2. Developing a Financial Plan
Chapter 5
Why is it important to create a well-thought-out and realistic financial plan?

3. 5 Developing a Financial Plan
Chapter 5
A good financial plan shows financial projections of your income and expenses and how much capital is needed.

4. financial forecasting projected financial statements
Developing a Financial Plan
Chapter 5
capital
start-up capital
operating capital
financial forecasting
projected financial statements
gross profit on sales
fixed expenses
variable expenses
reserve capital
chart of accounts

5. Steps Involved in Preparing to Open a New Business
Developing a Financial Plan
Chapter 5
Steps Involved in Preparing to Open a New Business

6. Explain start-up capital. Identify start-up costs.
Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Explain start-up capital.
Identify start-up costs.
Describe operating capital.
Explain projected income statements.
Discuss the role of reserve capital.

7. Elements of a Financial Plan
Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Elements of a Financial Plan
Determining Required Capital
Identify and analyze the assets and costs involved in starting a new business
Assign each an estimated dollar value
capital
money needed to establish a business

8. Elements of a Financial Plan
Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Elements of a Financial Plan
A Financial Plan Addresses:
How you will record, summarize, and report the finances.
The sources of funding you will use.

9. Determining Required Capital
Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Determining Required Capital
Start-Up Capital
Three Types of Required Capital
Reserve Capital
Operating Capital

10. Start-Up Capital 5 Purchasing Assets
Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Start-Up Capital
Purchasing Assets
Two Categories of Start-Up Capital
Start-Up Costs
start-up capital
money required to start a business
start-up costs
costs or fees involved in establishing a business

11. Examples of Start-Up Costs Deposits for Telephone Service
Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Start-Up Capital
Examples of Start-Up Costs
Permits
Legal Fees
Accounting Fees
Deposits for Telephone Service
Rent
Maintenance
Insurance

12. When Preparing a Financial Plan, Identify:
Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Start-Up Capital
When Preparing a Financial Plan, Identify:
Common Assets
Unique Assets

13. Start-Up Capital 5 Developing a Financial Plan Section 1
Chapter 5
Section 1
Identifying Required Capital
Start-Up Capital

14. Start-Up Capital 5 Developing a Financial Plan Section 1
Chapter 5
Section 1
Identifying Required Capital
Start-Up Capital

15. What Is Operating Capital?
Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Operating Capital
What Is Operating Capital?
operating capital
amount of capital needed to operate a business for the first few months or years

16. Financial forecasting is reflected in projected financial statements.
Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Operating Capital
Financial forecasting is reflected in projected financial statements.
financial forecasting
process of estimating a business’s operating capital
projected financial statements
reports that predict the financial position of a business in the months and years to come

17. Operating Capital 5 Developing a Financial Plan Section 1
Chapter 5
Section 1
Identifying Required Capital
Operating Capital

18. A Projected Income Statement Includes Cost of Merchandise Sold
Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Operating Capital
A Projected Income Statement Includes
Revenue
Cost of Merchandise Sold
Operating Expenses
Net Income or Loss
Gross Profit on Sales
gross profit on sales
profit made from selling merchandise before operating expenses are deducted

19. Obtaining Information for the Projected Income Statement
Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Operating Capital
Obtaining Information for the Projected Income Statement
Trade Associations
Vendors
Local Business Organizations
Government Agencies
– U.S. Small Business Administration
– Bureau of the Census

20. Operating Capital 5 Fixed Expenses Two Types of Expenses
Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Operating Capital
Fixed Expenses
Two Types of Expenses
Variable Expenses
fixed expenses
expenses that remain the same regardless of business activity
variable expenses
expenses that may change

21. Operating Capital 5 Developing a Financial Plan Section 1
Chapter 5
Section 1
Identifying Required Capital
Operating Capital
A Projected Balance Sheet Shows an Estimate of:
Future net worth in one year, three years, or five years
Future assets
Future liabilities

22. Operating Capital 5 Developing a Financial Plan Section 1
Chapter 5
Section 1
Identifying Required Capital
Operating Capital
A Projected Statement of Cash Flows Shows:
How much cash a business has taken in
Where the cash taken in has gone

23. Reserve Capital 5 Developing a Financial Plan Section 1
Chapter 5
Section 1
Identifying Required Capital
Reserve Capital
What Is Reserve Capital Used For?
Business Opportunities
Expanding the Business
Emergencies
reserve capital
money set aside for unexpected costs or opportunities

24. Developing a Financial Plan
Chapter 5
Section 1
Identifying Required Capital
Using Technology
With software and hardware being very affordable, most small businesses use some form of automated accounting.

25. 5 Developing a Financial Plan Section 1 Identifying Required Capital
Chapter 5
Section 1
Identifying Required Capital
Consider what types of businesses might require large amounts of capital to begin operating. Explain your answer.
Responses will vary but might include an electronics store, auto repair shop, a construction company, or a limo service due to the inventory and equipment.

26. Identify the elements of a financial plan.
Developing a Financial Plan
Chapter 5
Section 2
Case Study: A Financial Plan
Identify the elements of a financial plan.

27. Two Requirements for Starting a Business
Developing a Financial Plan
Chapter 5
Section 2
Case Study: A Financial Plan
Starting a Business
Two Requirements for Starting a Business
Knowledge
Skills

28. A Business Plan for Cricket Lane Flowers
Developing a Financial Plan
Chapter 5
Section 2
Case Study: A Financial Plan
A Business Plan for Cricket Lane Flowers
Short-Term Goals
Rent a store in a good location.
Secure a good telecommunications system.
Computerize all accounting functions.
Increase sales by 5 percent or more each month in the first year.
Utilize all local advertising outlets.
Long-Term Goals
Increase sales by 30 percent or more in each of the first three years.
Show a profit by the end of the second year.
Expand inventory to include fruit and gift items.
Develop business clients.

29. Elements of the Financial Plan
Developing a Financial Plan
Chapter 5
Section 2
Case Study: A Financial Plan
The Financial Plan
Elements of the Financial Plan
Statement of Required Start-Up Capital
Projected 12-Month Income Statement
Projected 12-Month Statement of Cash Flows
Projected 3-Year Income Statement
Projected 3-Year Statement of Cash Flows
Projected 3-Year Balance Sheet

30. Developing a Financial Plan
Chapter 5
Section 2
Case Study: A Financial Plan
The Financial Plan
The chart of accounts provides a framework for recording and reporting business transactions.
chart of accounts
a list of general ledger accounts that a business will use

31. 5 Developing a Financial Plan Section 2 Case Study: A Financial Plan
Chapter 5
Section 2
Case Study: A Financial Plan
Review Molly’s short-term and long-term goals developed for her strategic plan. Evaluate how her financial plan will support these goals.
Responses may include that her statement of required start-up capital shows sufficient money to purchase telecommunication and computer systems, and her projected income statements and projected statement of cash flows support her sales goals.

32. Doing Business is more difficult and prices may be higher
Developing a Financial Plan
Chapter 5
Free Trade vs. Trade Barriers
No Trade Restrictions
Free Trade
Businesses Flourish
Doing Business is more difficult and prices may be higher
Quotas and Tariffs
Trade Barriers

33. Developing a Financial Plan
Chapter 5

34. Developing a Financial Plan
Chapter 5

35. End of