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12. Financial Management. 12-1 Financial Planning 12-2 Financial Records and Financial Statements 12-3 Payroll Management 12-4 Financial Decision-Making. LESSON 12-1 Financial Planning. Goals Recognize important financial questions that must be answered in a business.

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financial management

12

Financial Management

12-1 Financial Planning

12-2 Financial Records and Financial Statements

12-3 Payroll Management

12-4 Financial Decision-Making

lesson 12 1 financial planning
LESSON 12-1Financial Planning

Goals

  • Recognize important financial questions that must be answered in a business.
  • List the steps in budget preparation.
  • Describe three types of business budgets.

Chapter 12

key terms
Key Terms
  • revenue
  • expenses
  • budget
  • start-up budget
  • operating budget
  • cash budget

Chapter 12

financial planning
FINANCIAL PLANNING
  • Beginning a business
    • Questions?
      • How much money will be needed to start?
      • Where will financing come from?
      • How will funds be obtained to operate for months or years until profitable?
      • What will be the best sources of sales and other income?
      • What will be the major expenses?
    • Many businesses fail due to poor financial planning

Chapter 12

financial planning1
FINANCIAL PLANNING
  • Ongoing operations
    • Every business activity costs money
    • All income that a business receives over a period of time is called revenue.
    • The costs of operating a business is called expenses.

Chapter 12

basic financial equation
BASIC FINANCIAL EQUATION

Revenue – Expenses = Profit or Loss

Chapter 12

financial planning2
FINANCIAL PLANNING
  • Business expansion
    • Successful businesses expand to :
      • Serve more customers
      • Reach unserved markets
      • Sell new products
    • Expansion costs money
      • Research
      • New buildings and equipment (capital)
      • Additional employees and training
      • Marketing activities to distribute and promote

Chapter 12

c h e c k p o i n t
>> C H E C K P O I N T

What is the basic financial equation for businesses?

Chapter 12

developing business budgets
DEVELOPING BUSINESS BUDGETS
  • Budget – provides detailed plans for the financial needs of individuals, families, and businesses
    • Has 2 main purposes:
      • Anticipate sources and amounts of income
      • Predict the types and amounts of expenses for a specific business activity or the entire business.
  • To be successful revenue must be available to pay all expenses.

Chapter 12

developing business budgets1
DEVELOPING BUSINESS BUDGETS
  • Sources of budget information
    • Information is needed to predict income and expenses
    • Planning tools for a new business can be obtained from
      • SBA
      • Private business sources
        • Dun and Bradstreet, Value Line, Standard and Poor’s
      • Business magazines and newspapers
        • Fortune, Forbes, Entrepreneur, Black Enterprise, The Wall Street Journal

Chapter 12

developing business budgets2
DEVELOPING BUSINESS BUDGETS
  • Budget preparation
    • Allows the owner to determine if the business is making progress toward its financial destination
    • Compares the business’ financial performance to the budget to determine if corrections need to be made

Chapter 12

the budgeting process
THE BUDGETING PROCESS
  • Prepare a list of each type of income and expense that will be a part of the budget.
  • Gather accurate information from business records and other information sources for each type of income and expense.
  • Create the budget by calculating each type of income, expense, and the amount of net income or loss.
  • Explain the budget to people who need financial information to make decisions.

Chapter 12

c h e c k p o i n t1
>> C H E C K P O I N T

What are the four steps in preparing a business budget?

Chapter 12

types of budgets
TYPES OF BUDGETS
  • Start-up budget
  • Operating budget
  • Cash budget

Chapter 12

types of budgets start up
TYPES OF BUDGETS: Start-up
  • Plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable.
  • Provides funds for the purchase and use of:
    • Buildings, equipment, inventory, supplies, advertising, transportation, salaries, utilities, licenses, etc.
  • Sources of financing for all expenditures must be identified from either inside the company or outside financial sources.
  • The amount of start-up must be realistic so money is available until the business produces adequate income.

Chapter 12

types of budgets operating
TYPES OF BUDGETS: Operating
  • Describes the financial plan for ongoing operations of the business for a specific period…3 months, 6 months, or a year.
  • Prepared for the entire business
  • Each department will develop and follow its own operating budget.
  • Used to manage the operations of the company for the period specified.

Chapter 12

types of budgets cash
TYPES OF BUDGETS: Cash
  • An estimate of the actual money received and paid out for a specific period.
  • Anticipates cash coming in and going out each week or month.
  • Determines if a business has adequate financial resources on hand to pay bills on time or if money is needed to be borrowed.
  • It also shows when investing can take place.

Chapter 12

c h e c k p o i n t2
>> C H E C K P O I N T

Identify and describe the three types of budgets needed by all businesses.

Chapter 12