Business Finances & Financing - Training Transcript


Published on

The idea of owning running a business is exciting and can be very rewarding. However, becoming a successful business owner can also be very challenging. It requires the right mindset, perspective, attitude, traits & know-how.

Our Free Business Training is designed to give you an insight into what it means to own a business and provide you with the basics to get you started off on the path to success.

This compact but complete 10 session program will cover topics from accessing if business ownership is the right path for you, planning, opening your business to growing and expanding.

Published in: Business
  • Be the first to comment

  • Be the first to like this

Business Finances & Financing - Training Transcript

  1. 1. 1 Business Finances & Financing Training TranscriptNOTICE: You DO NOT Have the Right to Reprint, Re-Distribute or Resell the Information Herein. YouAlso MAY NOT Give Away, Sell, or Share the Content Herein Without Written ConsentCopyright © Baanabaana Business AgencyALL RIGHTS RESERVED. No part of this material may be reproduced or transmitted in any form whatsoever, electronic,or mechanical, including photocopying, recording, or by any informational storage or retrieval system without expressedwritten, dated and signed permission from the author and/or without proper accreditation.DISCLAIMER AND/OR LEGAL NOTICES: The information presented in this report represents the views of the publisher asof the date of publication. The publisher reserves the rights to alter and update their opinions based on new conditions.This report is for informational purposes only. The author and the publisher do not accept any responsibilities for anyliabilities resulting from the use of this information. While every attempt has been made to verify the informationprovided here, the author and the publisher cannot assume any responsibility for errors, inaccuracies or omissions. Anysimilarities with people or facts are unintentional.AFFILIATE DISCLAIMER: Baanabaana Business Agency may receive compensation from some of the entities listed in thisreport for referrals, as their “thank you” for sending you their way. However, Baanabaana Business Agency neverrecommends any service or product solely for the reason of receiving commissions (and neither should you) –Baanabaana Business knows our reputation is on the line.(Slide 1) Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  2. 2. 2WelcomeWelcome to Week 5, the half-way point of our Free Business Training webinar series! This isyour presenter, Sirra Ndow here with you again today, talking about a business’s bottom line,the moneyIn Week Four, we talked about trade names or doing business as or DBA, trademarks, whatregistering a business entails; the difference between licenses and permits, business insuranceand ended with a few suggestions on what to do and what not to do at this stage of businessstart up.(Slide 2)Training OverviewToday we will talk about the money and I think that it is only appropriate that finances is themidpoint of the training given that it the heart of any business.(Slide 3)TopicsToday we will be looking into:Why it is important to be able to understanding and financial issues. We will also look into thekey financial concepts, measures and tools and end as usually with recommendations on bestpractices and some pitfalls to avoid.(Slide 4)Understanding And Talking Numbers In Your Business Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  3. 3. 3The fact is that if your business is not making money or is not projected to make money, thenyou are no longer running a business thus it is essential for you, as a business owner, to beable to understand and communicate, with clarity, easy and confidence, your financial needsas well as track and compare your competitors’ financial health to better manage yourbusiness to get on the path to success, even if you plan on hiring someone to do the books foryou.Ideally, one would take a course to learn about the basics of accounting before starting abusiness. If sitting in a classroom is not a possibility or is not an appealing prospect to you,there are numerous other ways to gain basic understanding of financial knowledge especiallyon the Internet (online guides, how to article, blogs and videos etc.).The basic areas that a small business owner must understand about are record keeping,banking, payment processing, bookkeeping, money management, and taxes. Fortunately, thejob of business keeping records and tracking the money is much easier today with the help ofcomputerized or online financial tools and software – ranging from simple records andbookkeeping to all-in-on solutions, free or paid.Lack of understanding and not keeping track of your finances can cost you money and lostopportunity or result in a lot of hassle, penalties and problems.(Slide 5)Key Financial Issues, Measures & ToolsThe financial issues that a small business owner has to deal with are many and varied and mayappear daunting but if one takes the time to identify them and understand the requirements,it can easily be managed.These include:  Personal Finances  Start up Costs  Pricing Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  4. 4. 4  Breakeven & Profitability  Sales Forecasts  Cash Flow Projections  Financing Options  Keeping Separate Business Records  Financial Analysis & Management  Taxes & Deductions  Computerized & Online ToolsLet’s look at the basics of each of these.