Business Plan ii Financials

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Business Plan II Financials Course for enterpreneurs.

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Business Plan ii Financials

  1. 1. Business Plan Financials II Celina Peña March 2, 2009
  2. 2. Agenda  Personal Finances  Understanding & Creating your Price  Building a budget  Cash Flow  Profit & Loss
  3. 3. Your Credit Score  FICO Credit Score, is named after the company that developed it Fair Isaac & Company.  Is a number between 300 and 850. The higher the number the better your financial situation.  This is a snapshot of your credit and reduces decision making for lenders.
  4. 4. FICO Score a/k/a Credit Score Payment Amount History Owed 35% 30% Length of Types of Credit Credit in Use History 15% 10% New Credit 10%
  5. 5. Personal Financial Statement  Commonly referred to as a personal balance sheet or statement of net worth. It is a complete listing of all assets owned and liabilities owed.  Itemizes Assets and Liabilities (obligations and resources of $)
  6. 6. Personal Financial Statement Assets Dollar Amount Cash: Checking $5,200 Cash: Savings $300,000 Notes & Contracts $7,500 Life Insurance $10,000 Personal Property $35,000 Real Estate $0 Other $0 Total Assets $357,700 Liabilites Dollar Amount Current Debt $90,000 Notes Payable $5,000 Taxes Payable Real Estate Mortgages $120,000 Total Liabilities $215,000 Net Worth $142,700
  7. 7. Creating an Expense Sheet  Inventory Items  Supplies  Office Supplies  Equipment  Furniture  Rent/Building/Purchasing  Monthly Fixed Costs: Rent and utilities
  8. 8. Resources for Pricing  Trade Associations  Business to Business Inquiries  Rent investigation – asking potential neighbors searching online
  9. 9. Price Creation  Competitive Analysis  Secret Shopping  Online Shopping  Industry Trends  Documentation of demand for product & service
  10. 10. Price Creation  Direct Labor: labor used to produce products and services. These are directly attributed to customer activity  Indirect Labor: labor used to provide supporting services to the business. These support business functions that are not directly chargeable to the customer.  Direct Materials: Materials used in the final product or service purchased by customers. These materials are charged directly to the customer’s account.
  11. 11. Price Creation  Overhead Expenses:  OE are absorbed by the business and factored into the selling price as a percentage of direct labor costs. They include indirect costs such as accounting, advertising, depreciation, legal fees, utilities, rent, repairs, taxes, telephone, interest, etc.  Overhead Rate Equation:  YearlyOverhead Expenses/Yearly Billable Direct Labor Dollars  $3,500/ (800x$8)= 55%
  12. 12. Breakeven Analysis  A breakeven analysis is used to determine how much sales volume your business needs to start making a profit.  The breakeven analysis is especially useful when you're developing a pricing strategy, either as part of a marketing plan or a business plan.
  13. 13. Break Even Analysis  Fixed Costs/(Rev. per unit – Variable costs per unit)  Fixed Costs are costs that must be paid whether or not any units are produced. These costs are fixed over a period of time.  Variable Costs are costs that vary directly with the number of products produced. For instance, the cost of the materials needed to produce the units isn’t always the same.
  14. 14. Break Even Example  EXAMPLE: Fixed costs for producing 100,000 widgets is $30,000 a year. Your variable costs are $2.20 materials, $4.00 labor, and $.80 overhead for a total of $7.00 Say you sell the widget for $12.00 each. This is the equation: $30,000/($12-$7) =6,000 units.  This is the number of widgets that have to be sold at $12.00 before your business will start to make a profit.
