Introduction to Business

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Chapter 17 Managing Business Finances
pp. 268-281
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Learning Objectives
After completing this chapter, youll be able to

1. Explain the three important aspects of financial
   planning.

1. Name the responsibilities of a financial manager.

1. Identify different types of budgets for managing
   business finances.

1. Describe the types of financial records
   businesses use.

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Why Its Important

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

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Aspects of Financial Management

• Managing the finances of a business involves
  putting together a________
• _____________________________
• _____________________________
• _____________________________

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

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

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Financial Planning

• 3. You need a financial plan to tell you how much
  ___________________
• ________________and to operate your business
  once its running
• 4. You also need the financial plan to explain
  how youre going to ____________________.

money youll need to
start out
.
cover expenses.
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Financial Planning

• 5. An entrepreneur starting a new business must
  also ____________________________
• 6. The entrepreneur must find adequate funding.

plan for finances.
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Assets Needed
Identifying your assets

• ________________________is the first step in a
  financial plan.
• 7a. Any ______________________ that your
  business owns is an asset.

property or item of value
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Assets Needed
Researching your options

• 7b. __________________________is important
  before buying any major asset.
• 7c. Analyze and _________________ of each
  different item.

compare the price
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Purchasing Assets

• 8. _____________________ is the second step in
  your financial planning.
• 8a. _____________________ you will use to
  purchase the items.

Purchasing your assets
Determine the method
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Purchasing Assets

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

based upon your needs
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Accounting Requirements
Recognizing the financial records

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

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Accounting Requirements
A financial forecast is an estimate

• 9a. __________________________ of what business
  conditions will be like in the future.
• 9b. A forecast includes ________________________
  ___ that might affect your business.

planning for changes in the economy
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Graphic Organizer
Graphic Organizer
Elements of Financial Planning
ASSET ALALYSIS
FINANCIAL FORECAST
GOALS
FINANCIAL PLANNNING
RECORD- KEEPING PLAN
PROJECTED INCOME
PROJECTED BUDGETS
PROJECTED EXPENSES
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Fast Review

• 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
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Fast Review

1. Describe the three steps of a financial plan.

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

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

financial position
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Accounting
financial manager
11. The _________________ is the person in charge
of a businesss____________ ______________________
financial planning, funding and accounting

• 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

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Budgeting
budget

• 13. A __________ is a written plan of what you
  expect your __________________ to be over a
  certain period of time.

income and expenses

• 14. The three main types of budgets are
• Start-up budget
• Cash budget
• Operating budget

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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
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Start-up Budget

• 17. Most new businesses _________________________
  __
• _____________, so you also need to plan for
  covering your own personal expenses.

dont make a profit during the first year
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Cash Budget
cash budget

• 18. A _______________ is a plan for the
  __________________________
• _________________________ on a daily, weekly, or
  monthly basis.

actual money you expect to spend and earn
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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 __________________.

six months or a year
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Personal Budget

• Income Sources
• Work 00
• Parents 00
• Other 00
• Total income 00
• Expenses
• List all 00
• 00
• Total Expenses 00
• Net Income(Loss) 00

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Fast Review

• 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.
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Financial Records

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

accurate written accounts
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Financial Records
accounting period

• An _________________ may be one month, three
  months, or one year.
• 22. If the reports are for one year, the
  accounting period is a _____________.

fiscal year.
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Financial Records

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

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Financial Statements

• 24. Accounting records keep track of
  _____________________________ your business.

money coming into and going out of
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Financial Statements
Accounting records

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

transactions
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Financial Statements

• 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
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Financial Statements
Debts you owe

• 28. _____________ you owe banks or investors are
  also _____________________ of your business.
• 29. The claim on the assets by the owner is
  called the _______________.

claims against the assets
owners equity
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Financial Statements

• 30. The relationship between a companys assets
  and the claims against those assets is expressed
  by an equation
• Assets Liabilities Owners Equity

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Income Statement
income statement

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

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Income Statement

• If total revenue, or earnings, is greater than a
  businesss total expenses, it has a ____________.
  
• 33. If expenses are greater than its revenue,
  then it has a ___________.

net income
net loss
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Balance Sheet
balance sheet

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

certain date
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Balance Sheet

• 35. A balance sheet includes a report of
  __________________________
• __________________________

assets, liabilities, and the owners equity
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Balance Sheet

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

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Figure 17.2
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.
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Fast Review

1. Whats 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 owners equity
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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
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Making an Ethical Decision

1. 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?

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For any business, what is the first step to
financial management?
continued
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Name some long-term goals a company might have.
continued
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What helps a company control its spending?
continued
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What does a company use to track the money coming
in and going out?
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End of Chapter 17 Managing Business Finances
pp. 268-281
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Key Words
financial plan asset financial forecast accounting
financial manager budget
continued
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Key Words
fiscal year owners equity income
statement balance sheet
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Figure 17.1
WHATS 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 youre a
persuader, a communicator, or an individualist.
How will this influence your financial
future? Take this financial quiz to see.