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Financial Management

12. Financial Management. 12-1 Financial Planning 12-2 Financial Records and Financial Statements 12-3 Payroll Management 12-4 Financial Decision-Making. LESSON 12-1 Financial Planning. Goals Recognize important financial questions that must be answered in a business.

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Financial Management

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  1. 12 Financial Management 12-1 Financial Planning 12-2 Financial Records and Financial Statements 12-3 Payroll Management 12-4 Financial Decision-Making

  2. LESSON 12-1Financial Planning Goals • Recognize important financial questions that must be answered in a business. • List the steps in budget preparation. • Describe three types of business budgets. Chapter 12

  3. Key Terms • revenue • expenses • budget • start-up budget • operating budget • cash budget Chapter 12

  4. FINANCIAL PLANNING • Beginning a business • Questions? • How much money will be needed to start? • Where will financing come from? • How will funds be obtained to operate for months or years until profitable? • What will be the best sources of sales and other income? • What will be the major expenses? • Many businesses fail due to poor financial planning Chapter 12

  5. FINANCIAL PLANNING • Ongoing operations • Every business activity costs money • All income that a business receives over a period of time is called revenue. • The costs of operating a business is called expenses. Chapter 12

  6. BASIC FINANCIAL EQUATION Revenue – Expenses = Profit or Loss Chapter 12

  7. FINANCIAL PLANNING • Business expansion • Successful businesses expand to : • Serve more customers • Reach unserved markets • Sell new products • Expansion costs money • Research • New buildings and equipment (capital) • Additional employees and training • Marketing activities to distribute and promote Chapter 12

  8. >> C H E C K P O I N T What is the basic financial equation for businesses? Chapter 12

  9. DEVELOPING BUSINESS BUDGETS • Budget – provides detailed plans for the financial needs of individuals, families, and businesses • Has 2 main purposes: • Anticipate sources and amounts of income • Predict the types and amounts of expenses for a specific business activity or the entire business. • To be successful revenue must be available to pay all expenses. Chapter 12

  10. DEVELOPING BUSINESS BUDGETS • Sources of budget information • Information is needed to predict income and expenses • Planning tools for a new business can be obtained from • SBA • Private business sources • Dun and Bradstreet, Value Line, Standard and Poor’s • Business magazines and newspapers • Fortune, Forbes, Entrepreneur, Black Enterprise, The Wall Street Journal Chapter 12

  11. DEVELOPING BUSINESS BUDGETS • Budget preparation • Allows the owner to determine if the business is making progress toward its financial destination • Compares the business’ financial performance to the budget to determine if corrections need to be made Chapter 12

  12. THE BUDGETING PROCESS • Prepare a list of each type of income and expense that will be a part of the budget. • Gather accurate information from business records and other information sources for each type of income and expense. • Create the budget by calculating each type of income, expense, and the amount of net income or loss. • Explain the budget to people who need financial information to make decisions. Chapter 12

  13. >> C H E C K P O I N T What are the four steps in preparing a business budget? Chapter 12

  14. TYPES OF BUDGETS • Start-up budget • Operating budget • Cash budget Chapter 12

  15. TYPES OF BUDGETS: Start-up • Plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable. • Provides funds for the purchase and use of: • Buildings, equipment, inventory, supplies, advertising, transportation, salaries, utilities, licenses, etc. • Sources of financing for all expenditures must be identified from either inside the company or outside financial sources. • The amount of start-up must be realistic so money is available until the business produces adequate income. Chapter 12

  16. TYPES OF BUDGETS: Operating • Describes the financial plan for ongoing operations of the business for a specific period…3 months, 6 months, or a year. • Prepared for the entire business • Each department will develop and follow its own operating budget. • Used to manage the operations of the company for the period specified. Chapter 12

  17. TYPES OF BUDGETS: Cash • An estimate of the actual money received and paid out for a specific period. • Anticipates cash coming in and going out each week or month. • Determines if a business has adequate financial resources on hand to pay bills on time or if money is needed to be borrowed. • It also shows when investing can take place. Chapter 12

  18. >> C H E C K P O I N T Identify and describe the three types of budgets needed by all businesses. Chapter 12

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