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Financial Planning

Financial Planning

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  • Over 50% of new businesses fail within five years. One of the biggest reasons for failure is not enough start-up funds. Cash flow is huge for a business. Ask students to name businesses that have come and gone within the last 3-5 years in their community.
  • Successful businesses and individuals prepare and follow a budget. Have students prepare a quick personal budget based upon $1,200 of income per month and no financial aid from other sources. How many ran out of money, were able to save money? What were their primary expenses?
  • Ask students to define cash flow. Then explain why cash flow is so important to businesses. Also explain why businesses count on a line of credit for operation. 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 financial plan for ongoing operations of the business for a specific period of time Cash budget-an estimate of the actual money received and paid out for a specific period of time
  • Explain why it is important for a business or individual to have more assets than liabilities. Explain why the government requires businesses to maintain accurate business records for taxes. Payroll records are not only important for individuals but also the government to keep track of personal income taxes.
  • Show students a check stub that lists a variety of deductions. Explain each deduction
  • Explain how financial statements tell others about the strength of a company. The financial statements begin with the company’s budget. Investors, the government, shareholders, and others look at financial statements to determine the strength of a company.


  • 1. Principles of Business, Marketing, and Finance Lesson Four Financial Planning UNT in partnership with TEA, Copyright ©. All rights reserved
  • 2. Financial Questions a Business Must Answer
    • How much money is needed for start-up?
    • Where to obtain financing?
    • How will funds be obtained to run the business
    • for the months or years until it becomes profitable?
    • What will be the best sources of sales and other income?
    • What will be the expenses and when will they be paid?
    UNT in partnership with TEA, Copyright ©. All rights reserved 2
  • 3. Four Steps for Budget Preparation
    • Prepare a list of income and expenses.
    • Gather accurate information for each income and expense.
    • Create the budget by calculating each type of income, expense, and amount of net income or loss.
    • Show and explain the budget
    • to people who need financial
    • information to make decisions .
    UNT in partnership with TEA, Copyright ©. All rights reserved 3
  • 4. Three Types of Business Budgets
    • Start-up Budget
    • Operating Budget
    • Cash Budget
    UNT in partnership with TEA, Copyright ©. All rights reserved 4
  • 5. Financial Records and Financial Statements
    • Recognize and Analyze the Financial Performance of a Business
      • Assets
      • Depreciation
      • Inventory
      • Account
      • Cash
      • Payroll
      • Tax records
    UNT in partnership with TEA, Copyright ©. All rights reserved 5
  • 6. Important Financial Statements
    • Income statement
      • Revenue
      • Expenses
      • Net profit or loss
    • Balance Sheet
      • Assets
      • Liabilities
      • Net worth
    UNT in partnership with TEA, Copyright ©. All rights reserved 6
  • 7. Financial Performance Ratios
    • 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 assets/net income)
    UNT in partnership with TEA, Copyright ©. All rights reserved 7
  • 8. Payroll Management
    • Financial records of employee compensation, deductions, and net pay
    • Information on each employee to calculate the company’s payroll and to make the necessary payments to each employee
    • Payroll record-form used to document each employee’s pay history
      • Name of employee
      • Social security number
      • Address
      • Tax and benefit records
    UNT in partnership with TEA, Copyright ©. All rights reserved 8
  • 9. Financial Decision-Making
    • Company Strength -assets, liabilities, owner’s equity, sales, profits
    • Calculate financial performance ratios to make decisions that result in the wise use of the company’s money
    • Steps in Financial Decision Making
      • Prepare a budget
      • Use the budget as a guide to
      • the operations of the business
      • Make needed adjustments
    UNT in partnership with TEA, Copyright ©. All rights reserved 9