OBJECTIVES

Entrepreneurship: Owning Your Future, 11th ed.Steve Mariotti

© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.

Explain the importance of an income statement Identify the parts of an income statement Prepare an income statement Understand how cash flow affects entrepreneurs Demonstrate a burn-rate calculation

1

Entrepreneurship: Owning Your Future, 11th ed.Steve Mariotti

© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.

Income statements are prepared periodically to show how a business is performing: Monthly Quarterly Annually

Income statements differ in how they show their variable expenses. They may appear under: Cost of Goods Sold Cost of Goods Manufactured and Sold Cost of Services Sold

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Entrepreneurship: Owning Your Future, 11th ed.Steve Mariotti

© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.

Income statements generally include these parts: Revenue. The money the business receives from

selling products or services. Cost of Goods Sold. The cost of producing the

goods or services. Gross Profit. Net sales minus the cost of goods

sold. Operating Expenses. The expenses of running the

business. Pre-Tax Profit. Gross profit minus the operating

expenses. Net Profit (Loss). Pre-tax profit minus taxes.

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Entrepreneurship: Owning Your Future, 11th ed.Steve Mariotti

© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.

4

Entrepreneurship: Owning Your Future, 11th ed.Steve Mariotti

© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.

5

Entrepreneurship: Owning Your Future, 11th ed.Steve Mariotti

© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.

To prepare an income statement:1. Determine the business's Revenue.2. Calculate the Cost of Goods Sold.3. Determine the Gross Profit.4. Calculate Operating Expenses. 5. Determine the Pre-Tax Profit.6. Determine the Net Profit or Loss.

6

Entrepreneurship: Owning Your Future, 11th ed.Steve Mariotti

© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.

The cash flow equation is:

A cash flow statement is a financial document that records inflows and outflows of cash when they actually occur.

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Entrepreneurship: Owning Your Future, 11th ed.Steve Mariotti

© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.

Five ways to avoid being caught without enough cash to

pay your bills are:

1. Collect Cash as Soon as Possible2. Pay Bills Close to the Due Date3. Keep Track of Your Cash4. Lease Equipment5. Keep Inventory to a Minimum

Cash flow is cyclical for many businesses, meaning that it

varies according to the time of year.

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Entrepreneurship: Owning Your Future, 11th ed.Steve Mariotti

© 2010 Pearson Higher Education,Upper Saddle River, NJ 07458. • All Rights Reserved.

Use the burn rate to calculate how long a company can go without revenue.

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