12-1 Financial Planning 12-2 Financial Records and Financial Statements 12-3 Payroll Management 12-4 Financial Decis

1. C H A P T E R 12 Financial Management 12-1 Financial Planning 12-2 Financial Records and Financial Statements 12-3 Payroll Management 12-4 Financial Decision-Making

2. 12-1 Financial Planning Goal 1 Recognize important financial questions that must be answered in a business. Goal 2 List the steps in budget preparation. Goal 3 Describe three types of business budgets.

3. KEY TERMS • revenue • expenses • budget • start-up budget • operating budget • cash budget

4. FINANCIAL PLANNING • Beginning a business • Crucial to determine amount and sources of income, expenses to start, and when to pay • Ongoing operations • Will revenue be enough to cover expenses and still make a profit? • Good and bad ways to cut costs • Business expansion • Is it worth it? • Make sure expected profit gain will exceed expense

5. BASIC FINANCIAL EQUATION • Revenue – Expenses = Profit or Loss • Profit • Revenue is greater than expenses • Revenue > Expenses = Profit • Loss • Revenue is less than expenses • Revenue < Expenses = Loss

6. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: All income that a business receives over...

7. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: What is the basic financial equation for...

8. Checkpoint  • What is the basic financial equation for businesses? • The basic financial equation for businesses is revenue minus expenses equals profit or loss.

9. DEVELOPING BUSINESS BUDGETS • Reasons for budgets: • Anticipate sources/amounts of income • Predict types/amounts of expenses • Sources of budget information • Can use past financial records • New business – SBA, S&P, WSJ, bank, etc.

10. BUDGET PREPARATION • Like a roadmap: compare where you want to go with where you actually are • Budgeting Process: • Prepare list of each type of income/expense • Gather info from records (or other sources) for each type • Create budget: Calculate each type, determine net income/loss • Explain to decision-makers

11. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: The main source of financial information...

12. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: What are the four steps in preparing a b...

13. Checkpoint  • What are the four steps in preparing a business budget? • Preparing a list of each type of income and expense that will be a part of the budget • Gathering accurate information from business records and other information sources for each type of income and expense • Creating the budget by calculating each type of income, expense, and the amount of net income or loss • Explaining the budget to people who need financial information

14. TYPES OF BUDGETS • Departmental/specialized budgets • Start-up budget (new or expanding bus.) • Includes expenses for building, licensing, supplies, employees, etc. • Should measure up to point of profitability • Operating budget – tracks income/ expenses for several months to a year • Cash budget – will there be enough cash to pay expenses as they’re due?

15. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: Budgeting is much easier for a new busin...

16. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: Identify and describe the three types of...

17. Checkpoint  • Identify and describe the three types of budgets needed by all businesses. • 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 plan for ongoing operations for a specific period • Cash budget — is an estimate of the actual money received and paid out for a specific period.

18. 12-2 Financial Records and Financial Statements Goal 1 Identify several types of financial records needed by businesses. Goal 2 Describe the differences between an income statement and a balance sheet.

19. KEY TERMS • financial records • assets • liabilities • owner’s equity • balance sheet • income statement

20. FINANCIAL RECORDS • Types of records • Asset records • Depreciation records • Inventory records • Records of accounts • Cash records • Payroll records • Tax records • Maintaining financial records

21. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: Records of accounts identify all purchas...

22. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: What identifies the companies from which...

23. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: Give at least two examples of how the pr...

24. Checkpoint  • Give at least two examples of how the process of maintaining financial records has been affected by technology: • Most financial information is collected using point-of-production and point-of-sale technology and sent electronically to the people who prepare the financial records. • Also, businesses use computerized financial systems that complete the necessary mathematical calculations and compare those records with budgets. • The software can even complete what-if comparisons to help managers determine the impact of changes in budgets and financial performance.

25. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: Records that name the buildings and equi...

26. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: Records that contain information on all ...

27. FINANCIAL STATEMENTS • The balance sheet • Reports assets, liabilities, and owner’s equity on a specific date • Current vs. fixed (long-term) assets/liabilities • The income statement • Shows revenue and expenses and calculates net income (or loss) for a period of time • Compare to previous time periods

28. BALANCE SHEET

29. INCOME STATEMENT

30. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: All of the following are fixed assets EX...

31. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: What is the difference between a balance...

32. Checkpoint  • What is the difference between a balance sheet and an income statement? • A balance sheet reports assets, liabilities, and owner’s equity as of a specific date. • An income statement reports sales, expenses, and net profit or loss for a specified time period.

33. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: Cash and items that can readily be conve...

34. 12-3 Payroll Management Goal 1 Describe the components of a business payroll system. Goal 2 Identify key information included in payroll records and paychecks.

35. KEY TERMS • payroll • payroll record • direct deposit

36. PAYROLL SYSTEMS • Income taxes • Social Security and Medicare (FICA) • Unemployment taxes

37. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: ____________________ refers to income ta...

38. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: Which of the following payroll deduction...

39. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: What is the purpose of the payroll syste...

40. Checkpoint  • What is the purpose of the payroll system? • The purpose of the payroll system is to maintain information on each employee to be able to calculate the company’s payroll and make the necessary payments to each employee, taking the proper legal state and federal deductions from each paycheck.

41. PREPARING A PAYROLL • Payroll records • Preparing paychecks

42. SAMPLE EARNINGS REPORT AND DIRECT DEPOSIT RECEIPT

43. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: The documentation used to track each emp...

44. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: An earnings report includes

45. Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll. Poll: What is the difference between a payroll...

46. Checkpoint  • What is the difference between a payroll record and an earnings report? • A payroll record is documentation used to process earnings payments and record each employee’s pay history. • An earnings report contains information for the current pay period as well as the cumulative amounts for the year.

47. 12-4 FinancialDecision-Making Goal 1 Recognize important financial information managers use to make decisions. Goal 2 Identify the steps in making financial decisions in business.

48. KEY TERMS • financial performance ratios • discrepancies

49. USING FINANCIAL INFORMATION • Important financial information • Understanding financial performance ratios • Current ratio (assets vs. liabilities) • Debt to equity ratio (reliance on debt to run company) • Return on equity ratio (money made on investment) • Net income ratio (profit per $1 of revenue)

50. 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 Sales Net Income FINANCIAL PERFORMANCE RATIOS