Operating Finance Need to know:


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Operating Finance Need to know:

  1. 1. Operating Finance
  2. 2. Need to know: <ul><li>Opening the bank account </li></ul><ul><li>Taxation </li></ul><ul><li>Insurance </li></ul>
  3. 3. Opening a Bank Account <ul><li>Complete a bank mandate form </li></ul><ul><li>Authorised signatures </li></ul><ul><li>Copy of Memorandum and Articles of Association </li></ul><ul><li>Certificate of Incorporation </li></ul><ul><li>Name of the account </li></ul>
  4. 4. Taxation <ul><li>Income Tax – Sole Traders and partnerships </li></ul><ul><li>Corporation Tax – Limited Companies on profits </li></ul><ul><li>Value Added Tax – All Businesses in excess of certain threshold </li></ul><ul><li>PAYE/PRSI – Employees etc. </li></ul>
  5. 5. Calculating Taxable Profits <ul><li>Taxable profits are calculated by deducting allowable business expenses from turnover. These include: </li></ul><ul><ul><li>Purchase of goods for resale </li></ul></ul><ul><ul><li>Wages, rent, rates, repairs, lighting, heating </li></ul></ul><ul><ul><li>Running costs of vehicles or machinery used in the business </li></ul></ul><ul><ul><li>Accountancy and audit fees </li></ul></ul><ul><ul><li>Interest paid on any monies borrowed to finance business expenses </li></ul></ul><ul><ul><li>Lease payments on vehicles or machinery for business </li></ul></ul>
  6. 6. PAYE/PRSI <ul><li>Operates on the basis that an employer deducts tax at a specified rate from an employee’s pay. </li></ul><ul><li>Must register for PRSI/PAYE </li></ul><ul><li>Need to make payments and returns to Collector-General </li></ul>
  7. 7. VALUE ADDED TAX <ul><li>Taxable Persons </li></ul><ul><li>Rates of VAT </li></ul><ul><li>Register for VAT </li></ul><ul><li>Returns to the Collector General </li></ul>
  8. 8. NEED TO KEEP… <ul><li>Records </li></ul><ul><li>Returns </li></ul><ul><li>Information for Revenue Audits </li></ul><ul><li>Record of transactions </li></ul><ul><li>Quality Credit Control </li></ul><ul><li>Correct financial books </li></ul><ul><ul><li>Trading Account, P&L Account, Capital Account, Balance Sheet </li></ul></ul><ul><li>Financial Software </li></ul>
  9. 9. Insurance <ul><li>Business Insurance </li></ul><ul><ul><li>Fire </li></ul></ul><ul><ul><li>Burglary/theft </li></ul></ul><ul><ul><li>All risks </li></ul></ul><ul><ul><li>Public liability </li></ul></ul><ul><ul><li>Product liability </li></ul></ul><ul><ul><li>Employer’s liability </li></ul></ul><ul><ul><li>Motor Insurance </li></ul></ul>
  10. 10. Financial Statements
  11. 11. Types of Statements <ul><li>Cash Flow </li></ul><ul><li>Profit & Loss </li></ul><ul><li>Balance Sheet </li></ul><ul><li>Break Even Analysis </li></ul><ul><li>Initial Investment </li></ul><ul><li>Sources of Funding Proposal </li></ul>
  12. 12. Cash Flow Statements
  13. 13. Managing Small Business Accounts <ul><li>Cash Method </li></ul><ul><ul><li>Only records income when cash is received </li></ul></ul><ul><ul><li>Only records expenses when payment is made </li></ul></ul><ul><ul><li>But what about credit? </li></ul></ul><ul><li>Accrual Method </li></ul><ul><ul><li>Sales recorded as sale made or items ordered </li></ul></ul><ul><ul><li>Expenses recorded when order made </li></ul></ul>
  14. 14. Cashflow Forecast <ul><li>Gives a monthly snap shot of the amount of money coming in and going out of the company’s bank account </li></ul><ul><li>Note the positive or negative cash flow </li></ul>
  15. 15. <ul><li>Opening Balance Jan Feb March April </li></ul><ul><li>Income </li></ul><ul><li>Cost of Sales </li></ul><ul><li>Rent </li></ul><ul><li>Heating, Lighting, Water </li></ul><ul><li>Tel., Internet </li></ul><ul><li>Professional Fees </li></ul><ul><li>Bank Charges </li></ul><ul><li>Wages </li></ul><ul><li>Material </li></ul><ul><li>Equipment </li></ul><ul><li>Transport </li></ul><ul><li>Total Cost </li></ul><ul><li>Closing Balance </li></ul>
  16. 16. Notes to Cash Forecast <ul><li>Opening Balance for each month to be brought forward amount from the previous month’s closing balance </li></ul><ul><li>Sales may be up front, payment with purchase or 1, 2 or 3 months after sale – depends on type of business </li></ul><ul><li>Office rent usually one month in advance </li></ul><ul><li>Heating, Lighting and water usually give one month credit </li></ul><ul><li>Telephone, Internet usually one month credit </li></ul><ul><li>Professional Fees usually two months credit </li></ul><ul><li>Bank charges and credit cards usually one month credit </li></ul>
  17. 17. Notes to Cash Forecast <ul><li>Wages and salaries usually same month </li></ul><ul><li>Material costs – varies but usually one month </li></ul><ul><li>Equipment – varies – 1, 2 or 3 months </li></ul><ul><li>Transport costs – varies – up front etc. </li></ul>
  18. 18. Stocking / Destocking <ul><li>Stocking – Gearing up of materials and stock to supply increasing sales (may take a few months before positive effect realised) </li></ul><ul><li>Destocking – Winding down of stock as sales reduce (effect seen immediately) </li></ul>
  19. 19. Information required for cash flow forecasting <ul><li>Easy to get for some expenses e.g. insurance, selling, administrative etc. </li></ul><ul><li>Owner/manager source of information </li></ul><ul><li>Trade Journals </li></ul><ul><li>Note seasonality </li></ul><ul><li>Avoid Estimating - aim for factual information as much as possible </li></ul>
  20. 20. Profit & Loss Account <ul><li>Sales (volumes or values) </li></ul><ul><li>Cost of Sales </li></ul><ul><li>Fixed Overheads </li></ul><ul><li>Variable overheads </li></ul>
  21. 21. <ul><li>Business Name </li></ul><ul><li>Profit & Loss Account </li></ul><ul><li>Year 1 Year 2 Year 3 Year 4 </li></ul><ul><li>Sales </li></ul><ul><li>Cost of sales </li></ul><ul><li>Gross Profit </li></ul><ul><li>Gross Profit % </li></ul><ul><li>Overheads </li></ul><ul><li>Staff </li></ul><ul><li>Production </li></ul><ul><li>Premises </li></ul><ul><li>Transport </li></ul><ul><li>Selling and promotion </li></ul><ul><li>General Expenses </li></ul><ul><li>Finance </li></ul><ul><li>Depreciation </li></ul><ul><li>Total Overheads </li></ul><ul><li>Net Profit/ (Loss) </li></ul><ul><li>Tax on profit / (Loss) </li></ul><ul><li>Profit retained for Business </li></ul>
  22. 22. Break-even Analysis <ul><li>Sales Price: Can this be increased? </li></ul><ul><li>Sales Volume: Can this be increased? </li></ul><ul><li>Cost of sales: Can this be reduced? </li></ul><ul><li>Overheads: Can this be reduced? </li></ul>
  23. 23. Break-even Analysis <ul><li>Fixed Costs </li></ul><ul><ul><li>Machinery, salaries, rent, marketing </li></ul></ul><ul><li>Variable Costs </li></ul><ul><ul><li>Labour, materials and variable overheads </li></ul></ul><ul><li>Income </li></ul><ul><ul><li>Turnover </li></ul></ul>
  24. 24. Break-even Analysis <ul><li>Contribution per unit sale </li></ul><ul><ul><li>Equals: </li></ul></ul><ul><ul><ul><li>Income per unit sales-variable costs </li></ul></ul></ul><ul><li>Breakeven Point </li></ul><ul><ul><li>Equals: </li></ul></ul><ul><ul><ul><li>Fixed Costs </li></ul></ul></ul><ul><ul><ul><li>Contribution per unit sales </li></ul></ul></ul>
  25. 25. Balance Sheet <ul><li>A snap shot of the balance between the company’s assets and the company’s liabilities on any particular day </li></ul><ul><li>Fixed Assets </li></ul><ul><ul><li>Capital items not yet paid for </li></ul></ul><ul><li>Current Assets </li></ul><ul><ul><li>Actual cash in hand, actual amounts owed (debtors), Stock-in-hand (Unpaid stock as liability under creditors) </li></ul></ul>
  26. 26. Balance Sheet <ul><li>Capital </li></ul><ul><ul><li>Shareholders capital –amount invested in business </li></ul></ul><ul><ul><li>Retained earnings – profit or loss as recorded </li></ul></ul><ul><li>Term Liabilities </li></ul><ul><ul><li>Loans not due for repayment in this current year </li></ul></ul>
  27. 27. Balance Sheet <ul><li>Current Liabilities </li></ul><ul><ul><li>Bank overdrafts, </li></ul></ul><ul><ul><li>Tax payable </li></ul></ul><ul><ul><li>Creditors </li></ul></ul>
