Financial Planning

Managing the Finances

of the Enterprise
 THE THREE MAIN FINANCIAL
STATEMENTS
A. THE INCOME STATEMENT
B. THE BALANCE SHEET
C. CASH FLOWS STATEMENT
 THE INCOME STATEMENT
 also known as the profit and loss statement
shows business performance over a defined
period of time

SALES - COST OF GOODS SOLD =

GROSS MARGIN –EXPENSES = PROFIT
THE INCOME STATEMENT

SALE
COGS EXPENSES
GROSS MARGIN PROFIT
SALES
AVERAGE ANNUAL SALES
PRODUCTS NUMBER OF UNITS SOLD SALES PRICE PER UNIT TOTAL AMOUNT OF SALES
PRODUCT 1
PRODUCT 2
PRODUCT 3
TOTAL AMOUNT OF SALES
COST OF GOODS SOLD

Direct Direct Manufacturing

Materials Labor Overhead
COST OF GOODS SOLD

- The materials that enter directly into and

become a part of the finished product
Direct
Materials - Has significant cost in the finished
product
COST OF GOODS SOLD

- Wages of persons who works directly

Direct with the raw materials to convert them
Labor into finished products
COST OF GOODS SOLD
- All manufacturing costs that
cannot be traced directly to
products being manufactured
Manufacturing – Light and water
Overhead – Factory repairs and maintenance
– Depreciation expense
– Indirect labor
– Indirect materials
OPERATING EXPENSES
SELLING EXPENSES
ADMINISTRATIVE EXPENSES
UTILITIES EXPENSES
RENTAL EXPENSES
MISCELLANEOUS EXPENSES
OTHER EXPENSES
EXPENSES
MONTHLY OPERATING EXPENSES AMOUNT
1.
2.
3.
4.
5.
THE INCOME STATEMENT
ABC COMPANY
INCOME STATEMENT
For the month ended xxxx

SALES
less: COST OF GOODS SOLD
GROSS MARGIN
less: OPERATING EXPENSES

PROFIT/NET INCOME
BALANCE SHEET
BALANCE SHEET
 BALANCE SHEET
 shows the financial position as of a given date

ASSETS = LIABILITIES + CAPITAL

BALANCE SHEET
Economic resource of value
ASSETS held/controlled by an entity
-Current Asset (1 year) -Non-Current Asset
(more than 1 year)
•Cash
•Office Equipment
•Accounts Receivable
•Land
•Inventory •Building
•Prepaid expense •Furniture & Fixtures
BALANCE SHEET
ASSETS
ASSETS Current Assets
Cash
Accounts Receivable
Other Current Asset
Total Current Asset
Non-Current Assets
Offi ce Equipment
Accumulated Depreciation-OE
Land
Total Non-Current Assets
TOTAL ASSETS
BALANCE SHEET
-Something to be paid
LIABILITIES -Credit/Borrowings/Debt
-Settlement requires an outflow of
resources
-Current liabilities (1 -Non-Current liabilities
year) (more than 1 year)
•Accounts Payable •Mortgage Payable
•Notes Payable
•Long-term debt
•Current Borrowings
•Cash Advances from customers
BALANCE SHEET
LIABILITIES
LIABILITIES
Current Liabilities
Accounts Payable
Notes Payable
Other Current Liabilities
Total Current Liabilities
Non-Current Liabilities
Long-term Liabilities
Total Non-Current Liabilities
TOTAL LIABILITIES
BALANCE SHEET
-Net worth
CAPITAL -Net asset
-Representing the amount/available to the
owners after settlement of creditors
•Owner’s Capital
•Members’ Equity
•Profit/Income
•Earnings
•Withdrawals (less)
 BALANCE SHEET
Name of Organization
BALANCE SHEET
As of end of xxxx
ASSETS LIABILITIES AND CAPITAL
Current Assets Current Liabilities
Cash Accounts Payable
Accounts Receivable Notes Payable
Other Current Asset Other Current Liabilities
Total Current Asset Total Current Liabilities
Non-Current Assets Non-Current Liabilities
Equipment Long-term Liabilities
Building
Accumulated Depreciation Total Non-Current Liabilities
Land Capital
Total Non-Current Assets Earning
Owners Capital
Total Capital

