Welcome Business Start-Up Programme Workshop 3 to the ‘Finance’

Workshop Links Business Planning  Front Page  Executive Summary  The Business  Market  Operations  Finance  SWOT Analysis  Action Plan The Essentials Why start a business? Viability assessment Marketing Management control Legal issues Funding Marketing Product & service Place Price Promotion Finance Profit & Loss Cash flow Balance sheet

Finance Workshop - Introduction Finance Start-up Workshops Business Plan Action Plan On-going Support Money In Business Financial Control Managing Financial Information Financial Reports Finance Workshop Objectives:  Understand and use financial information to manage and control your business.  Prepare financial forecasts to include in your business plan  Confirm the profit targets established in your viability assessment

Money In Business – The Working Capital Cycle Finance Start-up Workshops Business Plan Action Plan On-going Support Money In Business Financial Control Managing Financial Information Financial Reports The working capital cycle Cash Buy Materials & Services Sale Invoice Customer Investment Clearing debt Bank account Buy more Material

Finance Control - Introduction Finance Start-up Workshops Business Plan Action Plan On-going Support Money In Business Financial Control Managing Financial Information Financial Reports Management Accounts are financial reports about business activities

Finance Control – Management Accounts Request for estimate/quotation Prepare an estimate & submit a quotation Deliver to customer Plan & execute work Receive an order Prospect for work Send invoice Cash Receive payment Sales & Marketing Operations Finance

Finance Control – Management Accounts Management Accounts Monitor:  Sales Performance  Cost control  Achievement of profit targets  Credit control/cash in the bank  The value of the business.

Finance Control – Management Accounts £ Cash Cash flow Balance Sheet Profit & Loss

Finance Reports - Introduction Finance Start-up Workshops Business Plan Action Plan On-going Support Money In Business Financial Control Managing Financial Information Financial Reports  Profit & Loss  Cash Flow  Balance Sheet

Financial Reports – Profit & Loss - Introduction Sales Cost Of Sales (Direct Costs) Gross Profit Total Cost Of Sales Pre-Tax Profit Labour Material Total Overheads £100,000 £25,000 £30,000 £55,000 £45,000 £25,000 £20,000 (20%) Overheads (Fixed Costs)  Salaries & wages  Premises  Marketing  Vehicle costs  Accountancy fees  Telephone  Post & stationery  Financials  Depreciation

Financial Reports – Profit & Loss - Introduction Calculate No. of unit sales to meet target sales value: Average order value £10 £100,000 ÷ £10 = 10,000 orders needed per year to achieve sales

Financial Reports – Profit & Loss - Introduction Calculating Break Even: Total Overhead (Fixed Costs) ÷ Gross Profit % £25000 ÷ 45% = £55,556 ~ 5556 orders

Financial Reports – Profit & Loss - Introduction Calculating No of hours needed to work to meet sales targets: Wage £10/hour Labour hours to achieve sales = £25000 ÷ £10 = 2500 hours 40 hours/week & 46 weeks/year = 1.3 people

Financial Reports – Profit & Loss - Introduction Effect of Reducing Direct Cost: 1% reduction in direct cost gives an extra £1000 Gross Profit

Financial Reports – Profit & Loss - Summary What it is  Statement showing the trading situation of your business  The value of invoices processed during an accounting period for sales and purchases  Numbers on a piece of paper telling you whether you’ve done enough sales and controlled your costs sufficiently to make a profit What it isn’t  A statement of cash in the bank! How it’s used  To plan sales, costs and profit targets (Budgets)  To plan resources needed to achieve sales, costs and profit targets.  To measure effectiveness in achieving sales, controlling costs and generating profits.  To target performance improvement

Financial Reports – Cashflow - Introduction Sales Cost Of Sales (Direct Costs) Gross Profit Total Cost Of Sales Pre-Tax Profit Labour Material Total Overheads Overheads (Fixed Costs)  Salaries & wages  Premises  Marketing  Vehicle costs  Accountancy fees  Telephone  Post & stationery  Financials  Depreciation Sales (Income) Total Income Net Income VAT on Sales Capital Investment Total Expenditure  Labour  Material  Salaries & Wages  Marketing  Vehicle Costs  Accountancy Fees  Telephone  Post & Stationery  Financials (Capital Items)  Capital Expenditure VAT on Purchase VAT Differences P & L (Trading) Cash flow (Bank) Payments (debtors/Creditors) VAT Loan Repayments Depreciation

Financial Reports – Cashflow - Summary What it is What it isn’t How it’s used  Statement of money moving in and out of your business bank account for invoiced sales and purchases.  Payment for work done and materials and services purchased  The lifeblood of the business  Necessarily your own money!!  To plan and control payments for invoice transactions  To identify requirements for funding business growth  To measure management effectiveness in credit control

Financial Reports – Balance Sheet - Introduction Used longer than 12 months. Transactions within 12 months (working capital) Payment Longer than 12 months Asset Value OwnOwe Assets Liabilities Fixed Assets Current LiabilitiesLong Term Liabilities Personal Loans Bank Loans Investors Current Assets Stock Overdraft Creditors Tax/VAT Cash Plant & Equipment Vehicles Property Goodwill Debtors

Financial Reports – Balance Sheet - Summary What it is What it isn’t How it’s used  Statement of what you own and what you owe  Something to be scared about  As an indicator of business worth.  Brings together the elements of profit and loss & cash flow  Demonstrates the working capital cycle of the business  Provides key financial performance ratios  Where to show personal loans  Measures management effectiveness in building up the value of the business.

Understanding Finance Information Finance Start-up Workshops Business Plan Action Plan On-going Support Money In Business Financial Control Managing Financial Information Financial Reports Practical Exercises:  Viability Assessment  Profit & Loss  Cash Flow  Capacity Planning  Estimating

Finance Management – Final Thoughts? Request for quotation (RFQ) Prepare an estimate & submit a quotation Deliver to customer Plan & execute work Receive an order Receive payment Prospect for work Who does it? How do we do it? Why do it? To collect and understanding financial data. Simple Arithmetic Sets budgets and tracks your sales, costs and Profits. What is financial management? To give you control and help you achieve your profit targets and meet legal requirements YOU Send invoice

What Next? Familiarise yourselves with financial management tools. Confirm the credibility of your business costs and your profit targets

The Entrepreneur Kick Start Business Start-Up Programme Thanks for listening

Keep in touch! Keep in touch with each other, chat and network on Linked in. Join the ‘Business Start Up Group’ and then join ‘The Workshop Group’ subgroup to keep in touch!