Welcome

1. Welcome to the Business Start-Up Programme Workshop 3 ‘Finance’

2. Workshop Links The Essentials Why start a business? Viability assessment Marketing Management control Legal issues Funding • Business Planning • Front Page • Executive Summary • The Business • Market • Operations • Finance • SWOT Analysis • Action Plan Marketing Product & service Place Price Promotion Finance Profit & Loss Cash flow Balance sheet

3. Finance Workshop - Introduction Start-up Workshops On-going Support Action Plan Business Plan Finance • Finance Workshop Objectives: • Understand and use financial information to manage and control your business. • Prepare financial forecasts to include in your business plan • Confirm the profit targets established in your viability assessment Money In Business Financial Control Financial Reports Managing Financial Information

4. Money In Business – The Working Capital Cycle Start-up Workshops On-going Support Action Plan Business Plan Finance The working capital cycle Money In Business Buy Materials & Services Financial Control Financial Reports Investment Clearing debt Bank account Buy more Material Sale Managing Financial Information Cash Invoice Customer

5. Finance Control - Introduction Start-up Workshops On-going Support Action Plan Business Plan Finance Money In Business Management Accounts are financial reports about business activities Financial Control Financial Reports Managing Financial Information

6. Finance Control – Management Accounts Prospect for work Request for estimate/quotation Sales & Marketing Prepare an estimate & submit a quotation Receive an order Plan & execute work Operations Deliver to customer Cash Send invoice Finance Receive payment

7. Finance Control – Management Accounts • Management Accounts Monitor: • Sales Performance • Cost control • Achievement of profit targets • Credit control/cash in the bank • The value of the business.

8. Finance Control – Management Accounts Profit & Loss Cash flow £ Cash Balance Sheet

9. Finance Reports - Introduction Start-up Workshops On-going Support Action Plan Business Plan Finance Money In Business Financial Control • Profit & Loss • Cash Flow • Balance Sheet Financial Reports Managing Financial Information

10. Financial Reports – Profit & Loss - Introduction Sales £100,000 Cost Of Sales (Direct Costs) Labour £25,000 Material £30,000 Total Cost Of Sales £55,000 Gross Profit £45,000 Overheads (Fixed Costs) • Salaries & wages • Premises • Marketing • Vehicle costs • Accountancy fees • Telephone • Post & stationery • Financials • Depreciation Total Overheads £25,000 Pre-Tax Profit £20,000 (20%)

11. Financial Reports – Profit & Loss - Introduction Calculate No. of unit sales to meet target sales value: Average order value £10 £100,000 ÷ £10 = 10,000 orders needed per year to achieve sales

12. Financial Reports – Profit & Loss - Introduction Calculating Break Even: Total Overhead (Fixed Costs) ÷ Gross Profit % £25000 ÷ 45% = £55,556 ~ 5556 orders

13. Financial Reports – Profit & Loss - Introduction Calculating No of hours needed to work to meet sales targets: Wage rate @ £10/hour Labour hours to achieve sales = £25000 ÷ £10 = 2500 hours 40 hours/week & 46 weeks/year = 1.3 people

14. Financial Reports – Profit & Loss - Introduction Effect of Reducing Direct Cost: 1% reduction in direct cost gives an extra £1000 Gross Profit

15. Financial Reports – Profit & Loss - Summary • Statement showing the trading situation of your business • The value of invoices processed during an accounting period for sales and purchases • Numbers on a piece of paper telling you whether you’ve done enough sales and controlled your costs sufficiently to make a profit What it is What it isn’t • A statement of cash in the bank! How it’s used • To plan sales, costs and profit targets (Budgets) • To plan resources needed to achieve sales, costs and profit targets. • To measure effectiveness in achieving sales, controlling costs and generating profits. • To target performance improvement

16. Financial Reports – Cashflow - Introduction Sales Sales (Income) Cost Of Sales (Direct Costs) VAT on Sales Labour Capital Investment Material Total Income Total Cost Of Sales Expenditure • Labour • Material • Salaries & Wages • Marketing • Vehicle Costs • Accountancy Fees • Telephone • Post & Stationery • Financials (Capital Items) • Capital Gross Profit • Differences • P & L (Trading) • Cash flow (Bank) • Payments (debtors/Creditors) • VAT • Loan Repayments • Depreciation Overheads (Fixed Costs) • Salaries & wages • Premises • Marketing • Vehicle costs • Accountancy fees • Telephone • Post & stationery • Financials • Depreciation VAT on Purchase VAT Total Overheads Total Expenditure Pre-Tax Profit Net Income

17. Financial Reports – Cashflow - Summary • Statement of money moving in and out of your business bank account for invoiced sales and purchases. • Payment for work done and materials and services purchased • The lifeblood of the business What it is What it isn’t • Necessarily your own money!! • To plan and control payments for invoice transactions • To identify requirements for funding business growth • To measure management effectiveness in credit control How it’s used

18. Financial Reports – Balance Sheet - Introduction Asset Value Own Owe Assets Liabilities Fixed Assets Current Assets Current Liabilities Long Term Liabilities Cash Plant & Equipment Overdraft Personal Loans Vehicles Debtors Creditors Bank Loans Property Stock Tax/VAT Investors Goodwill Used longer than 12 months. Transactions within 12 months(working capital) Payment Longer than 12 months

19. Financial Reports – Balance Sheet - Summary What it is • Statement of what you own and what you owe What it isn’t • Something to be scared about • As an indicator of business worth. • Brings together the elements of profit and loss & cash flow • Demonstrates the working capital cycle of the business • Provides key financial performance ratios • Where to show personal loans • Measures management effectiveness in building up the value of the business. How it’s used

20. Understanding Finance Information Start-up Workshops On-going Support Action Plan Business Plan Finance Money In Business Financial Control Practical Exercises: • Viability Assessment • Profit & Loss • Cash Flow • