1. 4.01 Understand financial planning.
POB 4.01 Parts 1 & 2
4.01 Understand financial planning.

2. Financing Terms
Revenue – all income a business receives over a period of time
Expenses – costs of operating a business
Profit – occurs when revenue is greater than expenses
Loss – occurs when expenses are greater than revenue

3. Financial Planning for Businesses
Beginning of a Business
Money needed to start
Financing sources
Money to operate until profitable
Sources of sales
Expenses

4. Financial Planning for Business, cont
Ongoing
Paying employees
Supplies & materials
Maintaining the building and equipment
Technology updates

5. Financial Planning for Business, cont
Business Expansion
Reasons to expand – serve more customers, reach unserved markets, or sell new products
Costs associated with expansion – research, new employees, marketing activities
Need to determine if revenue will be greater than costs

6. What is a Budget?
Budget – detailed plans for the financial needs of individuals, families, and businesses.
Purposes of a Budget
Anticipate sources and amounts of income
Predict types and amounts of expenses
A budget is successful when revenue > expenses

7. 4 Steps in Planning a Budget
1. Prepare a list of each type of income and expense
2. Gather accurate info for each type of income and expense
3. Create a budget and calculate income, expenses, and net profit or loss
4. Explain the budget to those who make decisions

8. Types of Budgets
Start-Up – plans income and expenses from the beginning of the new business or a major expansion until it becomes profitable.
Includes buildings, equipment, inventory, supplies, materials, employees, utilities, licenses, advertising and transportation

9. Types of Budgets, cont
Operating Budget – a financial plan for ongoing operations of the business for a specific period of time
Usually 3 months, 6 months or 1 year

10. Types of Budgets, cont
Cash Budget – estimate of actual money received and paid out for a specific period.
Need to determine if there will be enough money to pay bills or if the business will need to borrow money