TOTAL ASSETS TOTAL LIABILITIES AND CAPITAL

 CASH FLOW STATEMENT
Shows the movement, inflow and outflow, of CASH

CASH BEGINNING + CASH RECEIVED

– CASH SPENT = CASH ENDING
 CASH FLOW STATEMENT
CASH BEGINNING + CASH RECEIVED – CASH SPENT

CASH ENDING
CASH FLOW STATEMENT
CASHFLOW STATEMENT
Cash Beginning
plus: Cash Received:
Cash Sale
Payment Received
New Loans
New Investment
Total Cash Received
less: Cash Spent
Cash Spending
Bill Payment
Repayment of Loans/Debt
Purchase of Asset
Total Cash Spent
Cash Ending/Balance
EXAMPLE
Example
cash investment 3,000.00
SSF Equipment 20,000.00
Production 1000 units
COGS per unit 6.70
Sale 500 units
Sales Price 10.00
Expenses 300.00
Depreciation 1% per month
EXAMPLE
AVERAGE MONTHLY SALE
PRODUCTS NUMBER OF UNITS SOLD SALES PRICE PER UNIT TOTAL AMOUNT OF SALES
PRODUCT 1 500 10 5,000.00
TOTAL AMOUNT OF SALES

MONTHLY COGS
DIRECT MATERIALS Quantity PRICE PER UNIT TOTAL AMOUNT
Material 1 5 100 500.00
TOTAL AMOUNT

DIRECT LABOR POSITION WAGE PER MONTH TOTAL AMOUNT

Worker 1 Cook 5,000.00 5,000.00
TOTAL AMOUNT

MANUFACTURING OVERHEAD Quantity PRICE PER UNIT TOTAL AMOUNT

Overhead 1 1,000.00
Overhead 2 200.00
TOTAL AMOUNT
6,700.00
Production 1000 units 6.70
MONTHLY OPERATING EXPENSES AMOUN T
1.El e ctri ci ty 200
2.Wate r 100
EXAMPLE
ABC COMPANY
INCOME STATEMENT
For the month ended xxxx

SALES (500*10) 5,000.00

less: COST OF GOODS SOLD (500*6.7) 3,350.00
GROSS MARGIN 1,650.00
less: EXPENSES: 300.00

PROFIT 1,350.00
EXAMPLE
CASHFLOW STATEMENT
Cash Beginning -
plus: Cash Received:
Cash Sale 5,000.00
Payment Received
New Loans
New Investment 3,000.00
Total Cash Received 8,000.00
less: Cash Spent
Cash Spending(no Dep'n) 6,500.00
Bill Payment 300.00
Repayment of Loans/Debt
Purchase of Asset
Total Cash Spent 6,800.00
Cash Ending/Balance 1,200.00
 EXAMPLE Name of Organization
BALANCE SHEET
As of end of xxxx
ASSETS LIABILITIES AND CAPITAL
Current Assets Current Liabilities
Cash 1,200.00 Accounts Payable
Accounts Receivable Notes Payable
Inventory 3,350.00 Other Current Liabilities
Total Current Asset 4,550.00 Total Current Liabilities -
Non-Current Assets Non-Current Liabilities
Equipment 20,000.00 Long-term Liabilities
Accumulated Depreciation-OE (200.00) Usufruct Liability 20,000.00
Land Total Non-Current Liabilities 20,000.00
Total Non-Current Assets 19,800.00 Capital
Earning 1,350.00
Owners Capital 3,000.00
Total Capital 4,350.00

TOTAL ASSETS 24,350.00 TOTAL LIABILITIES AND CAPITAL 24,350.00

FORECASTING ASSETS

Forecasting Your Assets

A: Determine and Budget your Current Assets
Starting Cash (You must have enough to cover your start-up expenses)
Starting Inventory
Pre-Paid Expenses
Other Current Assets
Total Current Assets (A)
FORECASTING ASSETS

B: Determine your Capital Asset needs.

Machinery and Equipment
Office Furnishings, Fixture
Automobiles
Computers
Tools and other assets
Other Capital Total Capital Assets (B)
Your Total Assets are A + B
Forecasting your Liabilities and Equity
Credit to Supplier/Accounts Payable
Bank Term Loan
Investment
The Income Statement Forecast
The Sales Forecast
The Cost of Goods Forecast
The Cash Flow Forecast
Receipts
Receipts occur when cash enters the business for any reason. It is like making a
deposit in your current account. The main reasons for receipts are:
 Cash sales.
 Collection of accounts receivable.
 Loan proceeds. This includes term loans, start-up loans, line of credit and notes.
 Owners’ contributions. This includes both investments and shareholders’ loans
(shareholders’ loans only happen in incorporated companies).
Disbursements
Disbursements occur when cash leaves the business for any reason. The main
reasons for disbursements are:
 Cash expenses or inventory purchases.
 Payments of accounts or expenses payable.
 Loan repayment (either bank or shareholders’ loans).
 Owner repayment (dividends in a corporation or drawings in a proprietorship).
The Break-Even Point
Break-even on Sales – amount of sales value
in which no profit or loss were gained
Break-even by Volume – level of volume or
quantity of production incurring no profit or
loss
Break-even by Percentage – level of
percentage of sales or production with the
business not making a profit or loss
EXAMPLE
Example
cash investment 3,000.00
SSF Equipment 20,000.00
Production 1000 units
COGS per unit 6.70
Sale 500 units
Sales Price 10.00
Expenses 300.00
Depreciation 1% per month
FORECASTING-BREAKEVEN
Break Even Units Fixed Costs
Sales Price per unit- COGs per unit

Break Even Units 300.00

(10.00-6.70)

Break Even Units 90.91 units

Example: BREAK EVEN in UNITS
ABC COMPANY
INCOME STATEMENT
BREAKEVEN POINT

SALES(90.91*10) 909.09
less: COST OF GOODS SOLD(90.91*6.7) 609.09
GROSS MARGIN 300.00
less: EXPENSES: 300.00

PROFIT/LOSS -
FORECASTING-BREAKEVEN
Breakeven in Sales Price Fixed Costs + (COGS per unit x # of units to be sold)
number of units to be sold

Estimated units to be sold: 500 units

Breakeven in Sales Price 300.00 + (6.7 x 500 units)

500 units

Breakeven in Sales Price 7.30 per unit

Example: BREAK EVEN in Sales Price
ABC COMPANY
INCOME STATEMENT
BREAKEVEN POINT

SALES(7.3 * 500) 3,650.00

less: COST OF GOODS SOLD(500* 6.7) 3,350.00
GROSS MARGIN 300.00
less: EXPENSES: 300.00

PROFIT/LOSS -
FORECASTING-NUMBERS UNITS
TO BE SOLD
Breakeven units to achieved Profit Fixed Costs + Estimated Profit
Sales Price per unit - Cost per unit of product

Estimated Profit of 5,000.00

Breakeven units to achieved Profit 300.00 + 5,000.00

(10.00 - 6.70)

Breakeven units to achieved Profit 5,300.00

3.30

Breakeven in units to achieved Profit 1,606 units

Example: BREAK EVEN in units to be sold
ABC COMPANY
INCOME STATEMENT
BREAKEVEN POINT

SALES(1,606 units *10) 16,060

less: COST OF GOODS SOLD(1,606* 6.7) 10,760
GROSS MARGIN 5,300
less: EXPENSES: 300

PROFIT/LOSS 5,000
Financial Plan: Common Mistakes
• Unrealistic sales and profit projections.
• No reasonable assumptions
• Failure to identify hidden costs.
• Failure to project downside if sales forecasts
unmet
• Financially documents mathematically in error
• Figures on various financial documents not
consistent
Why Do Businesses Fail
Lack of experience
Insufficient capital (seed money)
Poor location
Poor inventory management
Over-investment in fixed assets
Poor credit arrangement
Personal use of business funds
Unexpected growth
The Characters of Success
Decisive decision makers
Enjoy taking charge
Want to be the master of their financial destiny
Organized, Independent, and self-confident
Hard workers
Know what they are getting into
Can take criticism and rejection
Determined and persistent
Accepts own weakness
Can see how all the parts fit together
THANK YOU!!!