Financial Projections HACC Institute for Entrepreneurial Studies David McNaughton  221-1213  [email_address]
<ul><li>The Ambiguous Financial World </li></ul><ul><li>How do you handle it? </li></ul>
<ul><li>Dealing with Bankers and Accountants </li></ul><ul><li>Learn some of the terminology </li></ul><ul><li>What does t...
Expectations from this class <ul><li>Understand what your own personal financial obligations are for the next 12 months </...
Reason to Keep Records <ul><li>Law  </li></ul><ul><ul><li>Must be separate, complete, permanent, and accurate </li></ul></...
Outside Help <ul><li>If you will be using an accountant for taxes, meet with him prior to the start of your business so th...
Personal Budgeting <ul><li>What income do you need to survive? </li></ul><ul><li>Completing the personal budgeting stateme...
Personal Budget Preparation <ul><li>Start with all your income </li></ul><ul><li>Then list actual expenses or calculate an...
Minimum Living expenses <ul><li>Worksheet </li></ul><ul><li>What does this tell us? </li></ul><ul><li>How does this relate...
Vocabulary  (The Basics) <ul><li>Account payable – A liability backed by the general reputation and credit standing of the...
Vocabulary  (The Basics) <ul><li>Accrued Expense – An expense the business has incurred but not yet paid </li></ul><ul><li...
Vocabulary  (The Basics) <ul><li>Book Value of an Asset – The assets cost minus accumulated depreciation </li></ul><ul><li...
Vocabulary  (The Basics) <ul><li>Current Liabilities – A debt due to be paid with cash or with goods and services within o...
Vocabulary  (The Basics) <ul><li>GAAP – Accounting guidelines formulated by the Financial Accounting Standards Board (FASB...
Vocabulary  (The Basics) <ul><li>Matching principle – The basis for recording expenses (Identify all expenses, measure exp...
Vocabulary  (The Basics) <ul><li>Note Receivable – A written promise for future collection of cash </li></ul><ul><li>Posti...
Vocabulary  (The Basics) <ul><li>Unearned Revenue – A liability created when a business collects cash from customers in ad...
Business Records <ul><li>Sales records </li></ul><ul><li>Cash Receipts </li></ul><ul><li>Cash Disbursements </li></ul><ul>...
Sales Record <ul><li>All income derived from the sale of your product or service </li></ul><ul><li>One category or many as...
Cash Receipts <ul><li>Money generated through cash sales </li></ul><ul><li>Money collected from accounts receivable not yo...
Cash Disbursements <ul><li>Operating expenses or accounts payable </li></ul><ul><li>Pay by check </li></ul><ul><li>Problem...
Accounts Receivable <ul><li>Sales from credit ( not credit cards) </li></ul><ul><li>Managed monthly and aged </li></ul><ul...
Capital Equipment <ul><li>Detailed Records on major purchases </li></ul><ul><li>What is major? </li></ul><ul><li>Only item...
Insurance <ul><li>Records of all insurance </li></ul><ul><li>Include carriers </li></ul><ul><li>List of filed claims </li>...
Payroll <ul><li>All payroll tax information for at least four years </li></ul><ul><li>There are 20 different kinds of empl...
Ways to keep track of records <ul><li>Bookkeeping </li></ul><ul><li>Computerized </li></ul>
List of records to keep <ul><li>Amount and sources of gross receipts </li></ul><ul><ul><li>Cash register tapes </li></ul><...
List of records to keep <ul><li>Purchases </li></ul><ul><ul><li>Cancelled Checks </li></ul></ul><ul><ul><li>Cash register ...
List of records to keep <ul><li>Expenses </li></ul><ul><ul><li>Cancelled checks </li></ul></ul><ul><ul><li>Cash register t...
List of records to keep <ul><li>Assets </li></ul><ul><ul><li>When and how acquired </li></ul></ul><ul><ul><li>Purchased pr...
How records are kept <ul><li>Journals and ledgers </li></ul><ul><li>Business checkbook and reconciliation </li></ul><ul><l...
Cash Accounting vs Accrual  <ul><li>When do I have to use Accural </li></ul><ul><ul><li>Inventory </li></ul></ul><ul><ul><...
