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

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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? Copyright © Texas Education, All rights reserved 3

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. Copyright © Texas Education, All rights reserved 4

Three Types of Business Budgets Start-up Budget Operating Budget Cash Budget Copyright © Texas Education, All rights reserved 5

Financial Records and Financial Statements Recognize and Analyze the Financial Performance of a Business –Assets –Depreciation –Inventory –Account –Cash –Payroll –Tax records Copyright © Texas Education, All rights reserved 6

Important Financial Statements Income statement –Revenue –Expenses –Net profit or loss Balance Sheet –Assets –Liabilities –Net worth Copyright © Texas Education, All rights reserved 7

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, All rights reserved 8

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 Copyright © Texas Education, All rights reserved 9

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 Copyright © Texas Education, All rights reserved 10