FINANCIAL RESOURCES
MANAGEMENT
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Explain how budgeting relates to financial planning
Describe two kinds of financial reports prepared
by businesses
Financial Management
One reason small businesses fail is they
do not manage their finances properly.
 A financial plan is an important part of a
business plan.
 Businesses must manage the money they
take in and pay out to become profitable
and stay in business.

Financial Planning
Profit – what is left over after expenses are
paid
 Business Budget – a detailed plan for
meeting the financial needs of the business

◦ Anticipating sources and amounts of income
◦ Predicting the types and amounts of expenses

Income(Revenue) – the money a business
takes in or receives
◦ Most revenue or income comes from sales of
products or services
◦ Credit – many sales not paid for 30 days or
longer (is this still true?)
◦ Statement of Cash Flow – shows actual cash a
business receives and has available on a daily
basis

Expenses – operating costs of the business
◦ Employee wages, benefits, advertising, rent,
utilities, supplies, etc.
Budgeting
Budget – a detailed plan for the financial
needs of an individual, family, or business
 Business budget – projects the amounts of
income and expenses; a financial forecast
 Well-prepared budget helps avoid costly
financial mistakes
 Lets managers know how the business is
doing in terms of meeting its financial
goals

Types of Business Budgets

Start-Up Budget – used to plan income
and expenses from the beginning of a new
business or major business expansion
until it becomes profitable
◦ Purchase of buildings and equipment
◦ Material, supplies, licenses
◦ Advertising, hiring, payroll

Operating Budget – financial plan for the
day-to-day operations of the business
◦ Covers a specific period of time (ex. 3
months, 6 months, or 1 year)
◦ Follows this equation:
 Revenue – Expenses = Profit (or Loss)
◦ All anticipated revenues and expenses are
listed
◦ Planned net profit or loss is shown

Cash Budget – an estimate of the money
expected to be received and paid out over a
specific period of time
◦ Lets the manager know when to borrow
◦ Money must always be on hand to pay expenses
◦ Calculate the net profit or loss for the month for
Galaxy Comic Books: (use equation)
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Cash sales - $3560
Charge sales - $1240
Other revenue - $165
Salaries - $2450
Advertising - $200
Rent - $550
Supplies - $120
Financial Records
Show the financial performance of the business
 Used to prepare 2 important financial
statements – Income Statement, Balance Sheet

◦ Asset records name the buildings and equipment owned by the
business, their original and current value and amount owed
◦ Depreciation records identify the amount that assets have
decreased in value due to age and use
◦ Inventory records identify the type and number of products on
hand for sale
◦ Payroll records contain information on all employees’
compensation and benefits
◦ Cash records list all cash received and spent
◦ Records of accounts identify purchases made using credit
◦ Tax records show all taxes collected, owed, and paid
Income Statement
A financial statement that shows
revenues, expenses, and net income
(profit) or loss for a period of time.
 Usually covers a period of 6 months or a
year but may be shorter
 End-of-year statement shows how the
business did for the entire year
 Basis for payment of taxes and decisionmaking

Balance Sheet
A financial statement that lists a business’
assets (what a company owns) and
liabilities (what a company owes)
 Shows what the business is worth on a
particular date, usually the end of a year
 Shows owners equity (value of the
owner’s investment in the business (also
called net worth)
 Owner’s equity equation:

◦ Assets – Liabilities = Owner’s Equity
Overland Design Company
Income Statement
For the Year Ended December 31, 2012
Revenue
Cash Sales
Charge Sales
Other Revenue
$ 38,200
180,600
12,900
$231,700
Expenses
Salaries and Wages
Marketing
Administrative Costs
Materials and Supplies
Other Expenses
Total Expenses
Net Income
$ 70,800
22,250
31,900
24,800
19,100
168,850
$ 62,850
In a balance sheet, both sides of the
statement must be in balance
 Right-hand side shows the total of liabilities
and owner’s equity to show that they equal
the value of the assets on the left-hand side

Ex.
Schribner’s Automotives, Inc. Balance Sheet
December 31, 2012
ASSETS
Cash
LIABILITIES
$35,850
Accounts Payable
Investments
40,000
Payroll Taxes
Accounts Receivable
42,375
Mortgage
Buildings/Equipment
370,000
Total Assets
$488,225
$103,300
22,000
126,800
TOTAL LIABITIES
$252,100
Owner’s Equity
$236,125
Total Liabilities and
Owner’s Equity
$488,225
Maintaining Financial Records
Accuracy
 Current
 Technology use
 Data files transfer easily
 Software capabilities
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What-if comparisons
Mathematical calculations
Updates records
Comparisons