Financial Statements Balance Sheet Income Statement  (or Profit Statement) Statement of Cash Flow
Order of Importance <ul><li>Cash Flow Statement </li></ul><ul><li>Balance Sheet </li></ul><ul><li>Income Statement </li></ul>
Balance Statement Review Uses (Assets = Liabilities + Worth) Represents a snapshot at a specific time Shows what you own a...
Balance Sheet Format <ul><li>Assets Liabilities </li></ul><ul><li>Cash   Accounts payable </li></ul><ul><li>Accounts recei...
Balance Sheet - Terminology <ul><li>Total assets </li></ul><ul><ul><li>Current assets </li></ul></ul><ul><ul><ul><li>Cash,...
Balance Sheet - Terminology <ul><li>Total liabilities </li></ul><ul><ul><li>Current liabilities </li></ul></ul><ul><ul><ul...
Balance Sheet
Income Statement Review Sales – Costs – Expenses = Income For a Period of Time Usually a Quarter or Year
Income Statement Format (Traditional) <ul><li>Net Sales </li></ul><ul><li>Cost of Goods </li></ul><ul><li>Gross Margin </l...
Income Statement
Cash Flow Statement Think of as a Check Register Summary Shows cash in, cash out, and balance.
Cash Flow Statement Format
Ratios <ul><li>Current Ratio =  current assets   at least 1 </li></ul><ul><li>  current liabilities </li></ul><ul><li>Gros...
More Ratios <ul><li>Review of other ratios </li></ul><ul><ul><li>Quick Ratio </li></ul></ul><ul><ul><li>Debt Ratio </li></...
Financial Projection Tool <ul><li>www.entr-203.wikispaces.com </li></ul>
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Financial projections 2011 hu

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Financial projections 2011 hu

  1. 1. Financial Projections HACC Institute for Entrepreneurial Studies David McNaughton 221-1213 [email_address]
  2. 2. <ul><li>The Ambiguous Financial World </li></ul><ul><li>How do you handle it? </li></ul>
  3. 3. <ul><li>Dealing with Bankers and Accountants </li></ul><ul><li>Learn some of the terminology </li></ul><ul><li>What does the bank look for? </li></ul><ul><li>Sources of funding </li></ul><ul><li>Investors </li></ul>
  4. 4. Expectations from this class <ul><li>Understand what your own personal financial obligations are for the next 12 months </li></ul><ul><li>Use that information to prepare your business forecast </li></ul><ul><li>Understand the basic accounting terms </li></ul><ul><li>What records are required by law to be kept </li></ul><ul><li>Use of the three basic financial sheets </li></ul>
  5. 5. Reason to Keep Records <ul><li>Law </li></ul><ul><ul><li>Must be separate, complete, permanent, and accurate </li></ul></ul><ul><li>Management </li></ul><ul><ul><li>To properly evaluate your business </li></ul></ul><ul><ul><li>Assist in decision making </li></ul></ul>
  6. 6. Outside Help <ul><li>If you will be using an accountant for taxes, meet with him prior to the start of your business so that he can help you define exactly what records should be kept </li></ul><ul><li>Then evaluate how you will create these records – computerized or handwritten ledgers </li></ul><ul><li>Doing this correctly from the beginning is essential </li></ul>
  7. 7. Personal Budgeting <ul><li>What income do you need to survive? </li></ul><ul><li>Completing the personal budgeting statement </li></ul><ul><li>The importance of this information </li></ul><ul><li>How is this related to my business development? </li></ul>
  8. 8. Personal Budget Preparation <ul><li>Start with all your income </li></ul><ul><li>Then list actual expenses or calculate an average </li></ul><ul><li>Plan for savings </li></ul><ul><li>Adjustments </li></ul><ul><li>Determine minimum living expenses </li></ul>
  9. 9. Minimum Living expenses <ul><li>Worksheet </li></ul><ul><li>What does this tell us? </li></ul><ul><li>How does this relate to my business? </li></ul>
