Chapter 7 FINANCE PROTECT AND INSURE YOUR BUSINESS

Chapter 7 FINANCE, PROTECT, AND INSURE YOUR BUSINESS LESSONS 7. 1 Put Together a Financial Plan 7. 2 Obtain Financing for Your Business 7. 3 Protect Your Business 7. 4 Insure Your Business ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 2 Lesson 7. 1 PUT TOGETHER A FINANCIAL PLAN GOALS n Calculate your start-up costs. n Create a cash flow statement, an income statement, a balance sheet, and a personal financial statement. ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 3 All businesses need money to survive. Lack of money is one of the main reasons businesses fail. How can entrepreneurs with solid business ideas get the financing they need to start and run a business? Prepare Financial Statements ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 4 PREPARE FINANCIAL STATEMENTS n List of start-up costs n Cash flow statement n Income statement n Balance sheet n Personal financial statement ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 5 START-UP COSTS n Start-up costs are the one-time-only expenses that are paid to establish a business. n Common start-up costs include: n Equipment and supplies n Furniture and fixtures n Vehicles n Remodeling n Legal and accounting fees n Licensing fees ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 6 START-UP COSTS n Should be considered when you are figuring how much money you need to start your business. n Most entrepreneurs have to borrow the money needed to cover start-up costs. ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 7 Start-up Costs, Walters Electric ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Group Activity: Start-up Costs Chapter 7 Slide 8 n In groups, list the start-up costs that the following businesses would require: n Pizza Restaurant n Accountant’s Office n Shoe Store n Beauty Salon n Car Mechanic’s Garage n Photography Studio n Day Care n Gym ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 9 CASH FLOW STATEMENT n A cash flow statement describes how much cash comes in and goes out of a business over a period of time. n Forecast revenues n Forecast operating expenses n Best & Worst Case Scenarios ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 10 Cash Flow Statement, Walters Electric ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 11 INCOME STATEMENT n An income statement is a financial statement that indicates how much money a business earns or loses during a particular period. n Also known as a profit and loss statement n Different from a cash flow statement ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 12 Reasons Cash Flow & Income can be Different n Sales made with A/R n Receipts of A/R n Supplies or Merchandise bought A/P n Payments on A/P n Loans Received n Loans Paid ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 13 As a Class Let’s Create: n Cash Flow Statement ENTREPRENEURSHIP: Ideas in Action n Income Statement © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 14 As a Group Create: n Cash Flow Statement n Income Statement n Each group must have a different type of business n Show at least 2 things that are different on the cash flow & income statements n Each group will present to class ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 15 Income Statement, Walters Electric ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 16 BALANCE SHEET n Shows the assets, liabilities, and capital of a business at a particular point in time n Based on the accounting equation Assets= Liabilities + Owner’s equity ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Types of assets Chapter 7 Slide 17 n Fixed: assets that will be used for many years n Current: cash, or items that can be converted into cash (inventory), and items that are used up in normal business operations (supplies) n Accounts receivable: tracks payments due for products/services provided ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Types of liabilities Chapter 7 Slide 18 n Long-term: payable over several years n Current: payable within a short amount of time n Accounts payable: tracks the payments a business owes to a supplier ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Uncollectible accounts Chapter 7 Slide 19 n The amount a company estimates it will not receive from customers is known as the allowance for uncollectible accounts n Should be included on the balance sheet to provide an accurate statement of the assets value ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 20 Depreciation n Lowering of an asset’s value to reflect its current worth. n Depreciating your assets makes sure that your balance sheet provides an accurate picture of them ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 21 Balance Sheet, Walters Electric ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 22 PERSONAL FINANCIAL STATEMENT n A personal financial statement is a balance sheet of your holdings. n It shows your: n Personal assets (cash, stocks, checking/savings accounts) n Liabilities (college loans, credit card debt) n Net worth (assets-liabilities) ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 23 Joe Smith’s Personal Financial Statement ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 7 Slide 24 Individual Work n “Checkpoints” – pgs. 159, 160, 162, 163 n Assessment 7. 1 – #3, 4, 5 ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING