The business financials

© 2012 CAPBuilder Network Group All rights reserved
Develop Basic
Financial Budgets
and Projections

Marc Parham, Radio Show Host, MC/Speaker,
Infopreneur
2

PRESENTATION TOPICS
• This presentation will cover the basics of developing the following financial
statements for the business plan.
• For a New Business
• Projected Startup Budget
• Projected Balance Sheet (1 year forward).
• Projected Income Statement (1 year forward).
• Projected Cash Flow Statement (12 months forward).

STARTUP COST BUDGET
 What will it cost to start and run your business for at least the next
two years.
 There will be fixed cost or cost that will pretty much stay the same
(i.e. rent, utilities, equipment, insurance, etc).
 There also will be variable cost that will change as your business
changes.
 For example if you are starting a home painting business you might
create a cost sheet for how much it will cost to paint a average 3
bedroom house. (I.e. paint, labor, supplies).

STARTUP COST
•To determine your startup costs, you must identify
all the expenses your business will incur during its
startup phase.
•Some of these expenses will be one-time costs,
such as the fee for incorporating your business and
the price of a sign for your building.
•Some expenses will be ongoing, such as the cost of
utilities, inventory, insurance, etc.

STARTUP COST
 Decide whether they are essential or optional. A realistic
startup budget should only include those elements that
are necessary to start the business.
 These essential expenses can then be divided into two
separate categories: fixed (overhead) expenses and
variable (related to business sales) expenses.
◦ Fixed expenses will include figures like the monthly rent,
utilities, and administrative and insurance costs.
◦ Variable expenses will include inventory, shipping and
packaging costs, sales commissions, and other costs
associated with the direct sale of a product or service.

STARTUP
BUDGET
• Enter the est. cost
• Use other plans
• Research
• Research
• Research
Startup Budget
June 8, 2010
Cash Needed
to Start
Monthly Costs
Salary of owner-manager $6,000
All other salaries and wages 7,000
Rent 1,000
Advertising 2,000
Delivery expense 400
Supplies 500
Telephone 500
Other utilities 500
Insurance 600
Taxes, including social security 1,000
Interest 500
Maintenance 300
Legal and other professional fees 3,000
Miscellaneous 500
Subtotal $23,800
One-Time Costs
Fixtures and Equipment $10,000
Decorating and remodeling 1,000
Installation charges 500
Starting inventory 5,000
Deposits with public utilities 1,000
Legal and other professional fees 500
Licenses and permits 500
Advertising and promotion for opening 500
Cash 750
Other 200
Subtotal $19,950
Totals $43,750

CASH FLOW
PROJECTIONS

CASH FLOW
 Your cash flow is the single most important aspect of your
business.
 Understanding cash flow focuses on the cash going in and
out of your business:
1. How much money did the business receive from sales?
2. Accounts payable are all the expenses that the
business has to pay.
3. Accounts receivable is all the money owed to you from
customers.

CASH FLOW PROBLEMS
1. Too many receivables (people who owe you money).
Banks will look at receivables over 90 days as a bad debt.
2. Too much inventory (cash tied up in inventory for too
long). Inventory should be turned over at least 5 times a
year to maximize profit.
3. High overhead costs. Always be aware of all the money
being spent and consider ways to reduce costs.
4. Always know where the money is going.

BALANCE SHEET

BALANCE SHEET
• The balance sheet is a snapshot of the company's financial position
at an instant in time.
• It shows what the company owns (assets) and what it owes (liabilities
and net worth).
• The "bottom line" of a balance sheet must always balance (assets =
liabilities + net worth)

LIABILITIES
•Liabilities and net worth on the balance sheet
represent the company's sources of funds.
•Liabilities represent a company's obligations
to creditors while net worth represents the
owner's investment in the company.
•Creditors and owners are "investors" in the
company with the only difference being the
degree of nervousness and the timeframe in
which they expect

LIABILITIES
• Liabilities and Net Worth
• Liabilities and Net Worth are sources of cash listed in descending order from
the most nervous creditors and soonest to mature obligations (current
liabilities), to the least nervous and never due obligations (net worth).
• Current Liabilities
• Current liabilities are those obligations that will mature and must be paid
within 12 months.
• These are liabilities that can create a company's insolvency if cash is
inadequate.
• Non-current Liabilities
• Non-current liabilities are those obligations that will not become due and
payable in the coming year.

