Download - Business Plan ii Financials
Business Plan Financials II
Celina Peña
March 2, 2009
Agenda
Personal Finances Understanding & Creating your Price Building a budget Cash Flow Profit & Loss
Your Credit Score
FICO Credit Score, is named after the company that developed it Fair Isaac & Company.
Is a number between 300 and 850. The higher the number the better your financial situation.
This is a snapshot of your credit and reduces decision making for lenders.
FICO Score a/k/a Credit Score
Amount Owed30%
Payment History35%
Types of Credit in Use
10%New Credit
10%
Length of Credit History15%
Personal Financial Statement
Commonly referred to as a personal balance sheet or statement of net worth. It is a complete listing of all assets owned and liabilities owed.
Itemizes Assets and Liabilities (obligations and resources of $)
Personal Financial StatementAssets Dollar AmountCash: Checking $5,200Cash: Savings $300,000Notes & Contracts $7,500Life Insurance $10,000Personal Property $35,000Real Estate $0Other $0Total Assets $357,700
Liabilites Dollar AmountCurrent Debt $90,000Notes Payable $5,000Taxes PayableReal Estate Mortgages $120,000Total Liabilities $215,000
Net Worth $142,700
Creating an Expense Sheet
Inventory Items Supplies Office Supplies Equipment Furniture Rent/Building/Purchasing Monthly Fixed Costs: Rent and utilities
Resources for Pricing
Trade Associations Business to Business Inquiries Rent investigation – asking potential
neighbors searching online
Price Creation
Competitive AnalysisSecret ShoppingOnline Shopping
Industry Trends Documentation of demand for product &
service
Price Creation
Direct Labor: labor used to produce products and services. These are directly attributed to customer activity
Indirect Labor: labor used to provide supporting services to the business. These support business functions that are not directly chargeable to the customer.
Direct Materials: Materials used in the final product or service purchased by customers. These materials are charged directly to the customer’s account.
Price Creation
Overhead Expenses: OE are absorbed by the business and factored into
the selling price as a percentage of direct labor costs. They include indirect costs such as accounting, advertising, depreciation, legal fees, utilities, rent, repairs, taxes, telephone, interest, etc.
Overhead Rate Equation: Yearly Overhead Expenses/Yearly Billable Direct
Labor Dollars $3,500/ (800x$8)= 55%
Breakeven Analysis
A breakeven analysis is used to determine how much sales volume your business needs to start making a profit.
The breakeven analysis is especially useful when you're developing a pricing strategy, either as part of a marketing plan or a business plan.
Break Even Analysis
Fixed Costs/(Rev. per unit – Variable costs per unit)
Fixed Costs are costs that must be paid whether or not any units are produced. These costs are fixed over a period of time.
Variable Costs are costs that vary directly with the number of products produced. For instance, the cost of the materials needed to produce the units isn’t always the same.
Break Even Example
EXAMPLE:Fixed costs for producing 100,000 widgets is $30,000 a year. Your variable costs are $2.20 materials, $4.00 labor, and $.80 overhead for a total of $7.00Say you sell the widget for $12.00 each. This is the equation:$30,000/($12-$7) =6,000 units.
This is the number of widgets that have to be sold at $12.00 before your business will start to make a profit.
Example of Costs ListedSales
Factor
$120 Product 1$85 Service 1
Cost of Goods Sold$30 Product 1$22 Service 1
Fixed costs$2,000 /month Rent
$600 /month Utilities$1,200 /year Insurance$1,000 /month Advertising
8% /year Interest on loan(s)$100,000 Loan(s)
Variable Costs$2,000 /month Employees
$0 /month Owner's draw30% EmplBenefits
Financial Documents
Start up Cash Flow Profit & Loss Balance Sheet
Startup & Project CostsDescription Amount
Building $75,000
Land $20,000
Remodeling $30,000
Fixtures & Equipment $8,500
Inventory $25,000
Advertising $1,800
Loan Fees $6,000
Working Capital $25,000
Total $191,300
How much willit take to open your doors?
Sources of Revenue
Description Loan Owner $ Total
Inventory $15,000 $10,000 $25,000
Furniture & Equipment
$8,500 $8,500
Land & Building $95,000 $95,000
Remodeling $30,000 $30,000
Working Capital $25,000 $25,000
Organizational Cost
$7,800 $7,800
Total 156,300 35,000 $191,300
Balance Sheet – Present
The value of a company at a certain point in time.
Statement of Assets and Liabilities.
Profit and Loss Statement – History
Measures and reports Profit generated during a certain period.
Profit/Loss is an opinion, based on Accounting Principles.
Cash Flow – Future
Statement showing cash generation (inflow)
and cash usage (outflow)
Profit and Loss, Balance Sheet and Cash Flow Statements
Cash Flow
Cash inflow and outflow from operations
Use assumptions from market research and industry averages
Realistic seasonal sales by the month Method of payment for services Inventory purchasing Use several different ways to project sales Can the business sustain in slow periods
Cash Flow
Month 1 Month 2 Month 3
Cash on Hand $25,000 $23,000 $24,000
Plus Revenues $12,000 $19,000 $22,000
Available Cash $37,000 $42,000 $46,000
Less Expenses $14,000 $18,000 $20,000
End of Month $23,000 $24,000 $26,000
Must Consider: reasonable assumptions, seasonality, aging ofAccounts receivable.
Profit & Loss Statement
measures a company's sales and expenses during a specified period of time. The function of a P & L statement is to total all sources of revenue and subtract all expenses related to the revenue. It shows a company's financial progress during the time period being examined.
Profit & Loss Statement (income)
Year 1
Gross Sales $300,000
Less COGS $218,000
Gross Profit $82,000
Less Operating Exp. $58,000
Profit before Tax $24,000
COGs= Cost of Good Sold
Balance Sheet
Purpose to provide a snapshot of a business’s financial position at a given point in time.
Illustrates what the business owns, what it owes and what the business’s net worth is at a given time.
Total assets should equal the sum of the total liabilities an the net worth.
Key elements: current assets (cash accounts receivable, inventory), fixed assets (property, plant and equipment), intangible assets (patents), liabilities and owners equity, current liabilities (accounts payable & long term debt)
Total Assets + Total Liabilities + Total Capital & Liabilities
Assets Fixed Assets + Inventory + Accounts Receivable + Cash and Cash equivalent = Total Assets
Shareholder’s Equity and Liabilities Equity Share Capital + Other Restricted Equity + Net Profit for the Year + Retained Earnings = Total Equity
Liabilities Long Term Loans + Short Term Loans + Accounts Payable = Total Shareholder’s Equity and
Liabilities
Total Assets = Total Shareholder’s equity and liabilities
Balance Sheet
Balance Sheet ExampleAssets Liabilities and Owners' Equity
Cash $6,600 Liabilities
Accounts Receivable $6,200 Notes Payable $30,000
Accounts Payable
Total liabilities $30,000
Tools and equipment $25,000 Owners' equity
Capital Stock $7,000
Retained Earnings $800
Total owners' equity $7,800
Total $37,800 Total $37,800
Your Next Steps
Research your business and production costs.
Develop your overhead and breakeven analysis.
Prepare Startup Cost Prepare Cash Flow & Profit & Loss