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Read to Learn Identify the six reasons for creating a financial plan. Explain what a budget is and how it is used.

The Main Idea A financial plan outlines the essential financial facts about a new business or venture. Businesspeople use a financial plan to help them make decisions about the future. This plan shows the amount of money a business will need to start and operate. It also explains how the business will acquire money to expand.

Key Concepts The Purpose of the Financial Plan Budgets

Key Term a set of documents that outlines the essential financial facts about a new venture financial plan money supplied by investors, banks, or owners of a business capital

Key Term financial forecast an estimate of a business’s financial outlook for each of the next few years a plan specifying how money will be used or spent during a particular period budget

The Purpose of the Financial Plan A financial plan can be used to attract investors. financial plan a set of documents that outlines the essential financial facts about a new venture Financial plans project the viability of a new business or a project at an existing firm.

Characteristics of an Effective Financial Plan Graphic Organizer Characteristics of an Effective Financial Plan Identifies the assets that need to be purchased Describes the amount of money a business needs to start and operate Describes the expenses the business will incur and explains how a business will cover its expenses Describes how the business will document and report financial records Forecasts finances to project future profitability Explains how the business will acquire money to grow or expand

Identifying Business Assets Information about assets might show that buying used items instead of new ones, or renting them, would be best. Examples of Assets Cash Equipment Buildings Supplies Inventory Land

Determining Needed Capital A financial plan estimates that amount of capital a business will need. capital money supplied by investors, banks, or owners of a business

Determining Needed Capital Start-up capital is the money used to pay for the various assets and expenses of a new venture or business. A start-up may have a hard time attracting investors because it has no track record.

Describing Start-Up and Operating Expenses Start-up expenses often require a large amount of cash.

Examples of Start-Up Expenses Examples of Operating Expenses Graphic Organizer Examples of Start-Up Expenses Examples of Operating Expenses Business assets Remodeling costs Security deposits Advertising Insurance Supplies Legal permits Licenses Payroll Rent Utility bills Delivery charges Bank fees

Describing Financial Records Management A financial plan describes who will maintain the financial records and why. A financial plan also describes any legal agreements that influence the way records are kept. Special accounting software is available to businesses.

Forecasting Future Finances A financial forecast should be conservative in its outlook. financial forecast an estimate of a business’s financial outlook for each of the next few years A forecast should consider changes in the economy.

Describing Growth Financing Planned growth can be rewarding, while unplanned growth can be chaotic. Investors want to know that a business has thoughtfully developed strategies to finance controlled growth.

A budget helps guide a company’s future. Budgets A budget helps guide a company’s future. budget a plan specifying how money will be used or spent during a particular period

Graphic Organizer Three Types of Budgets Start-Up Budget Cash Budget Operating Budget A plan for your income and expenses from the time you start a business to estimated time it will make a profit A plan for the actual money the business owner spends on a daily, weekly, or monthly basis A plan for the amount expected to be spent and earned over a given period of time, usually six months or a year

You work as the purchasing agent for a small chain of restaurants You work as the purchasing agent for a small chain of restaurants. One of your duties is deciding where to purchase supplies, staples, and food items. A coffee purveyor sends you a free case of coffee beans. The coffee came with a message thanking you for purchasing from him in the past. Decision Making Would you consider the case of coffee a bribe? Explain how you would make the determination.

Answer The message indicates the coffee is not a bribe. Since the supplier’s business is coffee, sending a case as a sample seems appropriate. Remind students that the real determination about whether to accept the gift should come from the company’s code of conduct.

What is the purpose of the financial plan? It is used as an outline of essential financial facts about a new business and to guide a business as well as to secure funding.

What does an effective financial plan do? An effective plan identifies assets, determines needed capital, describes start-up and operating expenses, and describes financial records management, forecasts future finances, and describes growth financing.

Why do business owners use a budget? Budgets help business owners to predict the amount of money the business will need. They also help them to keep track of and control spending.

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