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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)
