Chapter 17
Managing Business
Finances
Section 17.1
Financial
Management
Read to Learn
Identify the six reasons for creating a
financial plan.
Explain what a budget is and how it is used.
The Main Idea
A financial plan outlines the essential financial facts
about a new business or venture. Businesspeople
use a financial plan to help them make decisions
about the future. This plan shows the amount of
money a business will need to start and operate. It
also explains how the business will acquire money
to expand.
Key Concepts
The Purpose of the Financial Plan
Budgets
Key Term
a set of documents that outlines the
financial
essential financial facts about a new
plan
venture
capital
money supplied by investors, banks, or
owners of a business
Key Term
financial an estimate of a business’s financial
forecast outlook for each of the next few years
budget
a plan specifying how money will be
used or spent during a particular period
Warm Up Question:
Why do you think it is important for
businesses to keep track of their money?
The Purpose of the Financial Plan
A financial plan can
be used to attract
investors.
Financial plans project
the viability of a new
business or a project at
an existing firm.
financial plan
a set of documents that
outlines the essential
financial facts about a new
venture
Graphic Organizer
Characteristics of an Effective Financial Plan
Identifies the assets that need to be purchased
Describes the amount of money a business needs to start and
operate
Describes the expenses the business will incur and explains how
a business will cover its expenses
Describes how the business will document and report financial
records
Forecasts finances to project future profitability
Explains how the business will acquire money to grow or expand
Activity:
Paraphrase the points in the bulleted list
used to describe an effective financial plan
in the previous slide.
Identifying Business Assets
Information about assets might show that
buying used items instead of new ones, or
renting them, would be best.
Examples of Assets
Cash
Equipment
Buildings
Supplies
Inventory
Land
Determining Needed Capital
A financial plan
estimates that
amount of capital a
business will need.
capital
money supplied by
investors, banks, or
owners of a business
Determining Needed Capital
Start-up capital is the money used to pay for
the various assets and expenses of a new
venture or business.
A start-up may have a hard time attracting
investors because it has no track record.
Describing Start-Up and Operating
Expenses
Start-up expenses often require a large
amount of cash.
Graphic Organizer
Examples of
Start-Up Expenses
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Business assets
Remodeling costs
Security deposits
Advertising
Insurance
Supplies
Legal permits
Licenses
Examples of
Operating Expenses
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Payroll
Rent
Utility bills
Delivery charges
Bank fees
Activity:
Discuss some examples of Startup and Operation expenses.
Describing Financial Records Management
A financial plan describes who will maintain
the financial records and why.
A financial plan also describes any legal
agreements that influence the way records
are kept.
Special accounting software is available to
businesses.
Forecasting Future Finances
A financial forecast
should be
conservative in its
outlook.
A forecast should
consider changes in
the economy.
financial forecast
an estimate of a
business’s financial
outlook for each of the
next few years
Describing Growth Financing
Planned growth can be rewarding, while
unplanned growth can be chaotic.
Investors want to know that a business has
thoughtfully developed strategies to finance
controlled growth.
Budgets
A budget helps guide
a company’s future.
budget
a plan specifying how
money will be used or
spent during a particular
period
Graphic Organizer
Three Types of Budgets
Start-Up
Budget
A plan for your income
and expenses from
the time you start a
business to estimated
time it will make a
profit
Cash
Budget
A plan for the actual
money the business
owner spends on a
daily, weekly, or
monthly basis
Operating
Budget
A plan for the amount
expected to be spent
and earned over a
given period of time,
usually six months or
a year
You work as the purchasing agent for a small chain
of restaurants. One of your duties is deciding where
to purchase supplies, staples, and food items. A
coffee purveyor sends you a free case of coffee
beans. The coffee came with a message thanking
you for purchasing from him in the past.
Decision Making Would you consider the case of
coffee a bribe? Explain how you would make the
determination.
Answer
The message indicates the coffee is not a bribe.
Since the supplier’s business is coffee, sending a
case as a sample seems appropriate. Remind
students that the real determination about whether
to accept the gift should come from the company’s
code of conduct.
Activity:
What is the 50/30/20 Budgeting Rule and
How to Use It
https://www.youtube.com/watch?v=1oGIriV
HxRA
1. What is the purpose of the financial plan?
It is used as an outline of essential financial
facts about a new business and to guide a
business as well as to secure funding.
2. What does an effective financial plan do?
An effective plan identifies assets, determines
needed capital, describes start-up and
operating expenses, and describes financial
records management, forecasts future finances,
and describes growth financing.
3. Why do business owners use a budget?
Budgets help business owners to predict the
amount of money the business will need.
They also help them to keep track of and
control spending.
End of
Chapter 17
Managing Business
Finances
Section 17.1
Financial
Management