pp. 268-281

Chapter 17 Managing Business Finances

2

Slide 2 of 54

Learning ObjectivesLearning Objectives

After completing this chapter, you’ll be After completing this chapter, you’ll be able to:able to:

1.1. ExplainExplain the three important aspects of financial planning.

2.2. Name Name the responsibilities of a financial manager.

3.3. IdentifyIdentify different types of budgets for managing business finances.

4.4. DescribeDescribe the types of financial records businesses use.

3

Slide 3 of 54

Why It’s ImportantWhy It’s Important

Every large or small business has to have a financial plan, a budget, and financial records to manage its financial resources.

4

Slide 4 of 54

Aspects of Financial Management

1. Managing the finances of a business involves putting together a________

_____________________________ _____________________________ _____________________________

financial plan, budgeting, and keeping track of income and expenses

5

Slide 5 of 54

Financial PlanningFinancial Planning

2. A ___________________is an outline of your expenses, needs, and goals, and how you expect to meet them.

financial plan

6

Slide 6 of 54

.

Financial PlanningFinancial Planning

3. You need a financial plan to tell you how much ___________________

________________and to operate your business once it’s running

4. You also need the financial plan to explain how you’re going to ____________________.

money you’ll need to start out

cover expenses.

7

Slide 7 of 54

Financial PlanningFinancial Planning

5. An entrepreneur starting a new business must also ____________________________

6. The entrepreneur must find adequate funding.

plan for finances.

8

Slide 8 of 54

Assets Needed Assets Needed

7. ________________________is the first step in a financial plan.

7a. Any ______________________ that your business owns is an asset.

Identifying your assets

property or item of value

9

Slide 9 of 54

Assets NeededAssets Needed

7b. __________________________is important before buying any major asset.

7c. Analyze and _________________ of each different item.

Researching your options

compare the price

10

Slide 10 of 54

Purchasing Assets Purchasing Assets

8. _____________________ is the second step in your financial planning.

8a. _____________________ you will use to purchase the items.

Determine the method

Purchasing your assets

11

Slide 11 of 54

Purchasing AssetsPurchasing Assets

8b. If you’re working with limited resources, you need to make decisions _____________________ and how you’ll pay for them, whether with cash or credit.

based upon your needs

12

Slide 12 of 54

Accounting RequirementsAccounting Requirements

9. ____________________________ you need to keep is the third important step in financial planning.

Recognizing the financial records

13

Slide 13 of 54

Accounting RequirementsAccounting Requirements

9a. __________________________ of what business conditions will be like in the future.

9b. A forecast includes

___________________________ that might affect your business.

A financial forecast is an estimate

planning for changes in the economy

14

Slide 14 of 54

Graphic Organizer

FINANCIALFINANCIALPLANNNINGPLANNNINGFINANCIALFINANCIAL

PLANNNINGPLANNNING

Elements of Financial PlanningElements of Financial Planning

Graphic OrganizerGraphic Organizer

GOALSGOALS

RECORD-KEEPING

PLAN

RECORD-KEEPING

PLAN

FINANCIALFORECASTFINANCIALFORECAST

PROJECTEDINCOME

PROJECTEDINCOME

PROJECTEDBUDGETS

PROJECTEDBUDGETS

ASSETALALYSIS

ASSETALALYSIS

PROJECTEDEXPENSES

PROJECTEDEXPENSES

15

Slide 15 of 54

Fast Review

1. Why is financial planning important to a business?

2. What are examples of assets?

To figure out how much a business needs to get started an to keep it going.

Cash, equipment, buildings, supplies, and land

16

Slide 16 of 54

Fast Review

3. Describe the three steps of a financial plan.

Putting together a financial plan, budgeting and tracking income and expenses.

17

Slide 17 of 54

Accounting Accounting

10. _______________ is the systematic process of recording and reporting the _______________ of a business.

Accounting

financial position

18

Slide 18 of 54

Accounting Accounting

financial manager11. The _________________ is the person in charge of a business’s____________

______________________

12. Three important functions of a financial manager are:• Managing funds and making sure the business is meeting its financial obligations.•Finding sources for additional funds.•Planning long-range financial goals

financial planning, funding and accounting

19

Slide 19 of 54

BudgetingBudgeting13. A __________ is a written plan of

what you expect your __________________ to be over a certain period of time.

budget

14. The three main types of budgets are:

•Start-up budget•Cash budget•Operating budget

income and expenses

20

Slide 20 of 54

Start-up Budget Start-up Budget

15. A start-up budget is a plan for your income and expenses from the ___________________________

_____________________________

16. It includes the ___________________________

_____________________________

the time you start the business to when it makes a profit.

cost of equipment, supplies, rent and hiring workers

21

Slide 21 of 54

Start-up Budget Start-up Budget

17. Most new businesses ___________________________

_____________, so you also need to plan for covering your own personal expenses.

don’t make a profit during the first year

22

Slide 22 of 54

Cash BudgetCash Budget

18. A _______________ is a plan for the __________________________

_________________________ on a daily, weekly, or monthly basis.

cash budgetactual money you expect to spend and earn

23

Slide 23 of 54

Operating Budget Operating Budget

19. An _________________ is a plan for how much you expect to spend and earn over a given period of time, usually __________________.

operating budget

six months or a year

24

Slide 24 of 54

Personal Budget

Income Sources:Work 00Parents 00Other 00Total income 00

Expenses:List all 00

00Total Expenses 00

Net Income(Loss) 00

25

Slide 25 of 54

Fast Review

1. What are some of the expenses a start-up budget includes?

2. What is the main difference between a cash budget and an operating budget?

Buying equipment and supplies, renting property, hiring workers, borrowing money.

