Business Finances

Four parts to a businesses finances

• Expenses• Income Statement (Profit Loss

Statement)• Cash Flow• Balance Sheet

Expenses• Your business will have two types of expenses: a)

one-time expenses and b) operating expenses. • One-time expense are those costs that you incur

only once when setting up your business. • Operating expenses are ongoing costs that you will

have to pay every month. • Calculating these figures is important because

when you plug them into your cash flow statement, they will reveal how much start-up financing you will need to get your business to a point of self-sufficiency.

One Time Expenses

• Down payment on property or deposit on rent• Down payment or deposit on fixtures and

equipment (computer printer, fax machine, photocopier)

• Cars/Trucks• Decorating, remodeling, installation of

equipment/fixtures, leasehold improvements• Starting inventory• Utility set-up fees

One Time Expenses

• Promotion for opening• Licences and permits• Incorporation costs (where applicable)• Product development costs or franchise fees

where applicable• Unexpected expenses

Operating Expenses

• Your salary (management salaries)• Other salaries (eg. for your shipper,

bookkeeper, receptionist)• Rent or mortgage payments• Raw materials• Storage• Distribution• Office supplies and equipment (eg., pens,

paper, photocopying, computer, printer, fax machine etc.)

Operating Expenses• Telecommunications (eg. telephone, fax,

internet service, cellular, etc.)• Electricity• Insurance (including workers insurance)• Promotion (including advertising)• Professional services (accountants and

lawyers, for example)• Maintenance• Repayment of loan capital and interest• Other financial expenses (eg. sales discounts,

bad debts)

Income Statement• An income statement shows your profit or loss for a

particular period of time. It details all revenues and measures that against all expenses and other costs.• Revenues = all money collected from sales and services• Expenses = wages, telephone/internet, hydro bills,

insurance, property taxes, fuel, stationary and etc…

• It should be prepared on a monthly or quarterly basis. • Income statement is predominantly an accounting

tool used to measure a business' performance.

Cash Flow Statement

• A cash flow statement is a reflection of how much money your business has at a particular point in time. Without cash, your business can't operate.

• If your cash inflows (collected revenue) exceed your cash outflows (disbursements), your cash flow is positive Revenue > Expenses

• If your cash outflows (disbursements) exceed your cash inflows (collected revenue), your cash flow is negative Revenue < Expenses

Cash Flow Example

• Cash Flow Example

Balance Sheet

• The Balance Sheet has two main purposes: (1) Listing the assets of your company and (2) Listing the liabilities of your company.

• Assets should include:• Current assets such as accounts receivable,

inventory you have on hand, and your cash balance.

• Fixed assets such as property, equipment, furniture and fixtures, and vehicles.

Balance Sheet• Liabilities should include:• Current liabilities such as accounts payable and

debts that you must pay within a year (suppliers & creditors).

• Long-term liabilities include long-term loans, like mortgages, equipment loans or loans you make to the business.

• A Balance Sheet is so named because the calculations reported should always lead to a balance between the dollar amount of Assets and the total of Liabilities