Basic Financial Projections
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Basic Financial Projections






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Basic Financial Projections Basic Financial Projections Presentation Transcript

  • Financial Planning: Making Sense of the Numbers Dr Robert A. Phillips Manchester Science Enterprise Centre
  • Your Costs
    • Raw materials and equipment
    • Wages
    • Taxes
    • Utility bills – gas, electric, telephone, postage etc
    • Premises (Rental or Mortgage)
    • Delivery costs
    • Loan repayment
    • Marketing and advertising costs
  • Your Cash Inflows
    • Investments
    • Sales of goods
    • Subscriptions to services
    • Sale of Intellectual Property rights
    • Money from royalties
    • Sale of assets
  • Break even analysis
    • Need to sell enough product to cover costs = Break even point
    • Variable costs e.g. raw materials
    • Fixed costs e.g. Rent, wages
    • Fixed costs make less of a contribution when you make more products !
  • Working Capital Cycle Cash Purchases Materials Accounts Payable Production Finished Inventory Sales Accounts Receivable Collections
    • Balance Sheet – A ‘snap shot’ of the companies financial situation at a point in time (e.g. end of year)
      • Assets, Liabilities, Owner’s Equity
    • Profit and Loss Statement – From…….
      • Income (Revenue) and Expenses
    • Cash flow Statement – From ….to….
      • Cash in and Cash out
    Three main statements
    • Small Business Management , 11th edition
    • Longenecker, Moore, and Petty
    • 2000
    • South-Western College Publishing
    Flow of Cash Through a Business Owner’s Investment Borrowed Funds Sale of Fixed Assets Cash Sales Purchase of Fixed Assets Payment of Expenses Collection of Accounts Receivable Payment of Dividends Payment for Stock Cash
  • Cash Flow
    • The flow of cash in to and out of a business
    • Can be net positive or negative
    • Continuously moving picture
    • Especially important for a new start-up company- may update daily!
    • NOT simply sales minus expenditure
  • Cash Flow Long Term Short Term Positive Cash Flow Profits Essential Essential Desirable Essential Cash is King
  • Analysing Cash Flow
    • Net Cash Flow +ve or –ve? What are the problems?
    • Determine main causes of problem – costs or income?
    • Profitable companies with full order books can still fail !
    • Use the Pareto (80:20) Rule
  • Profit and Loss Statement
    • Reports on expenses and income over a period of time.
    • Displays Profit.
    • How does that relate to cash?
    • Some Terms:
      • Sales/Turnover
      • Cost of Goods sold
      • Gross Profit
      • Net Profit
  • Profit and Loss Details
    • Sales
    • - Cost of Goods sold
    • = Gross Profit
    • Operating Expenses
    • = Operating Profit or Earning before interest and Tax (EBIT)
    • -Interest
    • = Earnings before Tax (EBT)
    • -Tax
    • = Net Profit
  • Balance Sheet
  • Why do this ?
    • To show investors you are profitable (or to forecast profitability)
    • To identify areas where the company could improve and identify potential problems
    • To show investors you are efficient
    • To show customers and suppliers you will still be around next year !
    • It may be required by law !
  • What do we expect
    • Three years of projected financial statements – Cash Flow, Profit and Loss, Balance sheet
    • A break even analysis – how well do you need to do before you make a profit ?
    • Estimation of costs and how much money you would ask from investors
  • Happy Financial Planning