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Account 2

Account 2

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Published by Ravi Kumar

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Published by: Ravi Kumar on Jan 28, 2011
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Creating Your Business Plan Financials
 
Your business plan financials are essential for lenders and investors who want to see hard figuresbefore putting money into your business. Solid financials could help you get loans and attractinvestors, even if you aren't operating yet."Financials can be very intimidating for a lot of small business owners," says Raman Chadha,executive director of the Coleman Entrepreneurship Center at DePaul University. "It's my experiencethat most small business owners don't know how to manage the numbers."Your business plan financial statement will cover three general items: an income statement, a balancesheet and a cash-flow statement, each with numerous subsets. The following is a general outline forcreating business plan financials and is not meant to be a comprehensive account of the financialdetails you will need.
The Income Statement
An income statement shows how much profit or loss you expect to have for the year. For newbusinesses, income statements should be broken down monthly or quarterly. Business in their secondto fifth years of operation should have quarterly or annual income statements, the Small BusinessAdministration advises.An income statement includes:
Revenue:
"Revenue growth is always going to take longer than you expect," Chadhacautions. "It's smart to be more conservative" in your estimates, he says.
Expenses:
Includes operating expenses such as costs for supplies, rents and salaries;loan payments, including interest; and fees for advisers, including attorneys andaccountants.
Cost of Goods Sold:
The cost of merchandising, manufacturing and bringing yourproduct to the market. Service business often do not need this.
Gross Profit:
Your sales minus all costs directly related to those sales.
Operating Profit:
Your company's profit after deducting your operating costs fromgross profit.
Net Profit:
Calculated by subtracting your company's total expenses from totalrevenue.
Net Profit before Taxes:
The amount of income earned before taxes are taken out.
Net Profit after Taxes:
Net income minus taxes paid.
The Balance Sheet
A balance sheet provides an annual snapshot of your business financials. The figures are oftenrecorded for only one day. If you're not yet operating a business, American Express recommends youcreate a balance sheet from your personal assets and liabilities.A balance sheet includes:
Current Assets:
Includes cash, inventory, accounts receivables such as credit andother payments owed to the company, and fixed assets. Fixed assets include machinery,property and goodwill. They are items that cannot be quickly converted into cash.
 
Liabilities:
Short-term liabilities include upcoming payments such as salaries andwages due, accounts payable, which are payments owed for services, and taxes owed.Long-term liabilities include payments for debts and bonds due after at least a year.
Equity:
Investments and retained earnings. Retained earnings, also called net worth,measure investments by subtracting liabilities from assets.
Cash Flow Projections
Projecting your company's cash flow can be an arduous task, but it’s crucial information for potentiallenders who want an idea of how much money you'll have to pay back loans. For many experts, cashflow is where the rubber meets the road in terms of deciding whether a business is healthy.Cash flow projections include:
Cash Inflow:
This indicates how much cash you believe will come into your business.It is largely based on your sales forecasts and accounts receivables, if applicable.
Cash Outflow:
These are your expected cash expenses. Be sure to take into accountany expected increase in expenses, such as employee raises or rent increases.Your cash flow projection will be your cash outflow subtracted from your cash inflow.All of these formulas are quite complicated, so consider hiring an accountant to help with creating thefinancials of your business plan.
Bookkeeping process
 
Daybooks
Daybook 
is a descriptive and chronological (diary-like) record of day-to-day financialtransactions or a
book of original entry
rarely kept for the entries are now contained in originaldocuments such as invoices and supporting documents. Daybook's details must be enteredformally into journals to enable posting to ledgers. Daybooks include:
Sales daybook 
of the
 sales invoices
.
Sales credits daybook 
of the
 sales credit notes
.
Purchases daybook 
of the
 purchase invoices
.
Purchases credits daybook 
of the
 purchase credit notes
.
Cash daybook 
, usually known as
cash book 
, of 
cash received 
and
 paid out 
. It may comprisetwo daybooks:
receipts daybook 
of 
cash received 
, and
payments daybook 
of 
cash paid out 
.
 Journals
Journal
is a formal and chronological record of financial transactionsbefore their values areaccounted in general ledger asdebitsandcredits.If daybooks are not kept, the journals are
booksof original entry
, where the transactions are first recorded, hence often considered synonymouswith daybooks. Special journals include:
sales
,
purchases
,
cash receipts
,
cash disbursements
,and
payroll
.
General journal
is a record of the entries not included in other journals.
Ledgers
(or 
book of final entry
) is a record of accounts, each recorded individually (on a separate page) with its balance. (
 Ledger is also a book holding such records.
) Unlike the journal listingchronologically allfinancial transactionswithout balances, the ledger summarizes values of onetype of financial transactionsper account, which constitute the basis for the balance sheet and income statement.Ledgers include:
Customer ledger
of financial transactionswith a customer (sometimes called a Sales ledger).
Supplier ledger
of financial transactions with a supplier (sometimes called a Purchase ledger).
General
(
nominal
)
ledger
Interchangeable Terms

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