Finance I
Everything you wanted to know
about finance but were afraid to ask!
Finance
• Balance Sheet or Profit and Loss?
– Sales
– Equipment
– Travelling Expenses
– Debtors
– Cash
– Depreciation
Finance
• Profit & Loss Account
– Always covers a period of time
– Generally broken down into two areas
• Income minus Cost of Sales = Gross Profit
• Less Overheads = Net Profit
– EBITDA
– Core principal – match income and costs over he same period
• Balance Sheet
– Always stated at a point in time
– Records the worth of the company – break up value
– Three main areas
• Assets
• Liabilities
• Capital & reserves
• Management Accounts V Statutory Accounts
Finance
• Dosh Limited
• Brassic Limited
Profit & Loss Account
Sales
Cost of Sales
Gross Profit
Overheads
Net Profit
Profit & Loss Account
Sales
Cost of Sales
Gross Profit
Overheads
Net Profit
100,000
(30,000)
70,000
(20,000)
50,000
Which company would
you prefer to trade
with?
100,000
(30,000)
70,000
(20,000)
50,000
Finance
Dosh Limited
Brassic Limited
Balance Sheet
Balance Sheet
Debtors
Cash
Net Assets
30,000
20,000
50,000
Debtors
Overdraft
Net Assets
P&L
50,000
P&L
Does this help?
100,000
(50,000)
50,000
50,000
Finance
Dosh Limited
Balance Sheet
Brassic Limited
Balance Sheet
Debtors
Cash
Net Assets
30,000
20,000
50,000
Debtors
Overdraft
Net Assets
P&L
50,000
P&L
100,000
(50,000)
50,000
50,000
As you can see Dosh collects its debts, Brassic does
not, although there is a possibility that Brassic billed
everything very late in the year.
Finance
• Cost an hourly rate for Sally
– Salary £20,000
– Travel Allowance £2,000
– 5 weeks Holiday (inc. Bank Holidays)
– 8 Hour day
– What does Sally cost us and how much should we
charge her out at per hour? (ignore NI & PAYE)
Finance
Sally
1. Work out how many hours she could work in a year:
52 weeks less 5 weeks holiday
Times 40 hours per week
=
47
40
1,880
divided by
=
1,880
11.70
x
2. This is because we need to work out the costs
over the same period that we can charge her out.
Cost per annum
22,000
3. Therefore we must charge a minimum of
per hour.
Check:
1,880
11.70
x
11.70
If we had used 52 x 40 it would have been
22,000 divided by 2,080 hours
If that was treated as the minimum charge
we would recover:
1,880
hours x
So we would have under-recovered
22,000
10.58
10.58 =
19,890
2,110
Finance
1. Our Overheads are £1.5m and we have 50
staff – how does that affect what we charge
Sally out at?
2. If the average chargeability across the team is
75% what do we charge Sally out at?
Finance
Overhead Loading
1. Divide the overhead over the available
chargeable hours in the company.
2. Assuming that all work the same hours as Sally
50 Staff working
1,880
= 94,000
3. Overhead load per hour
1,500,000
divided by total hrs
Hours
94,000
=
4. So minimum charge is salary cost
plus overhead recovery
5. This only recovers cost and requires everyone
to be chargeable for their entire time
15.96
11.70
15.96
27.66
ph
Finance
Chargeability
1. If the team is obly 75% chargeable then we need to
further reduce the hours we can recover costs over
2. Full chargeability from before
3. Reduced to
94,000
75%
70500
4. Divide overhead by the new total hours
1,500,000
divided by reduced chargeable
70500
=
21.28
5. Add Salary cost
22,000
divided by reduced chargeable
6. Total charge to recover costs
1,410
=
15.60
=
36.88
Finance
• We add £10 to the final cost figure.
• What is the margin? What is the mark up?
Finance
Mark Up =
Sales value - Cost
Cost
In our example
10
36.88
Mark Up = 27.11%
Margin =
Sales value - Cost
Sales value
10
46.88
Margin = 21.33%
Finance
• P&L
1.
2.
3.
4.
5.
6.
7.
8.
Sally starts in business on 1/1/16
She puts £1,000 into the business as capital
Gets a contract paying her £50 an hour for 50 hours in January
Pays rent of £1,000 and a rent deposit of £1,000
Pays PI of £100 per month
Wants a salary of £20,000 pa
Pays travel of £400
Signs up to a “Virtual PA” service for £250 per month with 32 Days
credit
9. She buys a laptop for £2,000 on 31st January on her credit card but
doesn’t pay it off until end of February
10. What is her Balance sheet on 1st January
11. What is her P&L at the end of January
12. What is her Balance Sheet at the end of January
Finance
Sally Balance Sheet
As at
01-Jan-16
Current Assets
Cash
1,000
Net Assets
1,000
Shareholders Funds
Share Capital
1,000
Finance
Sally Profit and Loss
For the period 1 January to 31 January 2016
£
Sales
2,500
Overheads
Rent
PI
Salary
Travel
Virtual PA
1,000
100
1,667
400
250
3,417
Net Profit/(Loss)
(917)
Finance
Sally Balance Sheet
Fixed Assets
Laptop
Current Assets
Cash
Sundry Debtors
Current Liabilities
Bank Overdraft
Trade Creditors
As at
31-Jan-16
2,000
0
1,000
1,000
667
2,250
2,917
Net Assets/ (Liabilities)
83
Shareholders Funds
Share Capital
Profit & Loss
1,000
(917)
83
Finance
• Cashflow
– Using the figures from previous slide
– Sally pays herself and all her costs immediately
but the customer pays on 90 days.
– She has no other work until April
– What is her cashflow broken into months JanMarch.
Finance
Sally Cashflow
January
0
February
(3,167)
March
(8,583)
Receipts
Capital
Sales
1,000
0
0
0
Total Receipts
1,000
0
0
1,000
1,000
100
1,667
400
1,000
1,000
100
1,667
400
250
2,000
100
1,667
400
250
4,167
5,417
3,417
Net Cashflow
(3,167)
(5,417)
(3,417)
Closing Balance
(3,167)
(8,583)
(12,000)
Opening Balance
Payments
Rent
Rent Deposit
PI
Salary
Travel
Virtual PA
Laptop
Total Payments
Finance
• KPIs
•
•
•
•
Gross Profit
Project profitability
Chargeability
Net profit
• What else would you like to know?