(Slide 6)Personal FinancesThe majority of small business owners use their personal funds to start their businesses. Thereare many reasons for this including lack of access to or expensive credit; not wanting toburden themselves with debt right off the bat; and not willing to give up control of theirbusiness to investors.If you are investing your own money into your business, then a critical first step should be totake inventory of your personal financial resources and health first. Taking stock of yourfinancial situations helps determine your net worth i.e. how much assets, liquid and salable,you can access and use. It will also help you in figuring out if you have enough money to startyour business or if you will need to borrow or look for investors; how much reserve you haveand how much money you will need to draw each month to sustain your life and livelihood.We mentioned during our first week of training that everything about owning and running asmall business revolves around YOU, the business owner so your personal financial situationcan and will greatly impact your business. Personal credit issues can especially have a bigimpact on the cost of doing business fro you(Slide 7)Start up Costs Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  5. 5. 5Starting and running a business requires money, no matter how small or big the businessventure or whether you are going to be selling products or providing a service. Materials,equipment and suppliers will need to be bought; communications systems need to be set up;utilities need to be paid etc.The first category business expense is the start up costs or the cost of doing business. Theseare all the expenses you have before you start your business. Start-up costs are investmentsyou make in your business and calculating them is a comprehensive process that is not usuallyan exact science. It involves estimations and assumptions to get a fair.Start-up costs are calculated by using realistic estimates to prepare a detailed andcomprehensive list of all the cost/expense items needed for the business to start selling itsproducts or services. Start-up costs are divided into onetime expenses which include all theone-off costs that are incurred at the start of business such as:  general business costs – business registration, licensing, insurance premiums, bank and merchant account set up fees, subscriptions, legal and professional services etc  office furniture, fixtures and equipment costs - desks, chairs, printers, computers, telephones, fax machines, copiers, shelves, filing cabinets, office suppliers etc  product inventory & Packaging suppliers costs – initial product orders, packing and shipping suppliers, samples, displays etc  website design costs - domain registration, web design and development cost, content development, e-commerce solutions, tailored software etc.  marketing, advertising and branding – online and offline activities  transportation Costs – Vehicle purchase, lease/ loan down payment, vehicle insurance, registration  special equipment costs – the cost of equipment that is specially made or modified for the business and everything associated with it  Miscellaneous Costs – you can calculate this as a percentage (10-20%) of the total start up costsThe costs of doing business also include the recurring, monthly expenditures that arenecessary to make, sell or deliver your products and/or services and also keep the business Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  6. 6. 6running. They can be separated into the direct costs, the expenses directly related to makingeach sale, and overhead costs are the costs you will have to keep your business going, whetheryou make a sale or not.Direct costs include items such as goods to prepare/manufacture the products you sell e.gflour, sugar, oil, butter etc. if you are a baker, the time a consultant spends with a client,packing and shipping supplier etc..Overhead costs are expense items such as:  General Office Expenses – Utilities, office space rent, loan interest and principle payments etc.  Communication expenses – Telephone, Internet connection, answering service etc.  Marketing & Advertizing Expenses – Online and social media marketing, radio/TV ads, email marketing etc  Website maintenance costs – web hosting, website updates, SEO an online marketing, software licenses etc.  Salaries & Benefits – owner’s draw and/or staff salaries, professional development and association fees and benefits  Transportation Expenses – fuel, monthly car payments, insurance maintenance and repairs etc  Miscellaneous Expenses – Entertainment, travel, donations etc.Some expense items can be both a the direct cost as well as a monthly overhead. The cost ofelectricity in a bakery shop for example. Part of it will be needed on a daily basis to operatelights, printers etc. When producing the baked goods, electricity will also be needed to operatethe baking equipment.The more realistic your start up numbers are, the better and a little research can help with theestimates. When calculating start-up costs, it is always better to over-estimate a little thanunder-estimate. You do not want to fall short of cash in the middle of setting up shop can.With these numbers in hand, you can now proceed to more accurately price yourgoods/services so you can calculate your breakeven and profitability points. Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  7. 7. 