  10. 10. Vocabulary (The Basics) <ul><li>Account payable – A liability backed by the general reputation and credit standing of the deptor </li></ul><ul><li>Account receivable – A promise to receive cash from a customer for whom goods and/or services have been provided by the activity </li></ul><ul><li>Accrual Basis Accounting – Accounting that records the impact of a business event as it occurs, regardless of whether the transaction affected cash. </li></ul>
  11. 11. Vocabulary (The Basics) <ul><li>Accrued Expense – An expense the business has incurred but not yet paid </li></ul><ul><li>Accrued Revenue – A revenue that has been earned but not yet collected in cash </li></ul><ul><li>Adjusting Entry – Entry made at the end of the period to assign revenues to the period in which they are earned; and expenses to the period in which they are incurred. </li></ul><ul><li>Asset – An economic resource that is expected to be of benefit in the future. </li></ul>
  12. 12. Vocabulary (The Basics) <ul><li>Book Value of an Asset – The assets cost minus accumulated depreciation </li></ul><ul><li>Cash Basis Accounting – Accounting that records transactions only when cash is received or paid. This methodology excludes receivables, payables, and depreciation in its computations. </li></ul><ul><li>Chart of Accounts – List of all accounts and their account numbers in the ledger </li></ul><ul><li>Current Assets – An asset that is expected to be converted to cash, sold, or consumed during the next 12 months, or within the business’s normal operating cycle </li></ul>
  13. 13. Vocabulary (The Basics) <ul><li>Current Liabilities – A debt due to be paid with cash or with goods and services within one year or within the entity’s operating cycle </li></ul><ul><li>Current Ratio – Measures the ability to pay current liabilities with the current assets. (Current Assets/Current Liabilities) </li></ul><ul><li>Debt Ratio – This ratio measures the ability to pay for both current and long term debts (total liabilities) (Total Liabilities/Total assets) </li></ul><ul><ul><li>Lower debt ratio is preferred </li></ul></ul><ul><ul><li>(.60 is safe, .80 is risky ) </li></ul></ul>
  14. 14. Vocabulary (The Basics) <ul><li>GAAP – Accounting guidelines formulated by the Financial Accounting Standards Board (FASB) that govern how accountants measure, process and communicate financial information </li></ul><ul><li>Journal – The chronological accounting record of an entity’s transactions </li></ul><ul><li>Liability – An economic obligation such as a debt payable </li></ul><ul><li>Liquidity – Measure of how quickly an item can be converted to cash </li></ul>
  15. 15. Vocabulary (The Basics) <ul><li>Matching principle – The basis for recording expenses (Identify all expenses, measure expenses and match them against the revenues earned in the same span of time) </li></ul><ul><li>Net Income – Excess of total revenues over total expenses. (Net Earnings or Net Profit) </li></ul><ul><li>Net Loss – Excess of total expenses over total revenues </li></ul><ul><li>Note Payable – A written promise of future payment </li></ul>
  16. 16. Vocabulary (The Basics) <ul><li>Note Receivable – A written promise for future collection of cash </li></ul><ul><li>Posting – Copying amounts from the journal to the ledger </li></ul><ul><li>Revenue – Amounts earned by delivering goods or services to a customer </li></ul><ul><li>Transaction – An event that affects the financial position of a particular entity and can be recorded later </li></ul><ul><li>Trial Balance – A list of all accounts with their balances taken from the ledger used to ensure that total debits equal total credits </li></ul>
  17. 17. Vocabulary (The Basics) <ul><li>Unearned Revenue – A liability created when a business collects cash from customers in advance of doing work (deferred income) </li></ul>
