1. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 1 CHAPTER 12 12-1 12-1Financial Planning 12-2 12-2Financial Records and Financial Statements 12-3 12-3Payroll Management 12-4 12-4Financial Decision-Making Financial Management

2. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 2 Financial Planning Goals Recognize important financial questions that must be answered in a business. List the steps in budget preparation. Describe three types of business budgets. 12-1

3. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 3 FINANCIAL PLANNING Beginning a business How much money is needed to start a business? Where will financing come from? What will be the major expenses? Salaries/benefits Ongoing operations Employees paid Supplies/materials Building/equipment Business expansion New factories/equipment Additional employees

4. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 4 BASIC FINANCIAL EQUATION Revenue – Expenses = Profit or Loss

5. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 5 DEVELOPING BUSINESS BUDGETS A business budget has two main purposes: Sources of budget information Predict the types and amounts of expenses

6. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 6 TYPES OF BUDGETS Start-up budget Buildings/equipment Inventory, supplies, materials Utilities, licenses, advertising Operating budget Each department/division/area has it’s own budget Cash budget Determines if a business has adequate financial resources on hand investments

7. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 7 Financial Records and Financial Statements Goals Identify several types of financial records needed by businesses. Describe the differences between an income statement and a balance sheet. 12-2

8. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 8 FINANCIAL RECORDS Types of records Asset records Depreciation records Inventory records Records of accounts Cash records Payroll records Tax records Maintaining financial records

9. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 9 FINANCIAL STATEMENTS The balance sheet The income statement

10. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 10 Balance Sheet

11. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 11 Income Statement

12. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 12 Checkpoint >> What is the difference between a balance sheet and an income statement? Answer A balance sheet reports assets, liabilities, and owner’s equity as of a specific date. An income statement reports sales, expenses, and net profit or loss for a specified time period.

13. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE 1)When sales is more than expenses, do you have a profit or a loss? 2)When expenses are more than sales, do you have a profit or a loss? 3)Why do you want your assets to be greater than your liabilities? 4)What are the three types of budgets? 5)Which two financial statements did we learn about? 6)What information does a balance sheet record? 7)What information does an income statement have? Chapter 12 13

14. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 14 Payroll Management Goals Describe the components of a business’ payroll system. Identify information included in payroll records and paychecks. 12-3

15. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 15 PAYROLL SYSTEMS Income taxes Federal government State and some local Social Security and Medicare Referred to as FICCA Unemployment taxes Amount paid is based on the total of the business’ total employee wages

16. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 16 What is the purpose of the payroll system? The purpose of the payroll system is to maintain information on each employee to be able to calculate the company’s payroll and make the necessary payments to each employee, taking the proper legal state and federal deductions from each paycheck.

17. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 17 PREPARING A PAYROLL Payroll records Record of tax information, benefits, sick days, etc. Preparing paychecks Direct deposits general rule

18. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 18 Paycheck and Earnings Report Sample Paycheck Sample Earnings Report

19. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 19 Financial Decision-Making Goals Recognize important financial information managers use to make decisions. Identify the steps in making financial decisions in business. 12-4

20. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 20 USING FINANCIAL INFORMATION Important financial information Financial summary of a business (how it’s doing) Understanding financial performance ratios Current ratio – current assets minus current liabilities Debt to equity ratio – equities divided by owner’s equity Return on equity ratio – net profit Net income ratio – total sales compared to net income

21. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 21 MAKING FINANCIAL DECISIONS Prepare a budget Look for discrepancies between actual and budgeted performance Make needed adjustments

22. Intro to Business, 7e © 2009 South-Western, Cengage Learning SLIDE Chapter 12 22 List the three steps in financial decision-making.  Preparing a budget.  Using the budget as a guide to the operations of the business.  Making needed adjustments to bring performance in line with the budget.