7(Slide 8)PricingThe importance of pricing in the ultimate success of your business cannot be over-emphasized.It actually can become a matter of life and death for your business. Pricing has to be just right,a balance between a healthy profit margin and a price point that will not drive your customersinto your competitors’ arms.Like calculating start up costs, pricing is also not an exact science. It can be down to a trial anerror process in the journey to finding the right price. That said, the more on point your startup costs and monthly overhead expense estimates are, the shorter your trial and error periodwill be. In addition, researching what your competitors are charging can also be very helpfuland may be a quicker and easier way to go about it.Pricing decisions can be made using several strategies:1. The Going Rate – charging what everyone else is charging for the same/similar product or service. This approach however will not differentiate you from your competitors. You will need to find a way to add value and stand out from the crowd.2. Low End Pricing – undercut your competitors by charging the lowest price. This can raise questions about the quality of the product or service you offer. Also, if your competitors lower their prices, you will no longer have an advantage.3. High End Pricing – Charging a premium price, above everyone else. This must also be accompanied by added value and service that clients can appreciate and will be willing to pay for it to be successful.4. In-Between Pricing – charging a price that is neither the lowest nor the highest but somewhere in-between. This can be a good way to test your pricing point but like the Going Rate strategy, it does not offer much differentiation.5. Introductory Pricing or Limited Time Offer – This strategy is a good and common one amongst start ups. It can help your business get noticed and quickly gain a customer base. Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  8. 8. 8 Introductory pricing can increase your breakeven point and thus extend the time it takes to become profitable however. Limited time pricing can also be effective in marketing during slow periods. Be sure to make it clear that prices are for a limited time and don’t forget to change them.Multiple pricing strategies can be employed at any one time and over the business’s lifetimebut whatever your approach, be ready and don’t hesitate to raise your lower your prices asnecessary and don’t be embarrassed about the change. It is after all business and notpersonal.(Slide 9)Breakeven & ProfitabilityHow much do you have to sell in order to have enough money to pay all of your expenses, payyourself and make a profit or how much revenue do you need to generate to match yourexpenses? This is an important question that unfortunately, most small business owners don’thave the necessary skills to figure out.Calculating exactly what your monthly sales need to be in order to cover all you expenses andcost is called calculating break-even point. This is done on a monthly basis to tell you the leastamount of revenue you need to generate each month to cover your costs.When you sell a unit of product or service, a part of the revenue will be applied to paying yourdirect costs, a part will go to cover the overhead and if there are any leftovers, that will beyour profit. If you do not have enough to cover the costs, then you will have a loss and if youneither made a profit or suffered a loss, then you broke even.Breakeven is calculated using the price per unit of sale, your direct costs and total monthlyoverhead costs as follow: Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  9. 9. 9To find the monthly revenue, we will simply multiply the number of units at breakeven by unitprice.For example, if:Unit price = $60Direct Cost per unit = $40Total Monthly overhead costs = $1000Then:Total monthly revenue will be:This means that anything over $3000 per month will be your profit and if you fall short of that,you will be making a loss.If you offer multiple products and or services, you will need to calculate the breakeven pointfor each single product or service you which means you need to calculate the direct cost forproduct or service.This step can no doubt be daunting and time consuming but the information it gives you isinvaluable in running a successful business.(Slide 10)Sales Forecast Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  10. 10. 10The Sales forecast is the projections of your anticipated sales. Its a self-assessment tool that iscreated by estimating how much you will sell of each kind of product or service. The salesforecast is the lifeblood of a business and the foundation for your business financial planning.If accurately projected, you can plan for the future.Sales forecasting can be a tricky process because there are so many different factors that canaffect sales - economic conditions, seasonal changes, changing trends and fashions, increasedcompetition, and other factors. Fortunately, one does not need an advanced degree orcomplicated mathematical formulas to create a sales forecast, especially with computerizedsoftware and tools around.To create your forecast, you will need your list of products and services, your break-evencalculations, your marketing plan, and the research results for your market, industry andeconomic environment. You will need to list the assumptions you make which can include theseasons in your industry that affect sales of specific products or services, or sales generally;months when you may not breakeven and the strategies you are going to use to improvesales; products or services linked to another product or service etc. These pieces ofinformation will help you make realistic, educated guesstimates about future short-term orlong-term sales.For start up, the sales forecast is very important, especially if a loan or venture capital isneeded to get capital. No matter how enthusiastic a lender or investor gets, they would stillneed to see numbers to make sure that your business will be variable and this information isshown by the sales forecast.The hardest part of the sales forecast is maintaining the detailed and accurate financialrecords needed to make the calculations but the calculation itself is actually pretty simple. Fora new business with zero sales history however, this can be tough. The standard method forcalculating a sales forecast without existing sales history is to base your predictions on theperformance of similar businesses that sell similar products or services to the same customerdemographic as yours and have the same geographic location. This would be a good time tovisit or call your competitor and talk to sales staff and customers and draw up a profile of yourtarget customer.(Slide 11) Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  11. 11. 11Cash Flow Projections“Happiness is a positive cash flow” is a title from the Home-Based Business for Dummies bookthat I think is a funny but quite accurate description that any successful business owner thatunderstand the importance of managing the flow of cash into and out of their business willagree with.The cash flow projection is the management of the stream of incoming cash (revenue) flowinginto your business, and the stream of outgoing cash (expenses) flowing out of your business ona daily business. The net of incoming revenue minus outgoing expense is your cash flow and itis not the same as your profits.Cash flow projection is a very important business management tool for any business, nomatter what stage they are at and if not managed properly, it can kill your business, even ifyou have the best products in the market with record profitabilityUnfortunately, this tool is something that small business owners tend to neglect which can bedetrimental to the business they worked so hard to set up. Good cash flow management isnot about bringing in more cash or lowering your expenses. It is about timing the flow ofmoney.Taking time to prepare a cash flow projection can help you identify cash shortages early anddo something about it before issues come up. Some things that can be done to improve cashflow are:- invoicing your clients more frequently- require payment upon receipt or shorter credit period- processing payroll less frequently e.g. bi-monthly instead of weekly- requesting changes due dates on the bills you have to pay etc.(Slide 12)Financing Options Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  12. 12. 12The key financial issues we’ve explored so far gives us pretty much all the information we needto choose the best strategy for getting the (starting and operating) capital we would need tostart and run our new business.The main ways to fund a small business include: Personal Investment - Going back to our personal financial situation assessment, we will know if we have the funds from our own personal coffers to fund our business venture or if we need to look somewhere else for the full or part of our capital needs. This is one of the most common way small businesses the world over are funded. Personal investment offer the most freedom in how you run your business Loans – These can be either from a commercial bank or in some countries, from the government. Loans can come with conditions; usually need collateral and repayment plans that may not be too favorable. Bear in mind also that non-repayment can have more severe consequences such as losing your home if you used that as collateral. Borrowing from family and/or friends – this can be a good way to quickly get the funds you need for your startup, with less conditions. However, mixing family/friendship with money can cause problems in these relationships Private Investors can come up with the money you need but this usually asks for percentage of the business profits and a voice in voice in how you run the business.Other ways of getting funds include using credit cards, bartering with other businesses,arranging credit terms with suppliers and leasing or renting major operating equipment.Financing options can be any one or a combination of these options.(Slide 13)Keeping Business Records Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  13. 13. 13Keeping business records is commonly ignored, especially at startup and by Sole Proprietorsbut it is an important part of managing business finances and the business in general, nomatter what stage a business is at.Keeping business record start with separating personal and business finances and it can belegally required - if your business is registered as a limited liability company for example. Italso makes extracting information to produce sales and expense reports and complete taxforms easier. Establishing a business bank account can also enable you to have checks printedwith your business and a merchant credit card if you help you project a more professionalimage.Record keeping is tedious and can be a lot of work but is the first step in creating all thebusiness and financial operating and management tools that are key for any business.It is also necessary to help you keep track of vital information such as:  who owes you money, how