1. FINANCIAL RESOURCES MANAGEMENT
Explain how budgeting relates to financial planning
Describe two kinds of financial reports prepared by businesses

2. Financial Management
One reason small businesses fail is they do not manage their finances properly.
A financial plan is an important part of a business plan.
Businesses must manage the money they take in and pay out to become profitable and stay in business.

3. Financial Planning Profit – what is left over after expenses are paid
Business Budget – a detailed plan for meeting the financial needs of the business
Anticipating sources and amounts of income
Predicting the types and amounts of expenses

4. Income(Revenue) – the money a business takes in or receives
Most revenue or income comes from sales of products or services
Credit – many sales not paid for 30 days or longer (is this still true?)
Statement of Cash Flow – shows actual cash a business receives and has available on a daily basis
Expenses – operating costs of the business
Employee wages, benefits, advertising, rent, utilities, supplies, etc.

5. Budgeting
Budget – a detailed plan for the financial needs of an individual, family, or business
Business budget – projects the amounts of income and expenses; a financial forecast
Well-prepared budget helps avoid costly financial mistakes
Lets managers know how the business is doing in terms of meeting its financial goals

6. Types of Business Budgets
Start-Up Budget – used to plan income and expenses from the beginning of a new business or major business expansion until it becomes profitable
Purchase of buildings and equipment
Material, supplies, licenses
Advertising, hiring, payroll

7. Operating Budget – financial plan for the day-to-day operations of the business
Covers a specific period of time (ex. 3 months, 6 months, or 1 year)
Follows this equation:
Revenue – Expenses = Profit (or Loss)
All anticipated revenues and expenses are listed
Planned net profit or loss is shown

8. Cash Budget – an estimate of the money expected to be received and paid out over a specific period of time
Lets the manager know when to borrow
Money must always be on hand to pay expenses
Calculate the net profit or loss for the month for Galaxy Comic Books: (use equation)
Cash sales - $3560
Charge sales - $1240
Other revenue - $165
Salaries - $2450
Advertising - $200
Rent - $550
Supplies - $120

9. Financial Records Show the financial performance of the business
Used to prepare 2 important financial statements – Income Statement, Balance Sheet
Asset records name the buildings and equipment owned by the business, their original and current value and amount owed
Depreciation records identify the amount that assets have decreased in value due to age and use
Inventory records identify the type and number of products on hand for sale
Payroll records contain information on all employees’ compensation and benefits
Cash records list all cash received and spent
Records of accounts identify purchases made using credit
Tax records show all taxes collected, owed, and paid

10. Income Statement
A financial statement that shows revenues, expenses, and net income (profit) or loss for a period of time.
Usually covers a period of 6 months or a year but may be shorter
End-of-year statement shows how the business did for the entire year
Basis for payment of taxes and decision- making

11. Balance Sheet
A financial statement that lists a business’ assets (what a company owns) and liabilities (what a company owes)
Shows what the business is worth on a particular date, usually the end of a year
Shows owners equity (value of the owner’s investment in the business (also called net worth)
Owner’s equity equation:
Assets – Liabilities = Owner’s Equity

12. Overland Design Company Income Statement For the Year Ended December 31, 2012
Revenue
Cash Sales $ 38,200
Charge Sales ,600
Other Revenue ,900
$231,700
Expenses
Salaries and Wages $ 70,800
Marketing ,250
Administrative Costs ,900
Materials and Supplies ,800
Other Expenses ,100
Total Expenses ,850
Net Income $ 62,850

13. In a balance sheet, both sides of the statement must be in balance
Right-hand side shows the total of liabilities and owner’s equity to show that they equal the value of the assets on the left-hand side
Ex. Schribner’s Automotives, Inc. Balance Sheet
December 31, 2012
ASSETS
LIABILITIES
Cash
$35,850
Accounts Payable
$103,300
Investments
40,000
Payroll Taxes
22,000
Accounts Receivable
42,375
Mortgage
126,800
Buildings/Equipment
370,000
TOTAL LIABITIES
$252,100
Owner’s Equity
$236,125
Total Assets
$488,225
Total Liabilities and Owner’s Equity

14. Maintaining Financial Records
Accuracy
Current
Technology use
Data files transfer easily
Software capabilities
What-if comparisons
Mathematical calculations
Updates records
Comparisons