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Explain how budgeting relates to financial planning
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Describe two kinds of financial reports prepared by businesses

An outline of your expenses, needs, and goals and how you expect to meet them
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One reason small businesses fail is they do not manage their finances properly.
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An important part of a business plan.
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Must include a way of keeping records on income and expenses.
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Helps keep business on track and determine what its financial state is at any given time.

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Asset – any property of item of value that your business owns (cash, equipment, buildings, supplies, inventory, land)
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Research options, analyze and compare prices, get the best item for your money
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Determine the method you will use to purchase the items
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Cash, borrow money

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Recognize the financial records you need to keep
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Financial forecast – an estimate of what business conditions will be like in the future
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Plan for changes in the economy that might affect your business
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Be conservative and estimate your income on the low side and your expenses on the high side
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Using this current information you can make informed, reasonable decisions.

The systematic process of recording and reporting the financial position of a business
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Accounting records and reports help a business operate efficiently.
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Tracks how much the business earns and spends
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Financial manager – the person in charge of a business’ financial planning, funding, and accounting
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Manage the funds and make sure the business is meeting its financial obligations
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Find sources for additional funds
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Plan long-range financial goals; outline the information you need to make decisions for the future

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Profit – what is left over after expenses are paid
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Budget – a written plan of what you expect you income and expenses to be over a certain period of time
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Helps you predict how much money you’ll need
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Helps control your spending
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Compare it periodically to your actual income and expenses to avoid financial problems
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Income(Revenue) – the money a business takes in or receives
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Most revenue or income comes from sales of products or services
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Credit – many sales not paid for 30 days or longer (is this still true?)
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Statement of Cash Flow – shows actual cash a business receives and has available on a daily basis
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Expenses – operating costs of the business
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Employee wages, benefits, advertising, rent, utilities, supplies, etc.

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Start-up Budget – a plan for your income and expenses from the time you start the business to when it makes a profit
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Money for equipment, supplies, rent, paying employees
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Money for everything you might need for personal expenses
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Cash Budget – a plan for the actual money you expect to spend and earn on a daily, weekly, or monthly basis
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Salaries, utility bills, rent
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Tells you how much money is needed on hand at all times for dayto-day transactions
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Operating Budget – a plan for how much you expect to spend and earn over a given period of time
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Covers the total amount of regular transactions as well as other operating expenses (advertising, taxes, new equipment)
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Tells you how much money you need to keep you business running over the long term
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Gives a picture of the finances and becomes a “road map” for the company

To keep track of how your business is actually doing financially, you need to keep accurate written accounts.
• tells how well you’re sticking to your budget and what your profits or losses are during a certain period.
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Investors and creditors also want to see your financial accounts
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Fiscal year – an accounting period which reports for one year
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Summarize the year with an income statement and balance sheet

Activity…..
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Calculate the net profit or loss for the month for Galaxy Comic
Books: (use equation)
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Cash sales - $3560
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Charge sales - $1240
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Other revenue - $165
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Salaries - $2450
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Advertising - $200
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Rent - $550
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Supplies - $120

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A financial statement that shows revenues, expenses, and net income (profit) or loss for a period of time.
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Usually covers a period of 6 months or a year but may be shorter
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End-of-year statement shows how the business did for the entire year
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Basis for payment of taxes and decision-making

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A financial statement that lists a business’ assets (what a company owns) and liabilities (what a company owes)
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Shows what the business is worth on a particular date, usually the end of a year
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Shows owners equity (value of the owner’s investment in the business (also called net worth)
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Owner’s equity equation:
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Assets – Liabilities = Owner’s Equity

Overland Design Company
Cash Sales
Income Statement
For the Year Ended December 31, 2012
$ 38,200
Charge Sales
Other Revenue
180,600
12,900
$231,700
Expenses
Salaries and Wages $ 70,800
Marketing
Administrative Costs
22,250
31,900
Materials and Supplies 24,800
Other Expenses
Total Expenses
19,100
168,850
Net Income $ 62,850

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In a balance sheet, both sides of the statement must be in balance
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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 Automotive, Inc. Balance Sheet
December 31, 2012
ASSETS
Cash
Investments
$35,850
40,000
Accounts Receivable 42,375
Buildings/Equipment 370,000
Total Assets $488,225
LIABILITIES
Accounts Payable
Payroll Taxes
Mortgage
TOTAL LIABITIES
Owner’s Equity
Total Liabilities and
Owner’s Equity
$103,300
22,000
126,800
$252,100
$236,125
$488,225

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Accuracy
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Current
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Technology use
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Data files transfer easily
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Software capabilities
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What-if comparisons
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Mathematical calculations
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Updates records
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Comparisons