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Financial Statements: The Business Plan Basics

Financial Statements: The Business Plan Basics. Presented by: Rita Maria Reed, CPA, MBA April 12, 2011. Presentation Overview. Purpose of Business Plan Financial Statements Overview of Financial Statements Financial Statement Examples Forecasting and Projections. Presentation Overview.

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Financial Statements: The Business Plan Basics

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  1. Financial Statements: The Business Plan Basics Presented by: Rita Maria Reed, CPA, MBA April 12, 2011

  2. Presentation Overview • Purpose of Business Plan Financial Statements • Overview of Financial Statements • Financial Statement Examples • Forecasting and Projections

  3. Presentation Overview • Purpose of Business Plan Financial Statements • Overview of Financial Statements • Financial Statement Examples • Forecasting & Projections

  4. Purpose of Business Plan Financial Statements • Depends on the pitch . . . • Pitching for donations • Give Donors an idea of what a project costs • Pitching for profits • Give Investors an idea of what they will make • When a project will break even • How quickly the project can scale

  5. Presentation Overview • Purpose of Business Plan Financial Statements • Overview of Financial Statements • Financial Statement Examples • Forecasting & Projections

  6. Overview of Financial Statements • 3 Major Financial Statements • Balance Sheet • Income Statement • Cash Flows Statement • Balance Sheet • Statement of Financial Position as of a Point in Time • What is my business worth today? • Income Statement • Statement of Activity over a Period of Time • How much did I make in the last month/year/quarter? • Cash Flows Statement • Business Bank Reconciliation • Where is my money really going?

  7. Overview of Financial Statements: Balance Sheet • Statement of Financial Position as of a Point in Time • 3 Components: • Assets: What do I own? • Liabilities: What do I owe? • Equity: What am I worth? • Formula: Assets = Liabilities + Equity • Asset Examples: • Cash – What’s in the bank • Receivables – Money I am owed • Equipment – Things I purchased • Liability Examples • Accounts Payable – Vendors I Owe • Notes Payable – Money I Borrowed • Equity • Stockholder’s Equity – Investor’s Share • Retained Earnings – Bucket for all of my income

  8. Overview of Financial Statements: Income Statement • Statement of Financial Position as of a Period of Time • 4 Components: • Revenue/Expense/Gross Profit • Operating Expenses • Interest/Extraordinary Item • Net Income /(Taxes) • Formulas: • Gross Profit = Revenue – Production Related Expenses • Operating Expenses = Overhead Costs • Net Income = Gross Profit – Overhead Costs – Interest Expense and Other Costs • Key Points to Remember • Gross Profit is normally expressed as $ and % of Revenue • Gross Profit is another term for Margin, which matters more than Revenue • Operating Expenses are things you have to pay if you don’t sell 1 thing • EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization • Revenue = Top Line (physical top line) • Net Income = Bottom Line (physical bottom line)

  9. Overview of Financial Statements: Cash Flows Statement • Business Bank Reconciliation • 5 Components: • Opening Cash Balance • Cash from Operating Activities (Net Income + Depreciation/Amortization) • Cash from Investing Activities • Cash from Financing Activities • Ending Cash Balance • Cash from Operating Activities • How much money did you earn – people who didn’t pay this month + people who owed me and finally paid • Cash from Investing Activities • How much money did I spend on new equipment • How much money did I make from selling assets • Cash from Financing Activities • How much money did I borrow from bank • How much money did I pay investors • Key Points to Remember • Closely monitor the difference between your ending and beginning balance each month • A bad sign appears when this difference is trending downward

  10. Presentation Overview • Purpose of Business Plan Financial Statements • Overview of Financial Statements • Financial Statement Examples • Forecasting & Projections

  11. Financial Statement Examples: Balance Sheet These two should be equal!

  12. Financial Statement Examples: Income Statement These are the most important

  13. Presentation Overview • Purpose of Business Plan Financial Statements • Overview of Financial Statements • Financial Statement Examples • Forecasting & Projections

  14. Forecasting and Projections: Overview • Forecasting and Projections are at the heart of the business plan • They show growth and the need for capital • Usually projected in: • Years: 1 – 3 • Months: 1 - 24 • Two Methods: • Top Down • Bottom Up • Bottom Up is the Only Way for Business Plans

  15. Forecasting and Projections: Bottom Up Approach • Revenue • Calculate the number of items sold • Multiply times the price • Should build over time • Expenses • Calculate the number of items produced • Multiply times the cost • Make an assumption for monthly operating expenses • Should grow at a rate higher than revenue • Net Income • Should not be equal every month • Years: 1 – 3 • Months: 1 – 24 • Assumptions should be documented

  16. Forecasting and Projections: Example

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