Entrepreneurship, Continued Financial Statements Retail Selling P.544 1-12

Why are financial documents an important part of a business plan? They help determine how much capital will be needed to start/operate the business. It is also required to obtain financing.

What factors determine start-up costs for a new business? Nature of proposed business Size of business Amount of inventory needed Time between using start-up funds from personal assets/potential lenders and first sales Timing of cash revenues and your expenses

What are personal costs and why is it important to consider them when starting a new business? Expenses that are necessary for you to live. To know how much you will need for personal expenses.

What are the key components of an income statement? Net sales Expenses of operating the business Net income from operations Net profit before taxes Net profit after taxes

List the steps in projecting income for a new business. Estimate total sales Subtract discounts, returns, allowances to calculate net sales. List estimated cost of goods sold. Subtract COGS to find gross profits. List and total monthly operating expenses. Subtract expenses from gross profits. Determine loss or profit by negative or positive result. Add other income, such as interest. Estimate taxes on income and subtract from profit.

Explain the difference between fixed and variable expenses. Fixed expenses do not change for a given period. Variable expenses may change, sometimes depending on usage.

What three things does a balance sheet show? Assets Liabilities Net worth of the business

What are assets? Explain the difference between current and fixed assets. Anything of value owned by the business. Current assets are expected to be converted into cash within the coming year. Fixed assets are used over a period of years to operate a business. (Machinery, vehicles, tools, etc.)

What is a liability? What is the difference between current liabilities and long-term liabilities? A debt owed by the business. Current liabilities are debts paid off during the business year. Long term liabilities are debts not due to be paid in the current year.

What is net worth? It is the difference between the assets of a business and its liabilities.

What are the steps in preparing a cash flow statement? 11 steps, listed on page 542. Total start up money on hand – bank, tils, petty cash. Subtract start up costs. Enter estimated cash receipts. Total the cost of goods to buy for inventory. Total all expenses for the month. List amounts to be paid for capital expenditures (loans, cars, etc.) Subtract payments from receipts. Add in beginning start up balance. Determine (+ or -) for profit or loss.