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17 - Financial Planning

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					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)

				
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