational or non-educational, located outside the state of Texas MUST obtain written approval from the Texas Education Agency and will be required to enter into a license agreement that may involve the payment of a licensing fee or a royalty fee. Copyright © Texas Education, 2011 . All rights reserved

Financial Questions a Business Must Answer How much money is needed for start-up? Where to obtain financing? How will funds be obtained to run the business for the months or years until it becomes profitable? What will be the best sources of sales and other income? What will be the expenses and when will they be paid? Over 50% of new businesses fail within five years. One of the biggest reasons for failure is not enough start-up funds. Cash flow is huge for a business. Ask students to name businesses that have come and gone within the last 3-5 years in their community. Copyright © Texas Education, 2011 . All rights reserved

Four Steps for Budget Preparation Prepare a list of income and expenses. Gather accurate information for each income and expense. Create the budget by calculating each type of income, expense, and amount of net income or loss. Show and explain the budget to people who need financial information to make decisions. Successful businesses and individuals prepare and follow a budget. Have students prepare a quick personal budget based upon $1,200 of income per month and no financial aid from other sources. How many ran out of money, were able to save money? What were their primary expenses? Copyright © Texas Education, 2011 . All rights reserved

Three Types of Business Budgets Start-up Budget Operating Budget Cash Budget Ask students to define cash flow. Then explain why cash flow is so important to businesses. Also explain why businesses count on a line of credit for operation. Start-up budget-plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable. Operating budget-describes the financial plan for ongoing operations of the business for a specific period of time Cash budget-an estimate of the actual money received and paid out for a specific period of time Copyright © Texas Education, 2011 . All rights reserved

Financial Records and Financial Statements Recognize and Analyze the Financial Performance of a Business Assets Depreciation Inventory Account Cash Payroll Tax records Explain why it is important for a business or individual to have more assets than liabilities. Explain why the government requires businesses to maintain accurate business records for taxes. Payroll records are not only important for individuals but also the government to keep track of personal income taxes. Copyright © Texas Education, 2011 . All rights reserved

Important Financial Statements Income statement Revenue Expenses Net profit or loss Balance Sheet Assets Liabilities Net worth Copyright © Texas Education, 2011 . All rights reserved

Financial Performance Ratios Current ratio (current assets/current liabilities) Debt to Equity Ratio (total liabilities/owner’s equity) Return on Equity Ratio (net profit/owner’s equity) Net Income Ratio (total assets/net income) Copyright © Texas Education, 2011 . All rights reserved

Copyright © Texas Education, 2011 . All rights reserved Payroll Management Financial records of employee compensation, deductions, and net pay Information on each employee to calculate the company’s payroll and to make the necessary payments to each employee Payroll record-form used to document each employee’s pay history Name of employee Social security number Address Tax and benefit records Show students a check stub that lists a variety of deductions. Explain each deduction Copyright © Texas Education, 2011 . All rights reserved

Financial Decision-Making Company Strength-assets, liabilities, owner’s equity, sales, profits Calculate financial performance ratios to make decisions that result in the wise use of the company’s money Steps in Financial Decision Making Prepare a budget Use the budget as a guide to the operations of the business Make needed adjustments Explain how financial statements tell others about the strength of a company. The financial statements begin with the company’s budget. Investors, the government, shareholders, and others look at financial statements to determine the strength of a company. Copyright © Texas Education, 2011 . All rights reserved