* * * * * * Part 5: Basic Financial Planning and Control
Transcript of * * * * * * Part 5: Basic Financial Planning and Control
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Part 5: Basic Financial Part 5: Basic Financial Planning and ControlPlanning and Control
14.14.Basic Financial PlanningBasic Financial Planning15.15.Budgeting and Controlling Budgeting and Controlling
TaxesTaxes16.16.Using Computer Technology Using Computer Technology
in Small Businessesin Small Businesses17.17.Risk Management, Insurance, Risk Management, Insurance,
and Crime Preventionand Crime Prevention
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Chapter 14Chapter 14
Basic Basic Financial Financial PlanningPlanning
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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BasicFinancial Planning
Need For Profit PlanningNeed For Profit PlanningChanges In Company Changes In Company
Financial PositionFinancial PositionFinancial StructureFinancial StructurePlanning For ProfitPlanning For Profit
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Nick Rowe/Getty Images
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14 - 4McGraw-Hill/Irwin
Profit PlanningProfit Planning“…“…a series of a series of
prescribed steps to prescribed steps to be taken to ensure be taken to ensure that a profit will be that a profit will be
made.”made.”
Profit planning must Profit planning must precedeprecede other activities other activities
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Drop InDrop InFinancial PositionFinancial Position
Uncollectible A/RUncollectible A/RToo Many AssetsToo Many Assets
Negative Cash FlowNegative Cash Flow
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BenchmarkingBenchmarking
“…“…setting up standards setting up standards (for reference) and (for reference) and
then measuring then measuring performance against performance against
them.”them.”
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Accounting RecordsAccounting Records
“…“…records of a firm’s records of a firm’s financial position financial position
that reflect any that reflect any changes in that changes in that
position.”position.”
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Accounting EquationAccounting Equation
Owners’ Equity+Liabilities
Total Assets
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AssetsAssets
“…“…things a things a business business owns.”owns.”
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LiabilitiesLiabilities
“…“…the financial the financial obligations of a obligations of a
business.”business.”
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Owner’s EquityOwner’s Equity
“…“…owners’ share of (or owners’ share of (or net worth in) the net worth in) the
business after liabilities business after liabilities are subtracted from are subtracted from
assets.”assets.”
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Balance SheetBalance Sheet
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Current AssetsCurrent AssetsCashCashAccounts ReceivableAccounts ReceivableInventoryInventoryShort-Term Short-Term
InvestmentsInvestmentsPrepaid ExpensesPrepaid Expenses
PhotoLink/Getty Images
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Total LiabilitiesTotal Liabilities
Current LiabilitiesCurrent LiabilitiesAccounts PayableAccounts PayableNotes PayableNotes Payable
Long-Term LiabilitiesLong-Term LiabilitiesLong-Term Loans (non-Long-Term Loans (non-
mortgage)mortgage)Mortgage PayableMortgage Payable
Royalty-Free/CORBIS
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Owners’ EquityOwners’ Equity
+Capital StockCapital Stock
+Retained Retained EarningsEarnings
(c) Duncan Smith/Getty Images
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Income StatementIncome Statement
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RevenueRevenue
CashCash
Accounts Accounts Receivable Receivable
Royalty-Free/CORBIS
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ExpensesExpensesMaterialsMaterialsSalariesSalariesUtilitiesUtilitiesDepreciationDepreciationRentRentBuilding Building
ServicesServicesInsuranceInsuranceInterestInterest
Office & Office & SuppliesSupplies
Sales Sales PromotionPromotion
Taxes & Taxes & LicensesLicenses
MaintenanceMaintenanceDeliveryDeliveryMiscellaneousMiscellaneous
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Profit (Income)Profit (Income)
“…“…the difference the difference between revenue between revenue
earned and earned and expenses incurred.”expenses incurred.”
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Well-ManagedWell-ManagedSmall BusinessSmall Business
LiquidLiquidBalance Sheet Balance Sheet
ImportantImportantStability vs. GrowthStability vs. GrowthLong-Range PlanningLong-Range Planning
Royalty-Free/CORBIS
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Initial StepsInitial StepsIn Profit PlanningIn Profit Planning
1)1) Establish GoalEstablish Goal2)2) Determine Volume Determine Volume
For Profit For Profit3)3) Estimate ExpensesEstimate Expenses4)4) Determine Estimated Determine Estimated
Profit Profit5)5) Compare Estimate Compare Estimate
With Goal With GoalRyan McVay/Getty Images
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Action StepsAction StepsIn Profit PlanningIn Profit Planning
6)6) List AlternativesList Alternatives
7)7) Determine Determine Expenses Expenses
8)8) Determine ProfitsDetermine Profits
9)9) Analyze AlternativesAnalyze Alternatives
10)10)Select & ImplementSelect & Implement
Lawrence Lawry/Getty Images
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Need For RealismNeed For Realismin Profit Planningin Profit Planning
UncertaintUncertaintyy
PlanningPlanning==
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Planning For ProfitPlanning For Profit1.1. Establish Profit GoalEstablish Profit Goal $ 52,000$ 52,0002.2. Determine Sales VolumeDetermine Sales Volume 530,000 530,0003.3. Estimate ExpensesEstimate Expenses 490,000490,0004.4. Determine Profit Est. $ 40,000Determine Profit Est. $ 40,0005.5. Compare Profit To GoalCompare Profit To Goal -$12,000 -$12,0006.6. List AlternativesList Alternatives
a.a. Change Sales VolumeChange Sales Volumeb.b. Decrease ExpensesDecrease Expensesc.c. Add Products/ServicesAdd Products/Servicesd.d. SubcontractSubcontract
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Action StepsAction StepsIn Profit PlanIn Profit Plan
7.7. Expenses Vary With VolumeExpenses Vary With Volume SalesSales ExpensesExpenses
a.a. $364,000$364,000 $364,000$364,000b.b. $530,000$530,000 $490,000$490,000c.c. $700,000$700,000 $618,700$618,700
8.8. VolumeVolume ProfitProfita.a. $364,000$364,000 $ -0-$ -0-b.b. $530,000$530,000 $ 40,000$ 40,000c.c. $700,000$700,000 $ 81,300$ 81,300
9.9. Analyze AlternativesAnalyze Alternatives10.10.Select/Implement PlanSelect/Implement Plan
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Breakeven ChartBreakeven Chart
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Pro FormaPro FormaIncome StatementIncome Statement