This document outlines a session on financial management for entrepreneurs. It discusses what financial management and accounting systems are, and the benefits of having an accounting system. It also covers topics like supplier issues, profit and loss statements, and cash flow statements. The session provides examples and templates for projecting a profit and loss statement and cash flow statement. It concludes by assigning entrepreneurs to project some of their own business expenses and cash flows, and continue writing their business plans.

1. Session 3
Sajjad Hamid
SME Consultant
www.entrepreneurtnt.com
entrepreneurtnt@gmail.com

2. Session Outline
What is financial management?
Benefits of an accounting system
Supplier Issues
Knowing the Profit & Loss statement
Knowing Cash Flow Statement
Sean Brown Business plan

3. Session Outcomes
Understanding what is financial management is
about
The importance of an accounting system
Understanding suppliers and their importance
How to complete a simple Profit & Loss
How to complete a simple Cash Flow

4. What is Financial Management?
Is a process that provides entrepreneurs with relevant
financial information in an easy-to-read format on a
timely basis; it allows entrepreneurs to know not
only how their businesses are doing financially but
also why they are performing that way-
Zimmerer & Scarborough

5. What is an accounting system?
Is a system that helps the owner(s) keep track of all
accounting transactions and other financial
information.
Inputs must be fed into the system and outputs
registered.

6. Benefits of an accounting system
Interpret past performance
Measure present progress
Anticipate & plan for the future
Control operations
Uncover significant trends
Make decisions
Comply with gov’t regulations

7. Suppliers Issues
Suppliers play a key role:
You should choose a vendor that meets your
requirements (timely delivery, quality products, price
competitive, good reputation, etc)
Can give your credit and other benefits down the road
Can growth with you and help you grow
Never be afraid to negotiate for better terms (not only
on price)
Hold them accountable!

8. Basic Financial Statements
The Profit & Loss
The Cash Flow
The Balance Sheet (we will not cover this)

9. The Profit & Loss Statement
The P & L (income statement) compares a company’s
expenses against its revenue over a period of time to
show its profit or (loss).
It includes three key items:
Sales, Gross Profit, Expenses

10. The Profit & Loss Statement
Sales $100,000
Cost of Goods Sold $80,000
Gross Margin $20,000
Expenses (less) $42,000
Profit (loss) ($22,000)

11. The Profit & Loss Statement
Key Terms
Revenue
These include all sales from the business
whether cash or credit
Cost of Goods
The cost (direct), including shipping of all the
merchandise sold during the period

12. The Profit & Loss Statement
Cost of Goods
This applies to manufacturers or wholesalers or retailers
but there is a difference when it comes to service
operations.

13. The Profit & Loss Statement
Cost of Goods
Manufacturer (Coconut Bake)
Direct Materials:
Flour $10.00
Coconut $20.00
Baking Powder $1.00
Direct Labour $1.00
Cost of Goods $32.00

14. The Profit & Loss Statement
Cost of Goods
Retailer (Coconut Bake)
Purchase price $40.00
Pick up cost $2.00
Cost of goods $42.00

15. The Profit & Loss Statement
Cost of Goods-calculation
1. To calculate Cost of goods, an easy way is to
estimate it as a percentage of sales by costing a
batch of goods.
Cost of goods for Coconut bake is 80% of sales.
2. The accurate way is to add your=
opening stock + purchases – closing stock.

16. The Profit & Loss Statement
Cost of Goods
Landscaping (services)
You do not have cost of goods (COGS) like a selling
or manufacturing operation.
However, your Cost of Sales (COS) would include
all expenses that are directly attached to the
service:
Direct labour, materials & other expenses but not
indirect expenses; administrative & general
expenses

17. The Profit & Loss Statement
Gross Profit
Gross Profit margin is sales minus the cost of goods
sold.
Sales-Cost of Goods=Gross Margin
$100,000-$80,000=$20,000

18. The Profit & Loss Statement
Expenses
List all expenses and create a category for them:
Wages
Salaries
Phone
Electricity
Materials
Loan Interest
Vehicle Expenses

19. The Profit & Loss Statement
Retailer- 2005
Sales $200,000
Cost of Goods (sold) $120,000
Gross Margin $80,000
Expenses
Wages $15,000
Electricity $5,000
Rent $25,000
Salary $5,000
Loan Interest $10,000
Total $60,000
Profit $20,000

20. The Profit & Loss Statement
Landscaper
Sales $200,000
COS $131,000
Gross Margin $69,000
Expenses
Salaries $60,000
Phone $5,000
Electricity $5,000
Loan Interest (not principal) $2,000
Total $72,000
Profit (loss) -$3,000

21. Profit & Loss
Projected
If you are starting a business you will not have any
history & therefore will need to project (forecast) a P
& L
This is a key document that the bank will look at.

22. Profit & Loss
Projected-steps
1. Use a Monthly time period
2. Estimate the sales for each month
3. Estimate the cost of sales & gross margin for each
month
4. Estimate the expenses for each month
5. Tally the profit & loss for each month
6. Total for a year

23. Profit & Loss
Projected (6 months)
Months 1 2 3 4 5 6 T
o
t
a
l
Sales 10,000 15,000 20,000 23,000 25,000 28,000
COGS
(80%)
8,000 12,000 16,000 18,400 20,000 22,400
Gross
Profit
(20%)
2,000 3,000 4,000 4,600 5,000 5,600
Expenses 3,000 4,000 6,000 7,000 8,000 9,000
Profit/loss -1,000 -1,000 -2,000 -2,400 -3,000 -3,400

24. Profit & Loss
Projected (6-12 months)
Months 7 8 9 10 11 12 Total
Sales 30,000 35,000 40,000 50,000 60,000 70,000 406,000
COGS
(80%)
24,000 28,000 32,000 40,000 48,000 56,000 324,800
Gross
Profit
(20%)
6,000 7,000 8,000 10,000 12,000 14,000 81,200
Expenses 10,000 11,000 12,000 13,000 14,000 15,000 112,000
Profit/loss -4,000 -4,000 -4,000 -3,000 -1,000 -1,000 -30,800

25. Cash Flow Statement
This shows the changes in the firm’s cash movement
both in (sources of funds) and out (uses of funds).
Banks are especially interested in this statement

26. Cash Flow Statement
In Flow (Sources) of Funds
 Sales (cash sales)
 Accounts receivable (credit sales)
 Loan proceeds
 Owner’s Contribution
 Asset sales

27. Cash Flow Statement
Out Flow (Uses of Funds) of Funds
 Wages, Salaries
 Electricity
 Loan interest & principal
 Materials/stock purchases
 Phone
 Other expenses

28. SOURCES OF FUNDS 1 2 3
Sales (cash) 0 2,000 4,000
Sales (credit) same month 0 3,000 7,000
Loan proceeds 20,000 0 0
Total funds In (A) 20,000 5,000 11,000
USES OF FUNDS
Wages 1,000 1,500 2,500
Phone 2,000 1,500 1,500
Loan payment 5,000 5,000 5,000
Total funds Out (B) 8,000 8,000 9,000
Cash Surplus/deficit (A-B) 12,000 (3,000) 2,000
Opening balance 0 12,000 9,000
Closing balance 12,000 9,000 11,000

29. Assignment
Complete a projection of some of your business
expenses, sales per month
Complete a projection of cash in-flow and out flow in
the cash flow template
Start writing your business planning

30. Questions
Any questions-this session
Any questions last sessions
Any questions-Sean Brown Business Plan
Next session: Human Resources