Reflecting Using your worksheets reflect on your experiences

Reflecting Using your worksheets – reflect on your experiences so far

Business Finances What Is It? • This covers everything relating to the financial data of a business Why Is It Important? • It is essential for a business to know how much money is coming in, and how much money is going. • Most businesses fail within the first year because they don’t keep track of their finances properly • If your out goings are far higher than your incoming, and you don’t know, that can only lead to disaster for a new business What Does It Involve • It involved tracking how much money is coming in and going out of the business • Cashflow statements • Financial forecasting

Importan t terms Gross Revenue • The sum of all monies you’ve received from customers in exchange for your product or service, before taking any deductions or expense (such as cost of good, rent) Expenses • Expenses are everything that keep your gross revenue from going straight into your pocket! Cost of materials, rent, pay etc Net Profit • What is left over after you deduct your expenses from your gross revenue. When this number is positive, it means that your revenue is greater than your expenses, and your business is making a profit

Important terms Cashflow • Is the difference between the available cash at the beginning of an accounting period compared with at the end of the period. • Business can be profitable, but can run into problems if there isn’t enough actual cash available to pay bills Break Even Point • When Gross revenue equals total expenses – typically the turning point to profitability. • Many small business will operate at a loss for the first few months –expenses are higher than gross revenue

Balance Sheet • Snap shot of your business’s financial standing at a given moment. • Lists the asset's, liabilities and equity your company holds • Used to calculate the net worth of your business • Important to keep a balanced balance sheet; total assets = liabilities + equity (the foundation of basic book keeping) Balance Sheet Assets Liabilities Current Assets Current liabilities Cash 2000 Loan Expenses Unexpired insurance 150 Prepaid Internet 100 Equpiment 2000 Total Assets 4250 2000 250 Total Liabilities 2000 Retained earnings 2000 Total liabilties 4250

Income Statement • A summary of revenues (Sales) and expenses over the course of a year • Allowing you to calculate your net profit or loss for that year • Maintaining an accurate income statement is critical to determining the break even point for your new business Income Gross Revenue £ 3, 000 Total £ 2, 000 Expenses Dog Treat Poo Bags Dog Toys Fuel For car Liability insurance Internet 300 50 50 100 150 100 Total 750 Net Profit (Gross revenue Expenses) £ 1, 250

Cashflow Statement Jun-19 Cashflow Statement • • Tracks the inflow of revenue and outflow of expenses during a specific period Having enough money on hand to cover expenses can make or break a company – that’s why there is a document dedicated to keeping track Starting Cash Balance £ 0 Cash In Cash Sales 2, 000 Loans 5, 000 Cash Out Product Equipment Expenses Ending Cash Balance 2, 000 700 5, 700 Jul-19 Aug-19

Revenue Forecasting • An educated prediction for the up and coming year about how much money your company will likely bring in • This allows you to estimate what you can afford to spend and what your profit margins will be • This document helps you to stay in budget Revenue Forecasting Money receievd Cash sales Money Receievd New Loans New Investments Total Received Jan-19 2, 566 £ 0 £ 0 2, 566 Feb-19 2, 754 £ 0 £ 0 2, 754 Mar-19 £ 2, 987 £ 0 £ 0 £ 2, 987 Apr-19 £ 3, 500 £ 0 £ 3, 500 May-19 £ 4, 500 £ 0 £ 4, 500 Jun-19 £ 5, 000 £ 0 £ 5, 000 Jul-19 3, 500 £ 0 £ 0 3, 500 Money Spent Cash Spending Bill Payment Repay Loans Purchase Asset Total Spent £ 2, 310 £ 550 £ 600 £ 3, 460 2, 110 £ 550 £ 600 £ 3, 260 £ 2, 050 £ 550 £ 600 £ 3, 200 £ 2, 000 £ 550 £ 600 £ 3, 150 £ 1, 900 £ 550 £ 600 £ 3, 050 £ 1, 800 £ 550 £ 600 £ 2, 950 1, 700 £ 550 £ 600 £ 2, 850 -£ 894 -£ 506 -£ 213 £ 350 -£ 894 -£ 1, 400 -£ 1, 613 -£ 1, 263 £ 1, 450 £ 187 £ 2, 050 £ 2, 237 £ 650 £ 2, 887 Cashflow Cashbalance

Activity 1 • Complete your budget sheet for your business Activity 2 • Complete your Revenue Forecasting for the year