  28. 28. <ul><li>2007 2006 2005 </li></ul><ul><li>BALANCE SHEET </li></ul><ul><li>Fixed Assets </li></ul><ul><li>Property </li></ul><ul><li>Plant, Machinery, Vehicles </li></ul><ul><li>TOTAL FIXED ASSETS </li></ul><ul><li>Current Assets </li></ul><ul><li>Bank Accounts </li></ul><ul><li>Stock </li></ul><ul><li>Debtors </li></ul><ul><li>TOTAL CURRENT ASSETS </li></ul><ul><li>Capital </li></ul><ul><li>Shareholders Capital </li></ul><ul><li>Retained Earnings </li></ul><ul><li>TOTAL CAPITAL </li></ul><ul><li>Term Liabilities </li></ul><ul><li>Loans </li></ul><ul><li>Current Liabilities </li></ul><ul><li>Bank Overdraft </li></ul><ul><li>Tax Payable </li></ul><ul><li>Creditors </li></ul><ul><li>TOTAL LIABILITIES </li></ul>
  29. 29. <ul><li>Initial Investment Summary </li></ul><ul><li>€ € </li></ul><ul><li>Fixed Assets </li></ul><ul><li>Property </li></ul><ul><li>Renovations </li></ul><ul><li>Fixture & Fittings </li></ul><ul><li>Transport </li></ul><ul><li>Machines and equipment </li></ul><ul><li>Goodwill, security deposits </li></ul><ul><li>Other </li></ul><ul><li>Total Fixed Assets </li></ul><ul><li>2. Current Assets </li></ul><ul><li>Stock of raw material </li></ul><ul><li>Stock of finished goods </li></ul><ul><li>Work in progress </li></ul><ul><li>Debtors </li></ul><ul><li>Other </li></ul><ul><li>Total Current Assets </li></ul><ul><li>3. Liquid Assets </li></ul><ul><li>Cash </li></ul><ul><li>Bank </li></ul><ul><li>Other </li></ul><ul><li>Total Liquid Assets </li></ul><ul><li>4. Start-up costs </li></ul><ul><li>Prepaid expenses </li></ul><ul><li>Promotion, opening </li></ul><ul><li>Other </li></ul><ul><li>Total Start-up costs </li></ul><ul><li>Margin for unforeseen costs </li></ul>
  30. 30. <ul><li>Investment : Sources of Funding </li></ul><ul><li>€ </li></ul><ul><li>Internal </li></ul><ul><li>Personal Assets </li></ul><ul><li>Fixed assets </li></ul><ul><li>Car </li></ul><ul><li>Additional private mortgage </li></ul><ul><li>Deferred loans (family) </li></ul><ul><li>Other </li></ul><ul><li>Total person assets </li></ul><ul><li>Introduced as: </li></ul><ul><li>Equity </li></ul><ul><li>Loans </li></ul><ul><li>External </li></ul><ul><li>External equity Agreed </li></ul><ul><li>Source Y/N </li></ul><ul><li>External Debt (Long term) Agreed </li></ul><ul><li>Mortgage Y/N </li></ul><ul><li>Loan Y/N </li></ul><ul><li>Leasing Y/N </li></ul><ul><li>Other Y/N </li></ul><ul><li>External Debt (Short term) Agreed </li></ul><ul><li>Overdraft Y/N </li></ul><ul><li>Suppliers' credit Y/N </li></ul><ul><li>Payments received in advance Y/N </li></ul><ul><li>Other Y/N </li></ul><ul><li>Subsidies/Grants Agreed </li></ul><ul><li>Agency Y/N </li></ul><ul><li>Enterprise Board Y/N </li></ul><ul><li>Other Y/N </li></ul>
  31. 31. Project Accounts <ul><li>WBS </li></ul><ul><ul><li>Breaks down the work into different packages. </li></ul></ul><ul><ul><li>Each package can be assigned to a department or person </li></ul></ul><ul><li>Business Plan </li></ul><ul><ul><li>Short term estimates </li></ul></ul><ul><ul><li>Long term estimates </li></ul></ul><ul><ul><li>Feasibility of Project </li></ul></ul>
  32. 32. Project Accounts <ul><li>Estimate </li></ul><ul><ul><li>Direct Costs </li></ul></ul><ul><ul><li>Indirect Costs </li></ul></ul><ul><ul><li>Labour Costs </li></ul></ul><ul><ul><li>Procurement Costs </li></ul></ul><ul><ul><li>Time related costs </li></ul></ul><ul><ul><li>Unit Rates </li></ul></ul><ul><ul><li>Factoring </li></ul></ul><ul><ul><li>Estimating factoring </li></ul></ul>
  33. 33. Project Accounts <ul><li>Sources of Finance </li></ul><ul><ul><li>Personal </li></ul></ul><ul><ul><li>Investors </li></ul></ul><ul><ul><li>State Agencies </li></ul></ul><ul><ul><li>Partners </li></ul></ul><ul><ul><li>Angels </li></ul></ul><ul><ul><li>Venture Capital </li></ul></ul>
  34. 34. Business Plan should help answer following questions: <ul><li>Who are you? </li></ul><ul><li>What is your product or service? </li></ul><ul><li>Who are your customers? </li></ul><ul><li>Why will your customers buy my product or service? </li></ul><ul><li>What price will your customers pay for your product or service? </li></ul>
  35. 35. Business Plan should help answer following questions: <ul><li>At this price, how many products/services will your customers buy? </li></ul><ul><li>How many products/services can you make? </li></ul><ul><li>How much does it cost to make/deliver each unit of product/service? </li></ul><ul><li>How much start-up investment does the business need? </li></ul><ul><li>Is this a viable business? </li></ul>