financial basics
DESCRIPTION
FINANCIAL BASICS. Business 2.010 at the Library Brown Bag Seminar Series 1. course objectives FINANCIAL BASICS:. Identify names of financial reports Describe their purpose Use information to make important decisions about running your business - PowerPoint PPT PresentationTRANSCRIPT
FINANCIALBASICS
Business 2.010 at the Library Brown Bag Seminar Series
1
2
course objectivesFINANCIAL BASICS:
• Identify names of financial reports
• Describe their purpose
• Use information to make important decisions about running your business
• Learn financial vocabulary to communicate with professional advisors
• Referral to SBDC ADVISOR
• Access SBDC Resources
3
Numbers Tell A Story:
• Sports and Recreation• 28• 1• 300
• School• GPA• Report Card
• Financial Reports = Report Card for your Business
4
FINANCIAL BASICS
Why are Financial Statements necessary?
• Making a profit or losing money?
• Healthy business?
• Bookeeping & taxes
• Enough cash?
5
Source of Financial Statements:
• Accounts (Record Results of Financial Activities)• Sale of goods• Pay telephone bill• Purchase assets
• 5 Types• Assets• Liabilities• Capital (equity)• Revenue (income; sales)• Expenses
6
FINANCIAL BASICS
Common Financial Statements:
• Balance Sheet
• Profit & Loss (Income) Statement
• Breakeven Analysis
• Cash Flow
7
balance sheet
Definition:
Shows state of financial health of your company on a particular day
• A ‘financial snapshot’
• “Assets = Liabilities + Equity”
8
balance sheet terms:
Assets -What a company owns• Cash• Accounts Receivable• Equipment• Software
9
balance sheet terms:
Liabilities -What a company owes• Bills to vendors• Loans• Mortgages• Accrued taxes• etc.
10
balance sheet terms:
Equity -
What a company owns
minus what a company owes
OR
What your business is worth
at book value (not market value)
11
balance sheet terms:
The sum of:
Owner’s Equity –
Money invested by owners
Retained earnings
Profit and losses to date
12
balance sheetExample:
10/31/10
13
profit & loss statement
Definition:
The income and expenses from your business operations that occurred during a specified period of time.
14
profit & loss statement Example:
Gross Revenues $3,200
Less Cost of Goods Sold = -1,200
Gross Profit/Loss $2,000
Less Operating Expenses = -2,200
Net Profit/(Loss) $ (200)
15
profit & loss statement Terms:
Gross Revenues=Total amount of money that comes
into a business through sales of product or providing a service
(Monthly Racoon Rib sales
= $3,200)
16
profit & loss statement Terms:
Cost of Goods Sold =Total amount of labor and material
to produce the products
(Monthly cost to produce Ribs
= $1,200)
17
profit & loss statement Terms:
Gross Profit =What’s left after subtracting
CoGS from Gross Revenue
($2,000)Also called “Gross Margin”
or “Contribution Margin”
18
profit & loss statement Terms:
Operating Expenses (Overhead) =Other business operating costs,
not associated with production.
($2,200)
19
profit & loss statement Terms:
Net Profit/(Net Loss) = Gross Profit minus Operating
Expenses
($200 [loss])
20
profit & loss statement Terms:
Net Profit is the money the owner(s) can:
• take out of the business
• reinvest in the business (after loans and taxes are paid).
• This amount is what you pay income tax on.
21
profit & loss statement Example:
Month of October 2010
22
breakeven analysis
Calculates:
What I have to sell
at a given price
to pay all my expenses
with no profit.
23
breakeven analysis Terms:
Contribution Margin Percent:
• Is the percentage of sales remaining after subtracting CoGS
• Is the percentage of Sales that contributes to Fixed Expenses and Profit.
= Gross Profit/Sales
24
breakeven analysis Terms:
Break Even Point (BEP) in sales/revenue =Fixed Expenses = $2200
Contribution Margin % .625
BEP in units = Fixed Expenses = $2200 = 440
Contribution Margin/unit 5
25
Cash Flow IN
• Sources of Cash Flow in:• Sales Revenue• Sale of Assets • Loan proceeds• Investment in the business
26
Cash Flow Out
• Sources of Cash Flow out:• Operating expenses• Asset purchases• Loan reduction (pay back of
principal)• Equity reduction
(withdrawal of investment equity)
27
Positive Cash Flow
• Positive Cash Flow is not the same as operating profit
• Negative Cash Flow is not the same as operating loss
• Cash in the bank is <not => positive cash flow
• Cash Flow management = analyzing cash flow trends
28
Cash Flow Management
Three rules for effective
Cash Flow Management
1. PLAN
2. PLAN
3. PLAN
29
Cash Flow Projection
• Make a Cash Flow projection (Plan)
• Cash MUST come in faster than it goes out
• Hold on to cash as long as you can
• Compare cash flow projection to actual cash flow
Cash FlowStatement
Example:
Cash Flow Statement for Month of October 2010
Beginning Cash $0
Sources of Cash
Owner’s Investment $4,900
Revenue $3,200
Loan Proceeds $5,000
Accounts Payable $5,000
Accrued Liability $1,000
Total Cash In $19,100
Uses of Cash
CoGS $1,200
Operating Expenses $2,200
Inventory $2,000
Equipment $10,000
Loan Payment (Principal) $500
Tax Reserve $200
Accounts Receivable $1,000
Owner's Draw $1,000
Total Cash Out $18,100
Ending Cash $1,000
30
31
Wrap Up:
Resources:
WEB SITES• www.centralcoastsbdc.org • www.edd.ca.gov• www.irs.gov • www.nolo.com• www.sba.gov• www.calgold.ca.gov• www.co. santa-cruz.ca.us
32
evaluations & wrap-upFINANCIAL BASICS
• Turn in seminar evaluations
• Sign up for advising or other seminars
• Thank you to our sponsors: