Start business unit 6

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  • 1. Information• Fire and Safety Procedures• Toilets• Refreshments• Mobile Phone (Off Please) 1
  • 2. • How to complete a Cash Flow• How to complete a Profit and Loss• How to Forecast your Sales• Work Through live examples• Use of Ratio’s - Key Figures 2
  • 3. OverviewYour Business in Figures The Figures Create These ProjectionsSalesProjections Cash FlowFixed ForecastCosts Profit and LossDirectCosts Balance SheetCapitalCosts 3
  • 4. Manage Your Business FinanceFinancial Statement Role in Financial PlanningCash Flow Forecast Projection of cash flowing into and out of the business, usually on a monthly basisProfit & Loss Account Summarises income and expenditure for a given period to show profit or lossBalance Sheet Financial snapshot of the business showing assets and liabilities. 4
  • 5. Cash Flow Forecast What It Is and its Benefits• It’s a prediction of money coming in and going out of your business• Its your control over cash.• Shows what funding you need – and when.• Shows when your business starts generating cash.• Any lender will ask for it. 5
  • 6. Step by Step Process• How much is coming in?• How much is going out?• What’s the difference (+ or - )• That’s your net cash flow (movement).• Opening balance is what you started with.• Add the net movement for closing balance. 6
  • 7. How to do It• You can do it with pen and paper.• Most businesses use a computer spreadsheet (there‘s one on the disk given out on Day 1).• Benefit of a spreadsheet is that you can try out different situations. 7
  • 8. Income Sources – Funding.• Own Money• Family Investment• Loans – banks etc• Other Investors• Credit Unions• Credit Cards• H P / Lease• Grants 8
  • 9. INCOME SOURCES SALES• SALES • SALES INCLUDES Cash - Takings Credit - Invoiced - Subscriptions - Ticket Sales 9
  • 10. Expenditure• EXPENDITURE for RUNNING the BUSINESS.• Materials /Stock• Wages (For any employees)• Fixed Costs Rent/Rates Travel Costs Telephone inc Mobile and Broadband Insurance• Loans repayments & interest– Banks, etc• Hire Purchase Instalments• OTHER EXPENDITURE• Drawings• Capital Expenditure items• Working capital - stock – debtors – start up costs 10
  • 11. Matt & SlickLive Example 11
  • 12. Profit and Loss Account “Sanity not Vanity” Other DifferencesIt’s Profit – not Cash • Drawings not in Profit.• If all sales and purchases for • Capital Items not in Profit ( cash. Instead have Depreciation).• Not VAT registered. • Doesn’t include loans or• If no purchases for stock. loan repayments.• If no Major Capital Expenditure.• Profit = Cash Flow. 12
  • 13. Working Capital Credit terms• How much credit will your customers demand?• How much credit will your suppliers give? 13
  • 14. Profit and Taxation• You will pay tax on your profit in your profit and loss account.• Tax is calculated on your profit – before your drawings.• What is left after tax and drawings is your ‘’retained profit‘’ 14
  • 15. Profit and Loss AccountMatt & Silk Profit and Loss Account Month 1 Month 2 Month 3 Month4 Month5 Month6 Total £ £ £ £ £ £ £Income Sales 0 Sundry Sales 0 Total Income 0 0 0 0 0 0 0 Direct Costs Materials 0 Wages 0 Total Direct Costs 0 0 0 0 0 0 0 Gross Profit 0 0 0 0 0 0 0Rent & Rates 0Elec/Gas 0Rent & Rates 0Telephones & Internet 0Advertising / Promotion 0Petrol 0Printing & Postage & Stationery 0Insurances 0Professional Fees 0Sundries 0Sundries 0 Total Fixed Costs 0 0 0 0 0 0 0 Profit Before Tax 0 0 0 0 0 0 0 Taxation 0 0 0 0 0 0 0 Drawings 0 Retained Profit 0 0 0 0 0 0 0 15
  • 16. Sales Forecasting• Sales is most important Figure in Forecast.• Sales also most difficult to forecast.• Two elements , “Price“, “Units”,• Price X Units = Sales 16
  • 17. Forecasting Methods• Market Based – size of market/share.• Resource/Capacity – what’s possible.• Value Based - level of sales needed to achieve profit goal.• CROSS CHECK ALL THREE ! 17
  • 18. Factors in Sales Forecast• First Month will not be your highest sales.• Allow for a build up.• Recognise seasonal factors.• How will competitors react.• What are the market trends.• BE REALISTIC. 18
  • 19. Value Added Tax Brief Outline Not Registered Registered Product not VAT ratedIf Product is VAT rated. or Sales Under £70,000.And Sales Over £70,000. or Voluntarily Register. 19
  • 20. Preparing your Cash Flow• Forecast your Sales.• Think about when money will come in.• Think about what you need to start.• Think about what goes out. 20
  • 21. The Funding Mix “B E G“ Equity GrantBorrow 21
  • 22. Worked Examples• Cash Flow• Profit and Loss 22
  • 23. Break Even Unit Price £ % % Margin Mark-upSales 200 £30 6000Direct Cost 200 £12 2400 150%Gross Profit £18 3600 60%Fixed Costs 2600Drawings 1000Net 0 23
  • 24. RATIOS• Measures Performance• Gross margin % - what you make on each sale• Net profit % - what the business makes after fixed costs• Different sectors have Different “%”ages 24
  • 25. What Next?• Update your Business Plan.• Does it still make sense?• What’s missing? 25
  • 26. SWOT Analysis ofBusiness Idea Strengths Weaknesses Opportunities Threats 26
  • 27. ANY QUESTIONS ? 27