Cash Budget – a plan for the actual money you expect to spend.

Operating Budget – total amount of money you expect to spend in a six month period or year. Includes non-cash items.

26

Slide 26 of 54

Financial RecordsFinancial Records

20. To keep track of how your business is actually doing financially, you need to keep _______________________. accurate written accounts

27

Slide 27 of 54

Financial RecordsFinancial Records

21.An _________________ may be one month, three months, or one year.

22. If the reports are for one year, the accounting period is a _____________.

accounting period

fiscal year.

28

Slide 28 of 54

Financial Records Financial Records

23. There are many business software programs you can buy that not only set up budgets, but also keep financial records.

29

Slide 29 of 54

Financial StatementsFinancial Statements

24. Accounting records keep track of _____________________________ your business.

money coming into and going out of

30

Slide 30 of 54

Financial StatementsFinancial Statements

25. __________________ sort out ________________ to show what your business owns, how much money it takes in, and how much it owes to others.

Accounting recordstransactions

31

Slide 31 of 54

Financial StatementsFinancial Statements

26.Any amount your business owes is a ____________.

27. When you buy anything from a

supplier, such as food products, you usually __________________.

liability

buy it on credit

32

Slide 32 of 54

Financial Statements Financial Statements

28. _____________ you owe banks or investors are also _____________________ of your business.

29. The claim on the assets by the owner is called the _______________.

Debts you owe

claims against the assets

owner’s equity

33

Slide 33 of 54

Financial Statements Financial Statements

30. The relationship between a company’s assets and the claims against those assets is expressed by an equation:

Assets = Liabilities + Owner’s Equity

34

Slide 34 of 54

Income Statement Income Statement

31. The __________________ is a report of net income or net loss over an accounting period.

income statement

Income: 35,000$

Expenses: Rent 2,500 Utilities 4,500 Materials 3,000 Other 2,500 Total Expenses 12,500

Net Income 22,500$

The Graham Company

For the 12 months ended December 31, 2006Income Statement

35

Slide 35 of 54

Income StatementIncome Statement

32. If total revenue, or earnings, is greater than a business’s total expenses, it has a ____________.

33. If expenses are greater than its revenue, then it has a ___________.

net income

net loss

36

Slide 36 of 54

Balance SheetBalance Sheet

34. A __________________ is a report of the financial state of your business on a _______________.

balance sheet

certain date

37

Slide 37 of 54

Balance SheetBalance Sheet

35. A balance sheet includes a report of __________________________

__________________________ assets, liabilities, and the owner’s equity

Assets: Cash 5,000$ Building 30,000 Supplies Inventory 6,000 Total Assets 41,000$

Liabilities Accounts Payable 6,200$ Total Liabilities 6,200

Owner's Equity 34,800

Total Liabilities and Owner's Equity 41,000$

The Graham Company

31-Dec-06Balance Sheet

38

Slide 38 of 54

Balance SheetBalance Sheet

36. The left side of the sheet lists all your assets and the right side lists all your liabilities and equity.

39

Slide 39 of 54

Figure17.2 COMMON SOURCES AND USES OF FUNDS IN A BUSINESS

A budget is a written plan of what you expect your income and expenses to be over a certain period of time. This helps control your spending.What are some uses of funds for a company? List at least four.

40

Slide 40 of 54

Fast Review

1. What’s the purpose of financial records?

2. Explain the difference between total assets and total liabilities.

To keep track of how a business is doing financially

Assets are everything a business owns. Liabilities are everything a business owes. The difference between them is the owner’s equity

41

Slide 41 of 54

Making an Ethical Decision

1. In what ways is a nonprofit like a business?2. What can an accountant provide for a

nonprofit that a volunteer cannot?3. What ethical questions arise when a

volunteer is the treasurer for a nonprofit?

continued

42

Slide 42 of 54

Making an Ethical Decision

4. How would you tactfully convince a volunteer to step down from his or her role as treasurer for a nonprofit? Are there other roles that a volunteer treasurer could fulfill in a nonprofit organization?

43

Slide 43 of 54

For any business, what is the first step to financial management?

continued

44

Slide 44 of 54

Name some long-term goals a company might have.

continued

45

Slide 45 of 54

What helps a company control its spending?

continued

46

Slide 46 of 54

What does a company use to track the money coming in and going out?

pp. 268-281

End ofChapter 17 Managing Business Finances

48

Slide 48 of 54

Key WordsKey Words

financial planassetfinancial forecastaccountingfinancial managerbudget

continued

49

Slide 49 of 54

Key WordsKey Words

fiscal yearowner’s equityincome statementbalance sheet

50

Slide 50 of 54

Figure17.1 WHAT’S YOUR FINANCIAL ID?

Your personality can help guide your future. On a piece of paper, write ten characteristics that best describe you. Find out if you’re a persuader, a communicator, or an individualist. How will this influence your financial future?

Take this financial quiz to see.