much they owe you, and when the money is due to you  who you owe money to, how much you owe  when you must pay the bills  how much you paid for inventory and how old your inventory is  purchases you have ordered but not yet received  sales orders you have taken but not yet filled  how much money you have in the bank  whether or not the checks you have written have cleared your bank account  what your equipment, furniture, and fixtures are worth, as well as when and where you purchased them  any warranties or maintenance agreements you have  client information and agreements, such as contracts  agreements you have with other people, such as your rent or lease  agreement, loan documents, credit card terms, etc.Fortunately, computerized tools and software such as automated filing systems andaccounting software packages exist to help up easily and quickly keep track of ourtransactions.(Slide 14) Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  14. 14. 14Financial Analysis & ManagementTo be truly successful, a business owner will need to pay close attention to the financial detailsof their company. With careful analysis and proper management and controls in place, thebusiness can be taken to where they envision it to be.Financial analysis and management focuses on the three major financial statements and day-to-day bookkeeping. These can either be handled entirely by you, the business owner or ahired accountant and/or bookkeeper. You can approach it as a combination of the two – dothe daily bookkeeping yourself and hire a professional to prepare financial statements andtaxes.Either way, most business owners find this aspect of the business overwhelming but theavailability of easy to use accounting software such as Quickbooks, Quicken and SageAcconting makes the work a lot easier, quicker and more accurate.The three major and most popular financial statements are the Profit and Loss Statement (alsoknown as the "statement of profit and loss", an "income statement" or an "income andexpense statement"), The Balance Sheet and Cash Flow Projections. They each tell a differentstory about the state of your finances and have a different role to play in your financialanalysis and ultimately, business management. We have already talked about the Cash FlowProjection so we will focus on the other two.The Profit and Loss Statement summarizes the revenues, costs and expenses incurred duringa specific period of time - usually a fiscal quarter or year. These records provide informationthat tells a business owner whether or not a profit has been earned. It includes income,expenses, and the difference between income and expenses, which is either profit or loss.A Profit and Loss Statement reflects how a business was operated within a specific period oftime, such as a month or a year.The Balance Sheet is expressed by the mathematical formula:Assets = Liabilities + Owner’s Equity (or Capital) Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  15. 15. 15with the assets always on the left or top and the liabilities and capital on the right or bottom. Itreflects the value of a business on a specified date, taking into consideration everything thathas happened from its first day of operations to that date. If the balance sheet does not addup, then the numbers are not right. The Balance Sheet accounts for some of the numbers suchas accounts payable and receivable that is not addressed by the Profit and Loss Statement.Other aspects of financial management include establishing payment terms, processingreturns, refunds and cancellations and debt collection(Slide 15)Taxes & DeductionsUnless you are a tax professional or a certified public accountant, you will find taxes anddeductions complex and confusing, especially at the beginning of your business. Sadly, thiscannot be used as an excuse if you fail to pay your taxes or you do it wrong. Penalties and fineswill still come your way and this is why the first thing most business owners do is hire aprofessional to take care of this.Which taxes to pay? How much you have to pay? When to pay them? Which forms to use?What deductions you can take? What to do if you can’t afford to pay your taxes? What aboutsales tax? etc. are all questions are best answered under the advisement of a professional atthe very least. Even then, it will still be advisable to gain some knowledge and understandingof the basic requirements(Slide 16)What To Do / What Not To DoDo Don’t  gain basic knowledge of accounting to  avoid or neglect your accounting and Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |
  16. 16. 16 be able to understand and bookkeeping communicate your financial situation  expect to use ignorance as an excuse and needs when it comes to paying your taxes  consult and/or retain a professional  overlook your cash flow projections accountant or tax expert  try to do it all by yourself just to save on  separate you personal from business fees records  confuse profitability with cash flow  prepare financial statements regularly  Take stock of your personal financial situation(Slide 17)This completes our session today. Once again thank you all for being here and we hope youfound this session helpful. Please join us again next week when we will be talking about the allimportant location, location, location. As always, please help us improve this training by givingyour feedback in the survey at the end of this training.Have a great weekend! Free Online Business Training - Week Two - Writing Your Business Plan | | @Baanabaana |