"17 - Financial Planning"
17. Financial Planning & Accounting Bringing in revenue is great, but in order to be sure you’re proﬁtable you must be able to properly evaluate your income against your expenses. In this chapter I’ll review key ﬁnancial statements every business owner must know inside and out, such as income statements and ﬁnancial projec1ons. I’ll also walk through key formulas that help you do things like weigh assets against liabili1es. Finally, I’ll discuss the bookkeeping tools you can’t live without, and provide resources that will help you master them. Key Financial Statements For any business, there are three important ﬁnancial statements that are cri>cal to properly running your company. Income Statement Chapter 18: Financial Planning Your income statement, or proﬁt & loss statement, is a measurement of you total costs against your total revenue to determine your net income. There are ﬁve key components to an income statement. See the formulas on the next page to understand how they relate to one another. • Gross Revenue: the total amount of money that your company brings in • Cost of Goods: the cost of materials to develop of your product • Gross Proﬁt: gross revenue minus the cost of goods • Opera1ng Expenses: everything that supports the business outside of the cost of goods, like salaries, rent, supplies and marke>ng • Net Income: the actual revenue you’re leG with aGer goods and opera>ng expenses, the true measure of proﬁt Gross Revenue — Cost of Goods = Gross Proﬁt Gross Proﬁt — Operating Expenses = Net Income Chapter 18: Financial Planning Income Statement Example Let’s say you sell laptop covers for $20 each. You had 10,000 sales, which equals $200,000 gross revenue. But of the 10,000 products you sold, you owed $5 each for the cost of goods, so $50,000. You then have a $150,000 of gross proﬁt. In addition, throughout the year you paid for rent, salaries, marketing and other operating expenses, which amounted to $100,000. You are left with $50,000 net income, which you keep to reinvest in the business. Balance Sheet A balance sheet is a snapshot of your current assets and liabili>es in rela>on to one another. It involves three components: • Assets: the total amount of tangible and ﬁnancial assets. • Liabili1es: the amount of debt, loans and other values you owe • Shareholder Equity: assets minus liabili>es, the net worth of a company, the shareholder’s claim. Chapter 18: Financial Planning Shareholder Total Assets — Total Liabilities = Equity Financial Projec>ons Financial projec>ons are essen>ally income statements for the future, where you make assump1ons on your ﬁnancial metrics. They’re used to make projec>ons of your income one, two or even ﬁve years in the future, and will oGen be requested by investors interested in your business. While they won’t necessarily predict the future, they provide a helpful guidelines and goals to work towards. Bookkeeping & Tax Planning The two key programs that you absolutely must familiarize yourself with as a small business owner are Quickbooks and Excel. Excel will allow you to calculate all of the ﬁnancial statements detailed earlier in this chapter. Here are some keyboard shortcuts to save you >me. Chapter 18: Financial Planning Quickbooks provides the basic building blocks for managing accoun>ng over a long period of >me. You should feel comfortable using Quickbooks and analyzing your own chart of accounts. For more informa>on see this Tax Guide for Small Business Owners. Resources Recap • Key Financial Forms • Financial Statements & Projec>ons (legal document package) • Proﬁt & Loss Worksheet (doc) • Income Statement (doc) • Balance Sheet (doc) Chapter 18: Financial Planning • Financial Projec>ons (doc) • Financial Tools • Excel • Excel for Business (course) • Excel Shortcuts (doc) • Quickbooks • Quickbooks 2012 (course) • Quickbooks Shortcuts (doc) • Taxes • Tax Guide for the Small Business Owner (doc)