Financial Management Financial Planning

CHAPTER 12 6/1/2019 Financial Planning Goal 1 Recognize important financial questions that must be answered in a business. Goal 2 List the steps in budget preparation. Goal 3 Describe three types of business budgets.

KEY TERMS revenue expenses budget start-up budget operating budget cash budget

FINANCIAL PLANNING Beginning a business How much needed? Where is it coming from? Expenses? Plan for survival until profitable

FINANCIAL PLANNING Ongoing operations Track income Control Expenses Paying employees Ordering supplies and materials Maintaining capital goods Updating Technology Reduce Waste

FINANCIAL PLANNING Business expansion New products/services New customers What are the costs to expanding?

BASIC FINANCIAL EQUATION Revenue – Expenses = Profit or Loss Profit Revenue is greater than expenses Revenue > Expenses = Profit Loss Revenue is less than expenses Revenue < Expenses = Loss

SOURCES OF BUDGET INFORMATION Why? Necessary to predict income and expenses. Financial records of the business Small Business Administration offers tools for planning for new businesses. D & B, S & P, Value Line Collect and publish financial info Business Publications – WSJ, Forbes, etc. Business Organizations

DEVELOPING BUSINESS BUDGETS PREPARE a list of each type of income and expense that will be a part of the budget GATHER accurate information from business records and other information sources for each type of income and expense CREATE the budget by calculating each type of income, expense, and the amount of net income or loss EXPLAIN the budget to people who need financial information

Comparing Budgets 20 points The four steps essential in creating a budget are to prepare, gather, create and explain. In Excel, PREPARE a list of each type of income and expense you anticipate in the next 90 days. GATHER information which will allow you to estimate the dollar amounts for each type of income and expense. CREATE a three month budget. EXPLAIN your budget to others in your group and discuss ways to make your budgeting process more accurate.