CURRENT LIABILITIES
•Current liabilities consist of the
following obligation accounts:
•Accounts Payable (A/P)
•Accrued Expenses
•Notes Payable (Bank and Other)
•Current Portion of Long-term Debt

CURRENT LIABILITIES
• Accounts Payable (A/P)
• Accounts Payable are obligation due to trade suppliers who have
provided inventory or goods and services used in operating the
business.
• Accrued Expenses
• Accrued Expenses are obligations owed but not billed such as wages
and payroll taxes, or obligations accruing, but not yet due, such as
interest on a loan.
• Notes Payable
• Notes payable are obligations in the form of promissory notes with
short-term maturity dates of less than 12 months.

ASSETS
•Assets represent the company's use of
funds.
•The company uses cash or other funds
provided by the creditor/investor to
acquire assets.
•Assets include all the things of value
that are owned or due to the business.

ASSETS
•Anything of value that is owned or due
to the business is included under the
Asset section of the Balance Sheet.
•Assets are shown at net book or net
realizable value (more on this later), but
appreciated values are not generally
considered.

CURRENT ASSETS
•Current assets mature in less than
one year. They are the sum of:
•Cash
•Accounts Receivable (A/R)
•Inventory
•Notes Receivable (N/R)
•Other Current Assets

CURRENT ASSETS
• Cash
• Cash pays bills and obligations. Inventory, receivables, land, building, machinery
and equipment do not pay obligations even though they can be sold for cash and
then used to pay bills.
• Accounts Receivable (A/R)
• Accounts receivable are dollars due from customers
• Inventory
• Inventory consists of the goods and materials a company purchases to resell at a
profit. In the process, sales and receivables are generated.
• Notes Receivable (N/R)
• N/R is a receivable due the company, in the form of a promissory note, arising
because the company made a loan.
• Other Current Assets
• Other current assets consist of prepaid expenses and other miscellaneous and
current assets.

FIXED ASSETS
• Fixed assets represent the use of cash to purchase physical assets whose
life exceeds one year, such as:
• Land
• Building
• Machinery and Equipment
• Furniture and Fixtures
• Leasehold Improvements
• Other Assets
• Other assets consist of miscellaneous accounts, such as deposits and
long-term notes receivable from third parties. They are turned into
cash when the asset is sold or when the note is repaid.

EQUITY
•Equity is represented by total assets
minus total liabilities. Equity or Net
Worth is the most patient and last
to mature source of funds. It
represents the owners' share in the
financing of all the assets.

INCOME
STATEMENT

INCOME STATEMENT
• The income statement, also known as the profit and loss
statement, shows all income and expense accounts over a
period of time—that is, it shows how profitable the business
is.
• This financial statement shows how much money the
company will make after all expenses are accounted for.
• An income statement does not reveal hidden problems, like
insufficient cash flow.
• Income statements are read from top to bottom and
represent earnings and expenses over a period of time.

TOOLS AND RESOURCES
•SBA.GOV
•BPLANS.COM
•SCORE.ORG

SUMMARY
• This section in the business plan should include:
• For a New Business
• Estimate of start-up costs.
• Projected balance sheet (1 year forward).
• Projected income statement (1 year forward).
• Projected cash flow statement (12 months forward).
• For an Existing Business
• Balance sheets (last 3 years).
• Income statements (last 3 years).
• Cash flow statement (12 months).
• If Applying for a Loan (in addition to the above)
• Current personal financial statement on each principal.
• Federal tax return for prior year.

HOW TO CONTACT ME
•marcp@capbuildernetwork.com
•Use the Have Questions Popup on
the CAPBuilder Network Site
•GOTO: www.meetwithmarc.com
•Download my FREE Mobile App
•CALL Me 770-634-7231

The business financials

More Related Content

What's hot

Similar to The business financials

More from Marc Parham

Recently uploaded

The business financials