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Financial snapshot of what company owns
and owes at any point in time
Start-ups usually project for opening day and
at the end of the first year
Assets = Liabilities + Equity
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Process
1. Fill in company name at top and date of opening
2. Transfer current assets from asset listing to that
area
Include money borrowed for expenses as cash on hand
3. Transfer fixed assets from listing
4. Total all assets
5. Transfer amounts from sources of funds to
liabilities and equities sections
 Anything that has to be paid back (loans) are
liabilities
 Anything that you contributed falls to owner’s
equity
 Equity section will change due to ownership
structure
▪ Corporation will list stock outstanding and retained
earnings
▪ Proprietorships will list partner names individually
▪ Sole proprietorship will list owner’s name
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Assets must equal liabilities and equities
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Purpose: Show profit or loss over time
Typically projected for 3-5 years
Process
1. Label company name and end of year 1 at top
2. Obtain industry averages or expense
information
3. Calculate best, worst, most likely sales forecast
4. COGS = Cost of Goods Sold is the cost to
produce or purchase the product or service
(Services may have COGS = 0)
5. Gross Profit = amount of profit or loss you have
after paying for the product/service
Sales – COGS = Gross Profit
6.List Operating Expenses = costs of running
business such as marketing, selling,
administrative and general expenses
Fill in expenses from page 2 of the packet. Make
sure everything is per year.
7.Total the operating expenses –You can check these
against industry averages
8.Net Profit (Loss) Before Taxes: This is the first idea of
whether or not you are making money
Net Profit Before Taxes = Gross Profit –Total Operating Expenses
9. For corporations only: Add in taxes (WI: 7.9%;
Federal of 15% for income 0-50,000; 25% for income
of 50,000-75,000; 34% for income to 100,000)
10. Net Profit (loss) = Net Profit before taxes - Taxes
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Reminders:
 It’s OK to have a loss for the first year
 If you have an unreasonable high profit, check the
sales forecast or expenses
 There should be a difference between the best
and worst case scenarios in terms of variable
expenses
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Purpose: Shows changes in cash over time
and helps you plan cash needs so you don’t
run out
Typically plan will have 3 years of cash flow
projections with at least one year broken
down by month
1. Find the cash balance on the opening day
balance sheet. This is beginning cash balance.
(This is similar to a checkbook. How much $ is in your
checkbook to start?)
2. Cash receipts refers to the amount of $
coming into your business. Usually this is
sales. Break the sales up by the month in
which the cash is collected.
(As you break it into months, consider the sales pattern.
Is it seasonal? Is there a delay when you first start the
business before your first sale? If you sell on credit,
when does the money actually come in? )
3. Total Cash Available = Beginning Cash +
Receipts
4. Cash Disbursements are the amounts of
money you pay out each month.
(Consider the timing of payments. For example,
insurance is usually paid every 3-6 months. Use only
cash items. Remember to include money owners take
out of the business (owner’s draw) and payments on
items bought on credit. Total all cash disbursements
for the statement, but list separate items on the
bottom.)
5. Ending Cash = Cash Available – Cash
Disbursements
6. Month’s Ending Cash is next month’s
beginning cash
7. If there is a shortage (negative number) for
any month, you will need a loan or extra cash
when you start the business. Excess money
left over should be invested, taken out by the
owner, or used to decrease the beginning
amount of funding.
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Two general processes
 Breakdown
▪ Take whole population and narrow down to your
customers
▪ Of total population, 10% will buy my product
 Build up
▪ Add together different segments to get total number of
customers
▪ Ex: customers from Marshfield, WR, SP
▪ Ex: newlyweds, anniversaries
Quantity
X
Price
= Sales
# of customers
X
Average purchase
= Sales
# of units
X
Price per item
= Sales
# of hours
X
Price per hour
= Sales
# of purchases
X
Most popular purchase
amount
= Sales
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May be easier to use different time frame
(day, week, or month instead of year)
Accuracy
Reality check
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You would like to start a dog walking service.
You are targeting dog owners who are
between the ages of 30-80 with an income
over $50,000.
Census data indicates that there are 500
households like that in this area
You have no local competition. A similar
service in Milwaukee charges $75 per week
per dog for a 20-minute walk once a day
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Set objectives for price
Choose a strategy
 skimming, penetration, psychological, promotional,
competitive, premium
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Consider factors
 cost of product, customer expectations, product
value, supply & demand, competitors, lemonade
game items
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Set price
 Price needs to cover cost and profit
 Affects volume and image