Workshop Description (PPT)


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Workshop Description (PPT)

  1. 1. Students to Start-Ups Entrepreneurial Skills Workshop Series Presents: Demystifying Financial Statements
  2. 2. Who or What is SCORE?
  3. 3. What is “Students to Start-ups”? <ul><li>Students to Start-Ups </li></ul><ul><ul><li>Workshop Series </li></ul></ul><ul><ul><li>One-on-One Counseling </li></ul></ul><ul><ul><li>Future (web and/or pod casts, CD, etc.) </li></ul></ul>
  4. 4. Demystifying Financial Statements By Jim Chamberlain
  5. 5. Financial Measurement Tools <ul><li>The number one reason for small business failure is inadequate planning and record keeping </li></ul><ul><li>Understanding of basic accounting and finance principles is vital to your success </li></ul><ul><ul><ul><ul><li>Vincent McCoy, Inland Empire SBDC </li></ul></ul></ul></ul>
  6. 6. Financial Statements <ul><li>Chart of Accounts </li></ul><ul><ul><li>What is right for your business? </li></ul></ul><ul><ul><li>Structure it for your own business model </li></ul></ul><ul><ul><li>Get it right the first time! </li></ul></ul><ul><ul><li>Management vs. tax account structure </li></ul></ul><ul><ul><li>Design it to capture profitability points </li></ul></ul><ul><ul><li>Design it to measure Breakeven easily </li></ul></ul><ul><ul><li>Variable and Fixed Costs separation </li></ul></ul><ul><li>Internal Control </li></ul><ul><ul><li>Important in any size business </li></ul></ul><ul><ul><li>Must be given some thought </li></ul></ul>
  7. 7. <ul><li>BALANCE SHEET </li></ul><ul><li>12-31-01 </li></ul><ul><li>ASSETS </li></ul><ul><li>CASH 100 </li></ul><ul><li>ACCOUNTS RECEIVABLE 200 </li></ul><ul><li>LESS ALLOWANCE FOR BAD DEBTS (20) </li></ul><ul><li>NET ACCOUNTS RECEIVABLE 180 </li></ul><ul><li>INVENTORY 600 </li></ul><ul><li>LESS ALLOWANCE FOR OBSOLESCENCE (75) </li></ul><ul><li>NET INVENTORY 525 </li></ul><ul><li>PREPAID EXPENSES 10 </li></ul><ul><li>TOTAL CURRENT ASSETS 815 </li></ul><ul><li>DEPOSITS 50 </li></ul><ul><li>FIXED ASSETS </li></ul><ul><li>PROPERTY, PLANT & EQUIPMENT 800 </li></ul><ul><li>CONTRUCTION IN PROCESS 50 </li></ul><ul><li>TOTAL GROSS FIXED ASSETS 850 </li></ul><ul><li>LESS ACCUMULATED DEPRECIATION (300) </li></ul><ul><li>NET FIXED ASSETS 550 </li></ul><ul><li>TOTAL ASSETS 1,415 </li></ul><ul><li>LIABILITIES </li></ul><ul><li>ACCOUNTS PAYABLE 200 </li></ul><ul><li>ACCRUED EXPENSES 100 </li></ul><ul><li>CURRENT PORTION OF LTD 75 </li></ul><ul><li>TOTAL CURRENT LIABILITIES 375 </li></ul><ul><li>BANK DEBT 350 </li></ul><ul><li>CAPITAL LEASES 25 </li></ul><ul><li>TOTAL LIABILITIES 750 </li></ul><ul><li>EQUITY </li></ul><ul><li>COMMON STOCK 500 </li></ul><ul><li>RETAINED EARNINGS 100 </li></ul><ul><li>CURRENT EARNINGS 65 </li></ul><ul><li>TOTAL EQUITY 665 </li></ul><ul><li>TOTAL LIABILITIES & EQUITY 1,415 </li></ul>
  8. 8. <ul><li>INCOME STATEMENT </li></ul><ul><li>TWELVE MONTHS ENDED 12-31-01 </li></ul><ul><li>GROSS SALES 1,600 </li></ul><ul><li>SALES RETURNS & ALLOWANCES 200 </li></ul><ul><li>NET SALES 1,400 </li></ul><ul><li>COST OF SALES: VARIABLE </li></ul><ul><li>MATERIALS 200 </li></ul><ul><li>DIRECT LABOR 300 </li></ul><ul><li>OTHER VARIABLE COSTS 100 </li></ul><ul><li>TOTAL VARIABLE COSTS 600 </li></ul><ul><li>CONTRIBUTION MARGIN 800 </li></ul><ul><li>% 57% </li></ul><ul><li>FIXED LABOR & OVERHEAD 300 </li></ul><ul><li>TOTAL COST OF SALES 900 </li></ul><ul><li>GROSS MARGIN 500 </li></ul><ul><li>% 36% </li></ul><ul><li>SELLING EXPENSE 125 </li></ul><ul><li>ADMINISTRATION EXPENSE 180 </li></ul><ul><li>TOTAL EXPENSES 305 </li></ul><ul><li>OPERATING INCOME 195 </li></ul><ul><li>INTEREST EXPENSE 45 </li></ul><ul><li>OTHER EXPENSE 15 </li></ul><ul><li>INCOME BEFORE TAX 135 </li></ul><ul><li>PROVISION FOR INCOME TAX 70 </li></ul><ul><li>NET INCOME 65 </li></ul>
