Download Cash Flow IN Sources of Cash Flow in

FINANCIAL
BASICS
Business 2.010 at the Library Brown
Bag Seminar Series
course objectives
FINANCIAL BASICS:
• Identify names of financial reports
• Describe their purpose
• Use information to make important
decisions about running your business
• Learn financial vocabulary to
communicate with professional advisors
• Referral to SBDC ADVISOR
• Access SBDC Resources
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Numbers Tell A Story:
• Sports and Recreation
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1
300
• School
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GPA
Report Card
• Financial Reports = Report Card for your
Business
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FINANCIAL BASICS
Why are Financial Statements
necessary?
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Making a profit or losing money?
Healthy business?
Bookeeping & taxes
Enough cash?
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Source of Financial Statements:
• Accounts (Record Results of Financial
Activities)
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Sale of goods
Pay telephone bill
Purchase assets
• 5 Types
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Assets
Liabilities
Capital (equity)
Revenue (income; sales)
Expenses
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FINANCIAL BASICS
Common Financial Statements:
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Balance Sheet
Profit & Loss (Income) Statement
Breakeven Analysis
Cash Flow
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balance sheet
Definition:
Shows state of financial health of
your company on a particular
day
• A ‘financial snapshot’
• “Assets = Liabilities + Equity”
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balance sheet
terms:
Assets What a company owns
• Cash
• Accounts Receivable
• Equipment
• Software
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balance sheet
terms:
Liabilities What a company owes
• Bills to vendors
• Loans
• Mortgages
• Accrued taxes
• etc.
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balance sheet
terms:
Equity What a company owns
minus what a company owes
OR
What your business is worth
at book value (not market
value)
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balance sheet
terms:
The sum of:
Owner’s Equity –
Money invested by owners
Retained earnings
Profit and losses to date
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balance
sheet
Example:
10/31/10
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profit & loss
statement
Definition:
The income and expenses from
your business operations that
occurred during a specified
period of time.
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profit & loss statement
Example:
Gross Revenues
$3,200
Less Cost of Goods Sold = -1,200
Gross Profit/Loss
$2,000
Less Operating Expenses = -2,200
Net Profit/(Loss)
$ (200)
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profit & loss statement
Terms:
Gross Revenues=
Total amount of money that comes
into a business through sales of
product or providing a service
(Monthly Racoon Rib sales
= $3,200)
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profit & loss statement
Terms:
Cost of Goods Sold =
Total amount of labor and material
to produce the products
(Monthly cost to produce Ribs
= $1,200)
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profit & loss statement
Terms:
Gross Profit =
What’s left after subtracting
CoGS from Gross Revenue
($2,000)
Also called “Gross Margin”
or “Contribution Margin”
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profit & loss statement
Terms:
Operating Expenses (Overhead) =
Other business operating costs,
not associated with production.
($2,200)
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profit & loss statement
Terms:
Net Profit/(Net Loss) =
Gross Profit minus Operating
Expenses
($200 [loss])
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profit & loss statement
Terms:
Net Profit is the money the
owner(s) can:
• take out of the business
• reinvest in the business (after loans
and taxes are paid).
• This amount is what you pay
income tax on.
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profit &
loss
statement
Example:
Month of October 2010
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breakeven
analysis
Calculates:
What I have to sell
at a given price
to pay all my expenses
with no profit.
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breakeven analysis
Terms:
Contribution Margin Percent:
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•
Is the percentage of sales remaining
after subtracting CoGS
Is the percentage of Sales that
contributes to Fixed Expenses and
Profit.
= Gross Profit/Sales
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breakeven analysis
Terms:
Break Even Point (BEP) in
sales/revenue =
Fixed Expenses =
Contribution Margin %
$2200
.625
BEP in units =
Fixed Expenses =
Contribution Margin/unit
$2200 = 440
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Cash Flow IN
• Sources of Cash Flow in:
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Sales Revenue
Sale of Assets
Loan proceeds
Investment in the business
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Cash Flow Out
• Sources of Cash Flow out:
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Operating expenses
Asset purchases
Loan reduction (pay back of
principal)
Equity reduction
(withdrawal of investment
equity)
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Positive Cash Flow
• Positive Cash Flow is not the
same as operating profit
• Negative Cash Flow is not the
same as operating loss
• Cash in the bank is <not =>
positive cash flow
• Cash Flow management =
analyzing cash flow trends
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Cash Flow Management
Three rules for effective
Cash Flow Management
1. PLAN
2. PLAN
3. PLAN
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Cash Flow Projection
• Make a Cash Flow projection (Plan)
• Cash MUST come in faster than it
goes out
• Hold on to cash as long as you can
• Compare cash flow projection to
actual cash flow
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Cash Flow
Statement
Example:
Cash Flow Statement for Month of October 2010
Beginning Cash
$0
Sources of Cash
Owner’s Investment
$4,900
Revenue
$3,200
Loan Proceeds
$5,000
Accounts Payable
$5,000
Accrued Liability
$1,000
Total Cash In
$19,100
Uses of Cash
CoGS
$1,200
Operating Expenses
$2,200
Inventory
$2,000
Equipment
$10,000
Loan Payment (Principal)
$500
Tax Reserve
$200
Accounts Receivable
$1,000
Owner's Draw
$1,000
Total Cash Out
Ending Cash
$18,100
$1,000
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Wrap Up:
Resources:
WEB SITES
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www.centralcoastsbdc.org
www.edd.ca.gov
www.irs.gov
www.nolo.com
www.sba.gov
www.calgold.ca.gov
www.co. santa-cruz.ca.us
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evaluations & wrap-up
FINANCIAL BASICS
• Turn in seminar evaluations
• Sign up for advising or other
seminars
• Thank you to our sponsors:
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