Business Basics
FINANCE
BASICS
Finance Basics
 Who cares anyway?
 You should
 Investors will
 Why?
 Because financial statements tell you the truth about your business
 They allow you to plan for the future (i.e. Do you need external
funding? How much?)
Some key terms
 Gross profit – sales less the cost of sales
 Net profit - final profit for business
 Bottom line
 Fixed asset – not sold directly to end consumer
Finance Basics
You need to make profit:
 To
maintain and repair
 To develop and expand
 (and/or to line the shareholders pockets)
Finance basics: The Bottom Line
Price
Revenues
x
Volume
Profit
Sell it for more
Sell more of it
Fixed
Costs
Reduce costs
Buildings, Salaries
+
Variable
Materials, Cost of Sales
Finance basics
I made a
£2 million
turnover
last year!
Turnover is vanity
Profit is sanity
But...
CASH IS KING!
Financial Statements
 Balance sheet
 Profit and loss account
 Capital expenditure
 Cash-flow statement
Balance sheet

A snap-shot of finances at any moment in time

Shows: Assets and Liabilities

showing in summary everything owed and owned

Tells you about past performance and potential for the future

The difference between assets and liabilities is known as equity

The sheet should balance!

i.e like a bank statement
Profit/Loss account

Also known as income statement

Shows incomes and outgoings for a particular period of time

Basically a record of sales, other revenues and costings

Bottom line is the bottom line for the business: net profit or loss

Transactions are recorded in the period to which they relate

E.g a transaction made in April but not paid in until May would be
recorded as a transaction in April

Does not include fixed assets but does include interest etc.
Capital expenditure
o expenditures creating future benefits
o To buy a fixed asset
o Add value to existing asset
o Restoring a property
o Starting a new business!
o Costs usually over a number of years, not just for a particular month
Cash-flow statement

Show financial flows when they actually happen

E.g so a transaction occurring in April but not paid until May would
be recorded as a transaction in May

Most important
Finance basics: Cash Flow
 You must NOT run out of cash!

When do you collect payments?

When do you pay your debts?

How do you finance your company?
Resources
Spreadsheet online
www.businessbasecamp.co.uk
Types of cash for a start up

Organic

Debt - Bank, Customer, Supplier

Equity – FFF, Angel, Venture Capitalist, Private equity

Grants

Prizes
Useful materials
 The definitive guide to Business Finance
by Richard Stutely
 www.business basecamp.co.uk