  9. 9. <ul><li>STATEMENT OF CASH </li></ul><ul><li>TWELVE MONTHS ENDED 12-31-01 </li></ul><ul><li>NET INCOME 65 </li></ul><ul><li>ADD: NON CASH EXPENSES: </li></ul><ul><li>DEPRECIATION 100 </li></ul><ul><li>CHANGES IN ASSETS & LIABILITIES </li></ul><ul><li>INCREASE IN ACCOUNTS RECEIVABLE 50 </li></ul><ul><li>INCREASE IN INVENTORY 30 </li></ul><ul><li>INCREASE IN PREPAID EXPENSES 10 </li></ul><ul><li>INCREASE IN ACCOUNTS PAYABLE 20 </li></ul><ul><li>DECREASE IN ACCRUED EXPENSES 15 </li></ul><ul><li>TOTAL CASH PROVIDED BY OPERATIONS 80 </li></ul><ul><li>CASH FLOWS USED FROM INVESTING ACTIVITIES: </li></ul><ul><li>PROPERTY, PLANT & EQUIPMENT 50 </li></ul><ul><li>CASH FLOWS FROM FINANCING ACTIVITIES </li></ul><ul><li>NET INCREASE IN BANK DEBT 75 </li></ul><ul><li>PAYMENT OF CAPITAL LEASES 10 </li></ul><ul><li>TOTAL CASH PROVIDED BY FINANCING ACTIVITIES 65 </li></ul><ul><li>INCREASE IN CASH FOR THE PERIOD 95 </li></ul><ul><li>BEGINNING CASH BALANCE 5 </li></ul><ul><li>ENDING CASH BALANCE 100 </li></ul>
  10. 10. Financial Decision Techniques <ul><li>Measure these monthly – actual versus budget: </li></ul><ul><ul><li>Return on Investment – the real “bottom line” </li></ul></ul><ul><ul><ul><li>Operating Cash Flow / Net Tangible Assets </li></ul></ul></ul><ul><ul><li>Break Even Points – efficiency & performance </li></ul></ul><ul><ul><ul><li>Fixed Costs / Contribution Margin % </li></ul></ul></ul><ul><ul><li>Current Ratio – liquidity </li></ul></ul><ul><ul><ul><li>Current Assets / Current Liabilities </li></ul></ul></ul><ul><ul><li>Quick Ratio – liquidity </li></ul></ul><ul><ul><ul><li>(Cash + Accounts Receivable) / Current Liabilities </li></ul></ul></ul><ul><ul><li>Debt to Equity – solvency & risk </li></ul></ul><ul><ul><ul><li>Total Long Term Debt / Net Tangible Assets </li></ul></ul></ul>
  11. 11. Financial Decision Techniques <ul><li>Measure these monthly – actual versus budget: </li></ul><ul><ul><li>A/R Turnover – funds management </li></ul></ul><ul><ul><ul><li>A/R – Current Month Credit Sales – Previous Month Credit Sales </li></ul></ul></ul><ul><ul><li>Inventory Turnover – funds management </li></ul></ul><ul><ul><ul><li>Cost of Goods Sold / Average Inventory Value </li></ul></ul></ul><ul><ul><li>Contribution Margin % – efficiency </li></ul></ul><ul><ul><ul><li>Contribution Margin $ / Net Sales </li></ul></ul></ul><ul><ul><li>SG&A as a Percent of Sales – efficiency </li></ul></ul><ul><ul><ul><li>SG&A / Net Sales </li></ul></ul></ul><ul><ul><li>Working Capital – how much is too much? risk? incremental increases based on sales increases? </li></ul></ul><ul><ul><ul><li>Current Assets – Current Liabilities </li></ul></ul></ul>
  12. 12. Questions <ul><li>Jim Chamberlain </li></ul><ul><li> </li></ul>
  13. 13. Making the Right Financial Decisions… Critical to Success <ul><li>Business Performance Terminology </li></ul><ul><li>How to Measure Performance Using Financial Statements </li></ul><ul><ul><li>Balance Sheet </li></ul></ul><ul><ul><li>Income Statement </li></ul></ul><ul><ul><li>Statement of Cash Flow </li></ul></ul><ul><li>Techniques and Tools for Making Financial Decisions </li></ul><ul><li>Successful Business Pointers </li></ul>
  14. 14. Additional Resources <ul><li>Web </li></ul><ul><ul><li>Financial templates </li></ul></ul><ul><ul><li>Creating a profit & loss statement (free online workshop) </li></ul></ul><ul><ul><li>Financial ratios and business statistics by industry </li></ul></ul><ul><ul><li>Key business ratios </li></ul></ul><ul><ul><li>More links at and </li></ul></ul>
  15. 15. Additional Resources <ul><li>Small Business Solutions CD from SCORE OC </li></ul>
  16. 16. Additional Resources <ul><li>People </li></ul><ul><ul><li>UCI Center for Entrepreneurship and Innovation [email_address] </li></ul></ul><ul><ul><li>SCORE Orange County </li></ul></ul>
  17. 17. Students to Start-Ups Entrepreneurial Skills Workshop Series UPCOMING WORKSHOPS February 7 th March 21 st Demystifying Financial Statements Driving Growth Through Distribution Channels and Sales Management February 21 st April 4 th Sure-Fire Secrets to Entrepreneurial Nuts & Bolts of Business Structure Success and Licensing March 7 th April 18 th Finding Start-Up Capital Refine Your Unique Value Proposition RSVP [email_address]
  18. 18. Next Steps <ul><li>Sign up for future “Student to Start Up” workshops </li></ul><ul><li>Decide what specific area of your business (raising money, distribution, marketing, etc) would benefit from counseling </li></ul><ul><li>Contact UCI Center for Entrepreneurship and Innovation to arrange no-cost counseling from SCORE </li></ul>
  19. 19. Thank You!