1. FINANCE BASICS Business Basics

2. Finance Basics Who cares anyway?  You should  Investors will Why?  Because financial statements tell you the truth about your business  They allow you to plan for the future (i.e. Do you need external funding? How much?)

3. Some key terms Gross profit – sales less the cost of sales Net profit - final profit for business Bottom line Fixed asset – not sold directly to end consumer

4. Finance Basics You need to make profit:  To maintain and repair  To develop and expand  (and/or to line the shareholders pockets)

5. Finance basics: The Bottom Line Revenues Costs - Price Volume x Fixed Variable + Sell it for more Sell more of it Buildings, Salaries Materials, Cost of Sales Profit Reduce costs

6. Finance basics Turnover is vanity Profit is sanity But... CASH IS KING! I made a £2 million turnover last year!

7. Financial Statements Balance sheet Profit and loss account Capital expenditure Cash-flow statement

8. Balance sheet  A snap-shot of finances at any moment in time  Shows: Assets and Liabilities  showing in summary everything owed and owned  Tells you about past performance and potential for the future  The difference between assets and liabilities is known as equity  The sheet should balance!  i.e like a bank statement

9. Profit/Loss account  Also known as income statement  Shows incomes and outgoings for a particular period of time  Basically a record of sales, other revenues and costings  Bottom line is the bottom line for the business: net profit or loss  Transactions are recorded in the period to which they relate  E.g a transaction made in April but not paid in until May would be recorded as a transaction in April  Does not include fixed assets but does include interest etc.

10. Capital expenditure o expenditures creating future benefits o To buy a fixed asset o Add value to existing asset o Restoring a property o Starting a new business! o Costs usually over a number of years, not just for a particular month

11. Cash-flow statement  Show financial flows when they actually happen  E.g so a transaction occurring in April but not paid until May would be recorded as a transaction in May  Most important

12. Finance basics: Cash Flow You must NOT run out of cash!  When do you collect payments?  When do you pay your debts?  How do you finance your company?

13. Resources Spreadsheet online www.businessbasecamp.co.uk

14. Types of cash for a start up  Organic  Debt - Bank, Customer, Supplier  Equity – FFF, Angel, Venture Capitalist, Private equity  Grants  Prizes

15. Useful materials The definitive guide to Business Finance by Richard Stutely www.business basecamp.co.uk www.business