THE FINANCIAL PLAN
FINANCIAL PLAN
• It includes the financial projections of the new
venture.
• It must provide a summary of the projected
sale, the cost of goods sold and general and
administrative expenses of the business.
• It must anticipate the amount and timing of
expected cash inflows and outflows over a
period of several years as to ensure that the
business will have sufficient working capital to
sustain operations.
• It must provide a summary of the assets the
business will own, its projected liabilities and
the potential retained earning.
Bookkeeping
• Is the science of recording history. It is the
physical recordkeeping of someone’s
transactions as they relate to assets, liabilities,
income, and expenses (Stern, 1993).
Interpreting Financial Statements
Financial Statements
• Financial statements are the backbone of the
business (Stern, 1993).
• Financial statements and forecasts show how
your business has been performing and how
you think it will perform over time.
• Financial forecasts, on the other hand, project a
financial situation the business owner should be
aiming for.
SALES FORECAST
Sales forecasting is the process of determining
what your future sales will be and is a key element of
any business plan, which you must compose if you’re
starting a venture or making significant changes within
an existing business. Accurate sales forecasting helps
you, as a small business owner, to make better, more
informed decisions.
TABLE 1.1
Sales Forecast of Pinoy Corporation, First Year by
Month. (Assuming that each pair of shoes sell for PHP
1,000)
OPERATING BUDGET
• An estimate of the income and expenditure of a
company or organization over a set period.
(Oxford Dictionaries)
• The operating budget is a detailed statement
showing all the operational expenses to be
incurred and incomes to be generated during a
particular period of time. Operating expenses
such as expenses on raw material purchases,
processing cost, interest on a loan, the salary of
the staff, maintenance of the office,
administrative expense are considered for the
purpose of operating budget.
Operating Budget of Pinoy Corporation for the First
Three Months
Three Main Financial Statements
The balance sheet provides an overview of a company's
assets, liabilities, and owner's equity as of a specific
date. The income statement provides an overview of
company revenues and expenses during a period. The
cash flow statement bridges the gap between the
income statement and the balance sheet by showing
how much cash is generated or spent on operating,
investing, and financing activities for a specific period.
INCOME STATEMENT
• The income statement is a financial statement
that measures an enterprise’s performance in
terms of revenue and expenses over a certain
period. Simply put, the formula is:
REVENUES – EXPENSES = INCOME OR PROFIT (LOSS) or
PROFIT = REVENUES EARNED – EXPENSES INCURRED
Table 1.3 Pinoy Corporation, Projected Income
Statement, First year by Month (in thousand pesos)
OWNER’S EQUITY/SHAREHOLDER’S EQUITY
• Representing the excess of all assets over all
liabilities, this is also known as the net worth of
the business.
• Represents the investor’s investments in the
stock (or shares) of the business
• Includes the claims owners have on the assets
based on their portion of ownership in the
company.

BALANCE SHEET Paid in Capital is the amount of cash or other assets that
A balance sheet measures what the company owns and owners put into a company for stock.
subtracts what it owes. The balance sheet is a snapshot Sample Projected Balance Sheet, as of end of First Year
of a company’s financial condition at any particular (in pesos)
time. It is also the heart of double-entry accounting.
Each side equals the other. The central equation of a
balance sheet is:
ASSETS = LIABILITIES + OWNER’S EQUITY

ASSETS
• Represents all the investments in the
enterprise.
• These refer to everything that the business
owns that can be used to create value. (cash,
inventory, buildings, equipment, and vehicles)
Current Assets – assets which includes cash and other
things that can be converted into cash
Fixed Assets – are those like land, building, or
equipment, which the business can use over a long
period of time.

LIABILITIES
• Include everything the company owes to banks
and other creditors, such as credit card
balances, bank loans, etc.
Accrued Expenses - Accrued expenses are expenses a
Current liabilities – those that must be paid within a
company needs to account for, but for which no
year
invoices have been received and no payments have
Long-term liabilities – those that must be paid beyond
been made.
one year
Here are some common examples of expenses that can has been generated or spent from various investment-
be accrued: related activities in a specific period.
Interest on loan(s)
Goods received 3. Financing Activities
Services received These constitute activities that will alter the equity or
Wages for employees borrowings of a business.
Taxes Examples:
Commissions Sale of company shares
Utilities the repurchase of shares
Rent dividend payments
Cash from financing activities includes the sources of
CASH FLOW cash from investors or banks, as well as the uses of cash
• Refers to generating or producing cash (cash paid to shareholders. Payment of dividends, payments
inflows) and using or consuming cash (cash for stock repurchases, and the repayment of debt
outflow). Managing cash flow is essential to the principal (loans) are included in this category.
successful operation of your business. (Tracy Changes in cash from financing are "cash in" when
and Tract, n.d.). capital is raised, and they're "cash out" when dividends
• A cash flow statement is a financial statement are paid. 
that summarizes the amount of cash and cash Example:
equivalents entering and leaving a company. 
• Think of cashflow as the lifeblood of the
business, and keep that blood circ ulating at all
times in order to avoid failure.

Three areas of cash flow

1. Operating Activities
These constitute the revenue-generating activities of a
business.
These operating activities might include:
• Receipts from sales of goods and services
• Interest payments
• Income tax payments
• Payments made to suppliers of goods and
services used in production
• Salary and wage payments to employees
• Rent payments
• Any other type of operating expenses
The operating activities on the CFS include any sources
and uses of cash from business activities. In other
words, it reflects how much cash is generated from a
company's products or services.

2. Investing Activities.
These constitute payments made to acquire
long-term assets , as well as cash received from
their sale.
Examples:
purchases of physical/fixed assets
investments in securities
sale of securities or assets
Cash flow from investing activities is one of the sections
on the cash flow statement that reports how much cash
Sound Financial Management Practices accounts and to initiate him/her into the
• It is important that you know how to gather, recording process.
organize, coordinate, and record the money or Manage enterprise funds properly
financial resources of your business. This is  It entails a more comprehensive approach than
called financial management. just having ready cash. It is important to budget
• When the entrepreneur manages the money of the cash properly, and that there is internal
the business, it is one’s job to look for money control, so that cash is available whenever it is
needed for your business and see to it that the needed.
money provided for the business is used
effectively and efficiently.
Adopt effective financial planning
• Planning is important because funds of the
enterprise are limited and must be sourced and
used properly for the good of the business.
Observe sound financing
• Ideally the entrepreneur should only borrow,
40% of the money that is needed to operate the
business, while the remaining 60% must come
from ones own pocket
Record and monitor cash flow
• Cash flow is the actual movement of cash within
a business. The entrepreneur needs to record
the “sources-and-uses-of-funds” in order to
know how much cash is needed, and when that
money is required by a business within a period
of time.
Know the business costs
• Costing is calculating the total money spent in
making and selling the product, or completing a
service to be offered, in the market
Reduce costs
 It will make the business more profitable when
the costs are minimized.
Manage funds properly

Costing helps the entrepreneur set prices, make better

decisions about the business, and plan for the future
operation of the company.

Record all business transactions

• Anything that are owned by the owner and
used for business, proceeds (or sales) form
selling the products or services, and at the same
time expenses incurred in operating the
business, should be written down.
Prepare income statements
• The income statements will show whether the
business made a profit or suffered loss for a
given period.
Seek the services of a good accountant
 It is best to avail the services of a good
accountant to set up the firm’s books of