© 2011 South-Western | Cengage Learning GOALS LESSON 3.4 FINANCIAL RESOURCES MANAGEMENT Explain how budgeting relates to financial planning Describe two.

© 2011 South-Western | Cengage Learning

GOALS

LESSON 3.4

FINANCIAL RESOURCES MANAGEMENT

Explain how budgeting relates to financial planning

Describe two kinds of financial reports prepared by businesses


INTRO TO BUSINESS, 2e LESSON

SLIDE 2

3.4

Financial Management

One of the reasons why small businesses often fail is that they do not manage their finances properly.

Businesses must wisely manage the money they take in and pay out to become profitable and to stay in business.



SLIDE 3

3.4Financial PlanningProfit is what is left over after paying all

business expenses …. Profit is good!!A business budget is a detailed plan for

meeting the financial needs of the business.

Two main purposes: 1.1. Anticipating sources and amounts of income

2.2. Predicting the types and amounts of expenses for a specific business activity or for the entire business



SLIDE 4

3.4Financial PlanningIncome or Revenue: the $$ a business

receives Typically from sales of products/services

Statement of Cash Flow: a financial record used to show the actual cash a business receives and has available

Expenses: the costs associated with running a businessEmployee wages, advertising, rent, utilities,

supplies, etc.



SLIDE 5

3.4Types of BudgetsBusiness budgets project the amounts of

income and expensesStart-up Budget – used to plan income and

expenses from the beginning of a new business until it becomes profitable

Operating Budget – Financial plan for the day-to-day operations of a business

Cash Budget – an estimate of the money expected to be received and paid out over a specific amount of timeHelps to know if money will need to be borrowed to

continue business operation



SLIDE 6

3.4BUSINESS MATHTo find the net profit or loss of a business

over a specific time period, calculate the business revenue minus the business expenses

EX: Calculate the net profit or loss of the month for Galaxy Comic Books where: cash sales were $3,560, charge sales were

$1,240 and other revenue was $165salaries were $2,450, advertising was $200,

rent was $550 and supplies were $120



BUSINESS MATHREVENUES

Cash sales = $3,560Charge sales = $1,240 Other revenue = $165

Total Revenues = $4,965

EXPENSESSalaries = $2,450Advertising = $200 Rent = $550 Supplies = $120

Total Expenses = $3,320

SLIDE 7

3.4

REVENUES – EXPENSES = NET PROFIT / NET LOSSIf a positive number remains it is a profitIf a negative number remains it is a loss

NET PROFIT = $1,645



CheckPOINT

Describe three kinds of business budgets

SLIDE 8

3.4



SLIDE 9

3.4Financial RecordsA financial record shows the financial

performance of a business.Asset records – buildings/equipment owned by the

business and their valuesDepreciation records – the amount that assets have

decreased in value due to their age and usageInventory sales – the type and number of products on

hand for salePayroll records – information on employee

compensation and benefitsCash records – all cash received and spent Tax records – all taxes collected, owed and paid



SLIDE 10

3.4

The Income Statement

An income statement is a financial statement that shows revenues, expenses, and net income (profit) or loss for a period of time.Revenue – Expenses = Net Income or Loss

The income statement shows how a business does over a period of time



SLIDE 11

3.4The Balance SheetA balance sheet is a financial statement

that lists a business’s :Assets – what a company owns: buildings,

equipment, cash, etc. Liabilities – what a company owes: salaries,

loans, accounts payable, etc.Owner’s Equity – value of the owner’s

investment in the business (net worth)

Owner’s Equity = Assets – Liabilities



SLIDE 12

3.4The Balance SheetIn a balance sheet the Assets are listed on

the left and the liabilities and OE (owner’s equity) are listed on the right

The left and right side must be in balanceAssets = Liabilities + Owner’s Equity

Balance sheets do not provide a picture of the business over a period of time, but shows what a business is worth on a certain date



SLIDE 13

3.4

Maintaining Financial Records

Collecting informationPreparing financial recordsMaintaining financial records



CheckPOINT

Name several kinds of financial records commonly kept by businesses

SLIDE 14

3.4

© 2011 South-Western | Cengage Learning GOALS LESSON 3.4 FINANCIAL RESOURCES MANAGEMENT Explain how budgeting relates to financial planning Describe two.

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