  18. 18. Business Records <ul><li>Sales records </li></ul><ul><li>Cash Receipts </li></ul><ul><li>Cash Disbursements </li></ul><ul><li>Accounts Receivable </li></ul><ul><li>Capital Equipment </li></ul><ul><li>Insurance </li></ul><ul><li>Payroll </li></ul>
  19. 19. Sales Record <ul><li>All income derived from the sale of your product or service </li></ul><ul><li>One category or many as total sales </li></ul><ul><li>Or many by different products or service </li></ul>
  20. 20. Cash Receipts <ul><li>Money generated through cash sales </li></ul><ul><li>Money collected from accounts receivable not your sales numbers </li></ul><ul><li>A cash & carry business only accepts cash at point of sale so all receipts are considered cash </li></ul>
  21. 21. Cash Disbursements <ul><li>Operating expenses or accounts payable </li></ul><ul><li>Pay by check </li></ul><ul><li>Problems with petty cash accounts </li></ul><ul><li>Records kept together </li></ul><ul><li>Check, invoice, receipt, and record </li></ul>
  22. 22. Accounts Receivable <ul><li>Sales from credit ( not credit cards) </li></ul><ul><li>Managed monthly and aged </li></ul><ul><li>Be prudent with extensions of credit beyond 60 days </li></ul>
  23. 23. Capital Equipment <ul><li>Detailed Records on major purchases </li></ul><ul><li>What is major? </li></ul><ul><li>Only items you would depreciate </li></ul><ul><li>Not leased equipment </li></ul><ul><li>Record should include </li></ul><ul><ul><li>Date purchased </li></ul></ul><ul><ul><li>Vendor </li></ul></ul><ul><ul><li>Description </li></ul></ul><ul><ul><li>How paid for </li></ul></ul><ul><ul><li>Check number </li></ul></ul>
  24. 24. Insurance <ul><li>Records of all insurance </li></ul><ul><li>Include carriers </li></ul><ul><li>List of filed claims </li></ul>
  25. 25. Payroll <ul><li>All payroll tax information for at least four years </li></ul><ul><li>There are 20 different kinds of employee records that must be kept </li></ul>
  26. 26. Ways to keep track of records <ul><li>Bookkeeping </li></ul><ul><li>Computerized </li></ul>
  27. 27. List of records to keep <ul><li>Amount and sources of gross receipts </li></ul><ul><ul><li>Cash register tapes </li></ul></ul><ul><ul><li>Bank deposit slips </li></ul></ul><ul><ul><li>Receipt Books </li></ul></ul><ul><ul><li>Invoices </li></ul></ul><ul><ul><li>Credit card charge slips </li></ul></ul><ul><ul><li>Any 1099-MISC forms </li></ul></ul>
  28. 28. List of records to keep <ul><li>Purchases </li></ul><ul><ul><li>Cancelled Checks </li></ul></ul><ul><ul><li>Cash register receipts </li></ul></ul><ul><ul><li>Credit card sales slips </li></ul></ul><ul><ul><li>Invoices </li></ul></ul>
  29. 29. List of records to keep <ul><li>Expenses </li></ul><ul><ul><li>Cancelled checks </li></ul></ul><ul><ul><li>Cash register tapes </li></ul></ul><ul><ul><li>Account statements </li></ul></ul><ul><ul><li>Credit card sales slips </li></ul></ul><ul><ul><li>Invoices </li></ul></ul><ul><ul><li>Petty cash Slips and records </li></ul></ul><ul><ul><li>Expenses that are subject to special rules </li></ul></ul>
  30. 30. List of records to keep <ul><li>Assets </li></ul><ul><ul><li>When and how acquired </li></ul></ul><ul><ul><li>Purchased price </li></ul></ul><ul><ul><li>Cost of improvements </li></ul></ul><ul><ul><li>Deductions taken </li></ul></ul><ul><ul><li>How asset was used </li></ul></ul><ul><ul><li>How and when asset was disposed of </li></ul></ul><ul><ul><li>Selling price </li></ul></ul><ul><ul><li>Expenses of sale </li></ul></ul>
  31. 31. How records are kept <ul><li>Journals and ledgers </li></ul><ul><li>Business checkbook and reconciliation </li></ul><ul><li>Single verse double entry system </li></ul><ul><li>Computerized </li></ul><ul><li>Microfilm </li></ul><ul><li>Electronic storage </li></ul>
