1. Slide 1 Welcome to Unit 7 Small Business Management Your Instructor: Richard Wade

2. Slide 2 Welcome to the Unit 7 Seminar Creating a Successful Financial Plan

3. Slide 3 But first …Let’s do a Quick review of the Unit 6 Seminar Managing Cash Flows

4. Slide 4  How much cash does the business need? Minimum cash balance Forecast sales Forecast in-coming cash (control AR) Forecast out-going cash (AP tips)  Cash vs Profit

5. Slide 5 Cash Flow: A method of measuring a company’s liquidity and its ability to pay its bills and other financial obligations on time by tracking the flow of cash into and out of the business over a period of time.

6. Slide 6 Balance Sheet –Assets –Liabilities –Owners Equity Income Statement –Revenue –COGS –Expenses –Income Statement of Cash Flows

7. Slide 7 Pro forma Financials Why is Break-Even Analysis important?

8. Slide 8 Unit 7 Discussion Question 1 What do you know about Balance Sheets?

9. Slide 9 What is a balance sheet? In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a “snapshot of a company’s financial condition.” Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time. A company balance sheet has three parts: assets, liabilities and ownership equity. http://en.wikipedia.org/wiki/Balance_sheet

10. Slide 10 What does a Balance Sheet do? It tells someone that if the company SOLD off all of its assets and paid all of its bills, how much would be left over for the owners? A Balance Sheet provides a snapshot of what the company has (assets), what the company owes (liabilities), and the difference between the two (equity).

11. Slide 11 a: Assets = Liabilities Owners’ Equity + The easiest way to understand Owner’s Equity is to think of it as, if we sold every asset of the company today and used the money to pay off everything that the company owed, whatever is left over afterwards goes to the owners. That is the stockholders (the owners’) equity in the firm. --- Owner’s Equity: What is left for the owners after all the liabilities are paid Liabilities are any claims against an asset. For example, a debt owed by the firm is a liability. It could be a loan from a bank or a line of credit from a supplier. It will include salaries and wages yet to be paid to employees, accounts payable to vendors, and interest payable on borrowed money.--- Liabilities: Money OWED by the company to other parties Assets are properties or items owned by a business that will provide future benefits. Examples would be cash on hand, supplies, equipment, buildings, land, marketable securities, products or inventory of merchandise available for sale, and accounts receivable from customers. --- Assets: the value everything that the company owns and that can be sold, if the company goes out of business

12. Slide 12 Balance sheet Start ASSETS Cash $ 15.00 Accounts Receivable0 Raw Materials not used yet0 Office Equipment0 Total Assets$ 15.00 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Accounts Payable Dad’s loan $ 3.00 Subtotal$ 3.00 OWNERS' EQUITY Common Stock$ 12.00 Retained Earnings0 Total Liabilities and Owners' Equity $ 15.00 What are the elements of the Balance Sheet ? Cash is the funds on hand Accounts Receivable is money OWED to the company Raw Materials not used yet in this case are the things needed to make the lemonade that has not yet been sold (in inventory) Office Equipment, in this case are things “owned” by the company that are not made into the lemonade sale Accounts Payable are moneys that the company owes (Loan from Dad) Common Stock in this case is the money that the sisters put into the company Retained Earnings is money kept in the company for future growth

13. Slide 13 Any questions ?

14. Slide 14 Question What is the Income Statement?

15. Slide 15 What is an income statement Income statement, also referred as profit and loss statement (P&L), earnings statement, operating statement or statement of operations,[1] is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the “top line” is transformed into the net income (the result after all revenues and expenses have been accounted for also known as the bottom line. It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs. The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. http://en.wikipedia.org/wiki/Income_statement

16. Slide 16 Income Statement - End of First Day REVENUE Gross Revenue Sales of Lemonade $ 7.50 Cost of Goods Sold: Water$.30 Lemons 1.50 Ice.60 Sugar.30 Cups.30 Total Cost of Goods Sold 3.00 Net Revenue $ 4.50 EXPENSES Supplies, Rent, Salaries, Utilities, etc. Total Expenses Income Before Tax $ 4.50 An Income Statement measures how successful is our operations. It shows how much Revenue we took in (Sales) From this amount it subtracts what it cost us in raw materials to make those sales – Cost of Goods Sold It also subtracts any other expenses (marketing, administration, rent, etc,) The result is a Net Income Before Taxes and Interest An Income Statement DOES illustrate the company’s net income or net loss by subtracting expenses from revenues.

17. Slide 17 Any questions ?

18. Slide 18 Question How might you analyze and validate the information in your pro forma Income Statement that you include in your business plan in a way that makes investors trust the data is accurate?