  15. 15. Example of Costs Listed Sales Factor $120 Product 1 $85 Service 1 Cost of Goods Sold $30 Product 1 $22 Service 1 Fixed costs $2,000 /month Rent $600 /month Utilities $1,200 /year Insurance $1,000 /month Advertising 8% /year Interest on loan(s) $100,000 Loan(s) Variable Costs $2,000 /month Employees $0 /month Owner's draw 30% EmplBenefits
  16. 16. Financial Documents  Start up  Cash Flow  Profit & Loss  Balance Sheet
  17. 17. Startup & Project Costs Description Amount How much will Building $75,000 it take to open Land $20,000 your doors? Remodeling $30,000 Fixtures & Equipment $8,500 Inventory $25,000 Advertising $1,800 Loan Fees $6,000 Working Capital $25,000 Total $191,300
  18. 18. Sources of Revenue Description Loan Owner $ Total Inventory $15,000 $10,000 $25,000 Furniture & $8,500 $8,500 Equipment Land & Building $95,000 $95,000 Remodeling $30,000 $30,000 Working Capital $25,000 $25,000 Organizational $7,800 $7,800 Cost Total 156,300 35,000 $191,300
  19. 19. Profit and Loss, Balance Sheet and Cash Flow Statements Balance Sheet – Present The value of a company at a certain point in time. Statement of Assets and Liabilities. Cash Flow – Future Statement showing cash generation (inflow) and cash usage (outflow) Profit and Loss Statement – History Measures and reports Profit generated during a certain period. Profit/Loss is an opinion, based on Accounting Principles.
  20. 20. Cash Flow  Cash inflow and outflow from operations  Use assumptions from market research and industry averages  Realistic seasonal sales by the month  Method of payment for services  Inventory purchasing  Use several different ways to project sales  Can the business sustain in slow periods
  21. 21. Cash Flow Month 1 Month 2 Month 3 Cash on Hand $25,000 $23,000 $24,000 Plus Revenues $12,000 $19,000 $22,000 Available Cash $37,000 $42,000 $46,000 Less Expenses $14,000 $18,000 $20,000 End of Month $23,000 $24,000 $26,000 Must Consider: reasonable assumptions, seasonality, aging of Accounts receivable.
  22. 22. Profit & Loss Statement  measures a company's sales and expenses during a specified period of time. The function of a P & L statement is to total all sources of revenue and subtract all expenses related to the revenue. It shows a company's financial progress during the time period being examined.
  23. 23. Profit & Loss Statement (income) Year 1 Gross Sales $300,000 Less COGS $218,000 Gross Profit $82,000 Less Operating Exp. $58,000 Profit before Tax $24,000 COGs= Cost of Good Sold
  24. 24. Balance Sheet  Purpose to provide a snapshot of a business’s financial position at a given point in time.  Illustrates what the business owns, what it owes and what the business’s net worth is at a given time.  Total assets should equal the sum of the total liabilities an the net worth.  Key elements: current assets (cash accounts receivable, inventory), fixed assets (property, plant and equipment), intangible assets (patents), liabilities and owners equity, current liabilities (accounts payable & long term debt)  Total Assets + Total Liabilities + Total Capital & Liabilities
  25. 25. Balance Sheet Assets Shareholder’s Equity and Liabilities Fixed Assets Equity + Inventory Share Capital + Accounts Receivable + Other Restricted Equity + Cash and Cash equivalent + Net Profit for the Year = Total Assets + Retained Earnings = Total Equity Liabilities Long Term Loans + Short Term Loans + Accounts Payable = Total Shareholder’s Equity and Liabilities Total Assets = Total Shareholder’s equity and liabilities
  26. 26. Balance Sheet Example Assets Liabilities and Owners' Equity Cash $6,600 Liabilities Accounts Receivable $6,200 Notes Payable $30,000 Accounts Payable Total liabilities $30,000 Tools and equipment $25,000 Owners' equity Capital Stock $7,000 Retained Earnings $800 Total owners' equity $7,800 Total $37,800 Total $37,800
  27. 27. Your Next Steps  Research your business and production costs.  Develop your overhead and breakeven analysis.  Prepare Startup Cost  Prepare Cash Flow & Profit & Loss

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