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DEW14 - Business financials made simple
- 1. Business Financials Made Simple Presented by SCORE - Detroit Chapter And Detroit Entrepreneur Week
- 2. Agenda Introductions From checkbooks to Quickbooks Financial Statements Analysis made simple Business Financials Made Simple 2
- 3. SCORE - A Volunteer Resource for Small Businesses 365 Chapters in the US Detroit Chapter has 84 members 50 years of helping business owners Mentoring - Free and Confidential Workshops Scheduled workshops – small fee Community presentations like this one Detroit Chapter: 313-226-7947, www.detroit.score.org Business Financials Made Simple 3
- 4. Importance of Keeping good financial records Improves your profitability Cost control Analysis and planning Required for loans Business Financials Made Simple 4
- 5. Checkbooks to Quickbooks Startup businesses often keep their financials through their business checkbook Growing businesses need what big business calls “Enterprise Software” Entry level and mid-size business software Quickbooks by Intuit Sage 50 (New Name for Peachtree software) Business Financials Made Simple 5
- 6. Checkbooks to Quickbooks Software is available On your desktop In the Cloud Maintain your financial records Yourself or someone in your company An Accountant or bookkeeping service Pay attention to information security Business Financials Made Simple 6
- 7. Checkbooks to Quickbooks Financial data are more than just a bank balance Financial reports for lenders and yourself Payroll and taxes Prepare invoices and quotes Keep inventory and Purchase orders Enterprise software improves productivity and your financial control Business Financials Made Simple 7
- 8. Sources of Financial Information for Planning Sales Plans >>>>>> >>Revenue Projections Purchasing Plans>>>>Cost of Goods Sold Estimates Direct Materials and Direct Labor (for production) And/or Finished Goods (for resale) Budgets >>>>>>>>>>>Operating Expense Estimates Business Financials Made Simple 8
- 9. Sources of Information for Financial Statements Revenues: Customer invoices or POS systems Their payments Costs/Expenses: Vendor/Supplier invoices Your payments Chart of Accounts: Account number and name assigned to invoices and payments Business Financials Made Simple 9
- 10. Bookkeeping Bookkeeping is simply Data Entry into financial software (Enterprise software) Not difficult but can be time consuming POS retail systems provide automatic (electronic) sales data entries Use a professional for setup Key accounts unique to your business Transactions, debts and ownership Business Financials Made Simple 10
- 11. Principal Financial Statements Operating Statements Profit & Loss – tracking sales and expenses Cash Flow – your ability to pay bills Financial Health Balance Sheet – key document for lenders Business Financials Made Simple 11
- 12. Profit and Loss Statement Simplified P & L Revenues Definitions Revenues = Sales – net of discounts Less Cost of goods (COG) Gross Profit Expenses Rent Utilities Others COG = the actual cost of materials, labor or goods that you sell Expenses Common costs to operate your business Recorded at time of payment Net Profit = Gross Profit less Expenses Business Financials Made Simple Or reserve account for future payments 12
- 13. Cash Flow Statement Period Month 1 Month 2 Month 3 Revenues $5,000 $10,000 $2,000 COGS - $3,000 - $6,000 - $1,200 Gross Profit $2,000 $4,000 $800 Expenses - $1,200 - $1,400 - $1,200 Net Profit $800 $2,600 ($400) Taxes - $200 - $400 - $1,100 $600 $2,200 ($1,500) Beginning Cash in Bank $1,000 $1,600 $3,800 Ending Cash in Bank $1,600 $3,800 $2,300 Net Profit after Taxes Business Financials Made Simple 13
- 14. Balance Sheet Liabilities Assets Sort term Long term Equipment Equals Short term loans Long term loans Owners Equity Assets = Liabilities plus Owners Equity Business Financials Made Simple 14
- 15. What do we do with this stuff? Hide it in a drawer? or File with Uncle Sam? And Aunt Michigan? And Daddy Detroit? or Act as responsible Business Owners!!! Analyze results Take corrective action as needed Make plans for growth Work with lenders and advisors Business Financials Made Simple 15
- 16. SALES Analysis made simple – plan and compare Revenues/SALES are results Sales (objectives) plans are projections Analysis is simply comparing your results with your plans – control your business Small businesses can evaluate the affect of promotions, sales staff performance, etc. Take corrective action if performance lags plans Business Financials Made Simple 16
- 17. COST Analysis made simple – plan and compare COG and Expenses are actual payments to suppliers and vendors Budgets are your plans for these cost COG based on sales levels Expenses are common costs to run the business Compare budgets to actual costs monthly Be alert to problems or issues Understand what bills belong into each account Business Financials Made Simple 17
- 18. Analysis made simple – plan and compare Download information from your Enterprise Software into spreadsheet software Compare plans with performance monthly, quarterly and annually Sales Plan and Budgets Revenues, COG and Expenses Pay attention to seasonal issues Business Financials Made Simple 18
- 19. Variance Analysis Example Item Sales Inventory turns Receivables aging Actual Budget/Projection Variance $2,000,000 $2,200,000 ($200,000) 12 times/year 15 times/year (3 times/year) 45 days 35 days 10 days Sales per employee Average Sales Ticket Business Financials Made Simple 19
- 20. Balance Sheet Ratios – the keys to business loans Balance sheets are simply a list of your Assets, Liabilities and Owners Equity Lenders have created a set of ratios that act as grades of your performance Your performance should be at or above your industry’s average Industry average information is available and lenders have that information Business Financials Made Simple 20
- 21. Balance Sheet Ratios – the keys to business loans Types of financial ratios Common size ratios – compares you to your industry Liquidity ratios – compares assets to liabilities Operating ratios – how well you run your company Solvency ratios – will you run out of cash Collateral ratios – assets available to secure credit Business Financials Made Simple 21
- 22. Balance Sheet Ratios – the keys to business loans Liquidity ratios A measure of a company’s ability to cover expenses Current Ratio – Total current assets divided by current liabilities – 2 to 1 is acceptable Quick Ratio – Current assets minus inventory divided by current liabilities – .5 to 1 is acceptable Business Financials Made Simple 22
- 23. Balance Sheet Ratios – the keys to business loans Days receivable ratio – 365 divided by the Sales Receivables ratio. Often called A/R aging. Example: 365/11.8 = 31 days Sales to receivables – Net Sales divided by Net Receivables. Represents the number of times A/R has been collected in a year. Example (000): $200/$17 = 11.8 x’s Business Financials Made Simple 23
- 24. Financials – The Keys to Grow Your Company and Profits Understanding and using your financial reports helps you become a good Business Owner More than just being a good operator Thank You for your attention and participation Contact SCORE about Mentoring, Workshops and other small business resources www.detroit.score.org Business Financials Made Simple 24