Principles of Business, Marketing, and Finance Lesson Four Financial Planning UNT in partnership...

Principles of Business, Marketing, and FinanceLesson Four

Financial Planning

UNT in partnership with TEA, Copyright ©. All rights reserved

Financial Questions a Business Must Answer

• How much money is needed for start-up?• Where to obtain financing?• How will funds be obtained to run the business

for the months or years until it becomes profitable?

• What will be the best sources of sales and other income?

• What will be the expenses and when will they be paid?

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Four Steps for Budget Preparation

• Prepare a list of income and expenses.• Gather accurate information for each income and

expense.• Create the budget by calculating each type of

income, expense, and amount of net income or loss.

• Show and explain the budget to people who need financial information to make decisions.


Three Types of Business Budgets

• Start-up Budget – plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable.

• Operating Budget - describes the financial plan for ongoing operations of the business for a specific period of time.

• Cash Budget - an estimate of the actual money received and paid out for a specific period of time.


Financial Records and Financial Statements

• Financial Records – Financial documents that are used to record and analyze the financial performance of a business.

– Assets – What a company owns; anything of value owned by a business.– Depreciation – The decline in the market value of an asset.

• Market Value – The highest estimated price that a buyer would pay and a seller would accept for an item in an open and competitive market.

– Inventory – List of goods.– Account – Statement of business transactions.

• Transaction – A business deal

– Cash – The amount of money available.– Payroll – The financial record of employee compensation, deductions, and

net pay.– Tax records – A collection of the previous years taxes paid.


Important Financial Statements

• Income statement– Revenue – All income that a business receives over

a period of time– Expenses – Costs of operating a business– Net profit - The amount by which income from sales

is larger than all expenditure .– Net loss - Amount by which total of costs and

expenses exceeds total revenue in an accounting period.

• Balance Sheet – A report that lists a company’s assets, liabilities, and owners equity.– Assets – What a company owns; anything of value

owned by a business.– Liabilities – What a company owes– Net worth - Total assets minus total liabilities of an

individual or company– Owner’s Equity – The value of the business after

liabilities are subtracted from assets; the value of the owner’s investment in the business.


Financial Performance Ratios

• Current ratio (current assets/current liabilities)

• Debt to Equity Ratio (total liabilities/owner’s equity)

• Return on Equity Ratio (net profit/owner’s equity)

• Net Income Ratio (total assets/net income)


Payroll Management

• Financial records of employee compensation, deductions, and net pay

• Information on each employee to calculate the company’s payroll and to make the necessary payments to each employee

• Payroll record - form used to document each employee’s pay history– Name of employee– Social security number– Address– Tax and benefit records


Financial Decision-Making

• Company Strength - assets, liabilities, owner’s equity, sales, profits

• Calculate financial performance ratios to make decisions that result in the wise use of the company’s money

• Steps in Financial Decision Making– Prepare a budget– Use the budget as a guide to– the operations of the business– Make needed adjustments


Principles of Business, Marketing, and Finance Lesson Four Financial Planning UNT in partnership...

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