Falinason inc - Projecting Business Expenses

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Projecting Business Expenses

• Falinason inc

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Estimating Business Income and Expenses

• The income statement is a summary of your
  businesss income and expenses during a specific
  period, such as a month, a quarter, or a year.
• Also called a profit and loss statement.

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Income Statement

• Several Main parts
• Total and Net sales
• Cost of goods sold
• Gross Profit
• Expenses of operating the business
• Net income from operations
• Net profit before income taxes
• Net profit after income taxes

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Estimating Total Sales

• The income generated by a business depends on the
  yearly volume of sales.
• Verify your estimated sales volume by comparing
  it with projected industry figures for your size
  of business and location.
• The accuracy of your sales estimates will also
  depend on the quality of your market analysis.

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Calculating Net Sales

• The total of all sales for any period of time is
  called gross sales.
• The total of all sales returns and allowances is
  subtracted from gross sales to get net sales.
• Net sales represent the amount left after gross
  sales have been adjusted for returns and
  allowances.

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Cost of Goods Sold

• The total amount spent to produce or to purchase
  the goods that are sold is called the cost of
  goods sold.
• To calculate cost of goods sold, use the
  following formula
• Beginning Inventory
• Net Purchases
• Ending Inventory
• Cost of Goods Sold

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Determining Gross Profit

• Gross profit on sales is the difference between
  the net sales and the cost of goods sold.
• The formula for calculating gross profit
• Net Sales
• - Cost of Goods Sold
• Gross Profit

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Projecting Business Expenses

• Operating Expenses are the costs of operating the
  business, which includes both variable and fixed
  expenses.
• Variable expenses
• Change from one month to the next.
• Include items such as advertising, office
  supplies, telephone and utilities.
• Calculated as a percentage of some baseline
  amount.

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Projecting Business Expenses

• Fixed Expenses
• Costs that remain the same for a period of time.
• Include items such as depreciation, insurance,
  rent and office salaries.
• Depreciation represents the amount by which the
  value of a businesss assets has fallen in a
  given period of time.

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Calculating Payroll Expenses

• The amount earned by an employee is gross pay.
• Net pay is what the employee receives after
  deductions for taxes, insurance, and voluntary
  deductions.

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Net Income from Operations

• Net income is the amount left after the total
  expenses are subtracted from gross profit.
• A net loss results when total expenses are larger
  than the gross profit on sales.
• Interest is the money paid for the use of money
  borrowed or invested.
• The principal is the interest paid on any money
  you borrow to start your business.

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Net Profit or Loss before taxes

• Net Income from operations
• Other Income
• - Other Expenses
• Net profit (or loss) before taxes

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Net Profit or Loss after Taxes

• The amount left over after federal, state, and
  local taxes are subtracted.
• Represents the actual profit from operating the
  business for a certain period of time.
• The projected income statement should be
  completed on a monthly basis for new businesses.
  Then completed on a quarterly basis after the
  first year.

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Balance Sheet

• The balance sheet is a summary of a business
  assets, liabilities and owners equity.
• Current assets are expected to be converted to
  cash in the upcoming year.
• Examples include cash in the bank, accounts
  receivable, and inventory.

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Balance Sheet

• Fixed assets are used over period of years to
  operate your business.
• Examples include land, buildings, equipment,
  furniture, and fixtures.
• Current Liabilities are the debts the business
  expects to pay off during the upcoming business
  year
• Examples include accounts payable, notes payable,
  taxes payable, and salaries.

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Balance Sheet

• Long-term liabilities are debts that are not due
  in the next 12 months.
• Examples include mortgages and long term loans.

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Analysis of Financial Statements

• Lenders use the following types of operating
  ratios to determine how well a business is
  operating over a certain period of time
• Liquidity ratios used to analyze the ability of
  a firm to meet its current debts.
• Current assets divided by current liabilities.
• The higher the ratio the better.

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Analysis of Financial Statements

• The Acid Test Ratio used to see if the company
  can meet its short-term cash needs.
• Formula is cash plus marketable securities plus
  net receivables divided by current liablities.
• Activity Ratios used to determine how quickly
  assets can be turned into cash.
• Divide net sales by average trade receivables.
• The lower the ratio the better.

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• Stock Turnover Ratio measures how many days it
  takes to turn the inventory.
• Formula Divide net sales by average trade
  receivables.
• Profitability Ratios measure how well the company
  has operated in the past year.
• Profit Margin on Sales (net income/net sales)
• Rate of Return on Assets (net income/total assets.

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Cash Flow Statement

• A monthly plan that shows when you anticipate
  cash coming into the business and when you expect
  to pay out cash.
• Itemizes how much cash you started with,
  projected cash expenditures, and how and when you
  plan to receive cash.
• Tells when you will need additional funds and
  when you will have cash left over.

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Loans

• You should be able to borrow additional money if
  needed if your business has potential and your
  balance sheet shows enough assets to serve as
  collateral.

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