  32. 32. Cash Accounting vs Accrual <ul><li>When do I have to use Accural </li></ul><ul><ul><li>Inventory </li></ul></ul><ul><ul><li>Accepting credit </li></ul></ul><ul><ul><ul><li>Not credit cards </li></ul></ul></ul><ul><ul><li>Structure of business </li></ul></ul>
  33. 33. Financial Statements Balance Sheet Income Statement (or Profit Statement) Statement of Cash Flow
  34. 34. Order of Importance <ul><li>Cash Flow Statement </li></ul><ul><li>Balance Sheet </li></ul><ul><li>Income Statement </li></ul>
  35. 35. Balance Statement Review Uses (Assets = Liabilities + Worth) Represents a snapshot at a specific time Shows what you own and what you owe
  36. 36. Balance Sheet Format <ul><li>Assets Liabilities </li></ul><ul><li>Cash Accounts payable </li></ul><ul><li>Accounts receivable Accrued Expenses </li></ul><ul><li>Inventory Current Portion of debt </li></ul><ul><li>Prepaid Expenses Income Taxes payable </li></ul><ul><li>Current Assets Current Liabilities </li></ul><ul><li>Other assets Long Term Debt </li></ul><ul><li>Fixed Asset at cost Capital Stock </li></ul><ul><li>Accumulated Depreciation Retained Earnings </li></ul><ul><li>Net Fixed Assets Shareholders’ Equity </li></ul><ul><li>Total Assets Total Liabilities & Equity </li></ul>
  37. 37. Balance Sheet - Terminology <ul><li>Total assets </li></ul><ul><ul><li>Current assets </li></ul></ul><ul><ul><ul><li>Cash, accounts receivable, inventory </li></ul></ul></ul><ul><ul><li>Fixed assets </li></ul></ul><ul><ul><ul><li>Land </li></ul></ul></ul><ul><ul><ul><li>Building & equipment (less accumulated depreciation) </li></ul></ul></ul><ul><ul><ul><li>Net building & equipment </li></ul></ul></ul>
  38. 38. Balance Sheet - Terminology <ul><li>Total liabilities </li></ul><ul><ul><li>Current liabilities </li></ul></ul><ul><ul><ul><li>Accounts payable, notes payable, taxes payable </li></ul></ul></ul><ul><ul><li>Long-term liabilities (debt) </li></ul></ul><ul><li>Total equity </li></ul><ul><ul><li>Preferred stock </li></ul></ul><ul><ul><li>Common stock par value </li></ul></ul><ul><ul><li>Paid-in capital in excess of par (common) </li></ul></ul><ul><ul><li>Retained earnings </li></ul></ul>
  39. 39. Balance Sheet
  40. 40. Income Statement Review Sales – Costs – Expenses = Income For a Period of Time Usually a Quarter or Year
  41. 41. Income Statement Format (Traditional) <ul><li>Net Sales </li></ul><ul><li>Cost of Goods </li></ul><ul><li>Gross Margin </li></ul><ul><li>Sales & Marketing </li></ul><ul><li>Research & Development </li></ul><ul><li>General & Administration </li></ul><ul><li>Operating Expense </li></ul><ul><li>Income From Operations </li></ul><ul><li>Interest Income </li></ul><ul><li>Income Taxes </li></ul><ul><li>Net Income </li></ul>
  42. 42. Income Statement
  43. 43. Cash Flow Statement Think of as a Check Register Summary Shows cash in, cash out, and balance.
  44. 44. Cash Flow Statement Format
  45. 45. Ratios <ul><li>Current Ratio = current assets at least 1 </li></ul><ul><li> current liabilities </li></ul><ul><li>Gross Margin = net sales – CGS Highest </li></ul><ul><li>Gross Margin % = gross margin Climbing </li></ul><ul><li> net sales </li></ul><ul><li>Debt/ Worth = total liabilities Low as </li></ul><ul><li>net worth possible </li></ul>
  46. 46. More Ratios <ul><li>Review of other ratios </li></ul><ul><ul><li>Quick Ratio </li></ul></ul><ul><ul><li>Debt Ratio </li></ul></ul><ul><ul><li>Inventory Turnover </li></ul></ul><ul><ul><li>Days Sales Outstanding </li></ul></ul><ul><ul><li>Investment Turn-over ratio </li></ul></ul><ul><ul><li>Operating Margin </li></ul></ul><ul><ul><li>Gross Margin </li></ul></ul><ul><ul><li>Net Margin </li></ul></ul><ul><ul><li>ROI, ROA, ROE </li></ul></ul>
  47. 47. Financial Projection Tool <ul><li>www.entr-203.wikispaces.com </li></ul>

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