Students to Start-Ups
Entrepreneurial Skills Workshop Series
Presents:
Demystifying
Financial Statements
Who or What is SCORE?
What is “Students to Start-ups”?
Students to Start-Ups
I.
Workshop Series
I.
One-on-One Counseling
II. Future (web and/or pod casts, CD, etc.)
Demystifying Financial Statements
By Jim Chamberlain
Financial Measurement Tools
The number one reason for small
business failure is inadequate planning
and record keeping
Understanding of basic accounting and
finance principles is vital to your success
Vincent McCoy, Inland Empire SBDC
Financial Statements
 Chart of Accounts
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What is right for your business?
Structure it for your own business model
Get it right the first time!
Management vs. tax account structure
Design it to capture profitability points
 Design it to measure Breakeven easily
 Variable and Fixed Costs separation
 Internal Control
 Important in any size business
 Must be given some thought
BALANCE SHEET
12-31-01
ASSETS
CASH
ACCOUNTS RECEIVABLE
LESS ALLOWANCE FOR BAD DEBTS
NET ACCOUNTS RECEIVABLE
INVENTORY
LESS ALLOWANCE FOR OBSOLESCENCE
NET INVENTORY
PREPAID EXPENSES
TOTAL CURRENT ASSETS
DEPOSITS
FIXED ASSETS
PROPERTY, PLANT & EQUIPMENT
CONTRUCTION IN PROCESS
TOTAL GROSS FIXED ASSETS
LESS ACCUMULATED DEPRECIATION
NET FIXED ASSETS
TOTAL ASSETS
LIABILITIES
ACCOUNTS PAYABLE
ACCRUED EXPENSES
CURRENT PORTION OF LTD
TOTAL CURRENT LIABILITIES
BANK DEBT
CAPITAL LEASES
TOTAL LIABILITIES
EQUITY
COMMON STOCK
RETAINED EARNINGS
CURRENT EARNINGS
TOTAL EQUITY
TOTAL LIABILITIES & EQUITY
100
200
(20)
180
600
(75)
525
10
815
50
800
50
850
(300)
550
1,415
200
100
75
375
350
25
750
500
100
65
665
1,415
INCOME STATEMENT
TWELVE MONTHS ENDED 12-31-01
GROSS SALES
SALES RETURNS & ALLOWANCES
NET SALES
COST OF SALES: VARIABLE
MATERIALS
DIRECT LABOR
OTHER VARIABLE COSTS
TOTAL VARIABLE COSTS
1,600
200
1,400
200
300
100
600
CONTRIBUTION MARGIN
%
800
57%
FIXED LABOR & OVERHEAD
TOTAL COST OF SALES
GROSS MARGIN
%
300
900
500
36%
SELLING EXPENSE
ADMINISTRATION EXPENSE
TOTAL EXPENSES
125
180
305
OPERATING INCOME
195
INTEREST EXPENSE
OTHER EXPENSE
45
15
INCOME BEFORE TAX
PROVISION FOR INCOME TAX
NET INCOME
135
70
65
STATEMENT OF CASH
TWELVE MONTHS ENDED 12-31-01
NET INCOME
ADD: NON CASH EXPENSES:
DEPRECIATION
CHANGES IN ASSETS & LIABILITIES
INCREASE IN ACCOUNTS RECEIVABLE
INCREASE IN INVENTORY
INCREASE IN PREPAID EXPENSES
INCREASE IN ACCOUNTS PAYABLE
DECREASE IN ACCRUED EXPENSES
TOTAL CASH PROVIDED BY OPERATIONS
65
100
50
30
10
20
15
80
CASH FLOWS USED FROM INVESTING ACTIVITIES:
PROPERTY, PLANT & EQUIPMENT
50
CASH FLOWS FROM FINANCING ACTIVITIES
NET INCREASE IN BANK DEBT
PAYMENT OF CAPITAL LEASES
TOTAL CASH PROVIDED BY FINANCING ACTIVITIES
75
10
65
INCREASE IN CASH FOR THE PERIOD
95
BEGINNING CASH BALANCE
ENDING CASH BALANCE
5
100
Financial Decision Techniques
Measure these monthly – actual versus budget:
 Return on Investment – the real “bottom line”
Operating Cash Flow / Net Tangible Assets
 Break Even Points – efficiency & performance
Fixed Costs / Contribution Margin %
 Current Ratio – liquidity
Current Assets / Current Liabilities
 Quick Ratio – liquidity
(Cash + Accounts Receivable) / Current Liabilities
 Debt to Equity – solvency & risk
Total Long Term Debt / Net Tangible Assets
Financial Decision Techniques
Measure these monthly – actual versus budget:
 A/R Turnover – funds management
A/R – Current Month Credit Sales – Previous Month Credit Sales
 Inventory Turnover – funds management
Cost of Goods Sold / Average Inventory Value
 Contribution Margin % – efficiency
Contribution Margin $ / Net Sales
 SG&A as a Percent of Sales – efficiency
SG&A / Net Sales
 Working Capital – how much is too much? risk? incremental
increases based on sales increases?
Current Assets – Current Liabilities
Questions
Jim Chamberlain
James.Chamberlain@SCORE114.org
Making the Right Financial Decisions…
Critical to Success
Business Performance Terminology
How to Measure Performance Using Financial
Statements
 Balance Sheet
 Income Statement
 Statement of Cash Flow
Techniques and Tools for Making Financial
Decisions
Successful Business Pointers
Additional Resources
Web
Financial templates
http://www.score114.org/business_library_1.html
Creating a profit & loss statement (free online
workshop) http://www.va-interactive.com/score/
Financial ratios and business statistics by industry
http://www.bizstats.com/
Key business ratios http://www.score114.org/PDFs/sas67_key_ratios.pdf
More links at http://www.score114.org and www.sba.gov
Additional Resources
Small Business Solutions CD from
SCORE OC
Additional Resources
People
UCI Center for Entrepreneurship and Innovation
CEI@Merage.uci.edu
SCORE Orange County www.score114.org
Students to Start-Ups
Entrepreneurial Skills Workshop Series
UPCOMING WORKSHOPS
February 7th
March 21st
Demystifying Financial Statements
Driving Growth Through Distribution
Channels and Sales Management
February 21st
April 4th
Sure-Fire Secrets to Entrepreneurial
Success
Nuts & Bolts of Business Structure
and Licensing
March 7th
April 18th
Finding Start-Up Capital
Refine Your Unique Value Proposition
RSVP
CEI@MERAGE.UCI.EDU
Next Steps
Sign up for future “Student to Start Up”
workshops
Decide what specific area of your
business (raising money, distribution,
marketing, etc) would benefit from
counseling
Contact UCI Center for Entrepreneurship
and Innovation to arrange no-cost
counseling from SCORE
Thank You!