19. Slide 19 The Pro Forma Income Statement Financial forecasts must be based in reality; otherwise the resulting financial plan is nothing more than a hopeless dream. When creating a projected income statement, an entrepreneur has two options: 1.To develop a sales forecast and work down 2.or set a profit target and work up

20. Slide 20 The Pro Forma Income Statement Financial forecasts must be based in reality; otherwise the resulting financial plan is nothing more than a hopeless dream. When creating the a projected income statement, an entrepreneur has two options: 1.To develop a sales forecast and work down Talk to existing business owners in the industry (outside of the local trading area of course) can provide sales insights Purchase published financial information from sources such as RMA and Dun & Bradstreet. Web searches and trips to the local library Interviews with potential customers Test Marketing an actual product or service can also reveal the number of customers a company can expect to attract.

21. Slide 21 Multiplying the number of of customers by projected prices yields a revenue estimate. One method for checking the accuracy of a sales revenue estimate is to calculate the revenue other companies in the same industry generate per employee and compare it to your own projected revenue per employee. The Pro Forma Income Statement 1.To develop a sales forecast and work down

22. Slide 22 The Pro Forma Income Statement Financial forecasts must be based in reality; otherwise the resulting financial plan is nothing more than a hopeless dream. When creating the a projected income statement, an entrepreneur has two options: 2. or set a profit target and work up Or entrepreneurs can create a projected income statement targeting a profit figure and then “working up” to determine the sales level they must achieve to reach it. The next step is to estimate the expenses that the business will incur in securing those sales.

23. Slide 23 Any questions ?

24. Slide 24 Question What are Fixed Assets and why is this important in your business plan?

25. Slide 25 What are fixed assets? Assets acquired for long-term use in a business. Moreover, a fixed/non-current asset can also be defined as an asset not directly sold to a firm's consumers/end-users. As an example, a baking firm's current assets would be its inventory (in this case, flour, yeast, etc.), the value of sales owed to the firm via credit (,i.e. debtors or accounts receivable), cash held in the bank, etc. Its non-current assets would be the oven used to bake bread, motor vehicles used to transport deliveries, cash registers used to handle cash payments, etc. Each aforementioned non- current asset is not sold directly to consumers. These are items of value which the organization has bought and will use for an extended period of time; fixed assets normally include items such as land and buildings, motor vehicles, furniture, office equipment, computers, fixtures and fittings, and plant and machinery. These often receive favorable tax treatment (depreciation allowance) over short-term assets. According to International Accounting Standard (IAS) 16, Fixed Assets are assets whose future economic benefit is probable to flow into the entity, whose cost can be measured reliably. landbuildingsmotor vehiclesfurnitureoffice equipmentcomputersmachinerydepreciation allowanceInternational Accounting Standard http://en.wikipedia.org/wiki/Fixed_asset

26. Slide 26 Any questions ?

27. Slide 27 What are Current Liabilities and why are these important in your business plan?

28. Slide 28 What are Current Liabilities and why are these important in your business plan? Current liabilities are considered liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle, whichever period is longer. For example, accounts payable for goods, services or supplies that were purchased for use in the operation of the business and payable within a normal period of time would be current liabilities.Current liabilities are considered liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle, whichever period is longer. For example, accounts payable for goods, services or supplies that were purchased for use in the operation of the business and payable within a normal period of time would be current liabilities. Bonds, mortgages and loans that are payable over a term exceeding one year would be fixed liabilities or long- term liabilities. However, the payments due on the long-term loans in the current fiscal year could be considered current liabilities if the amounts were material.The proper classification of liabilities is essential when considering a true picture of an organization's fiscal health.Bonds, mortgages and loans that are payable over a term exceeding one year would be fixed liabilities or long- term liabilities. However, the payments due on the long-term loans in the current fiscal year could be considered current liabilities if the amounts were material.The proper classification of liabilities is essential when considering a true picture of an organization's fiscal health. http://en.wikipedia.org/wiki/Current_liability

29. Slide 29 Any questions ?

30. Slide 30 How do your find the Cost-of-Goods Sold? Service industry companies have no COGS (no inventory)

31. Slide 31  Manufacturers, wholesalers, and retailers calculate costs of good sold by adding purchases to beginning inventory and subtracting ending inventory.  The reason why service providing companies typically have no cost of goods sold is because they do not carry inventory.

32. Slide 32 Any questions ?

33. Slide 33 Next… Unit 8 Seminar Building a Powerful Marketing Plan

34. Slide 34  Build a marketing plan Who is target market? What does target want / need?  Research!  Go get them (marketing tactics)  Now keep them

35. Slide 35 Questions?? Wrap-up

36. Slide 36 you can contact me through my email: rwade@kaplan.edu,@kaplan.edu through AOL Instant Messaging

37. Slide 37 T H A N K Y O U F O R A T T E N D I N G SEE YOU IN THE DISCUSSION THREAD

38. Slide 38 Questions?? Wrap-up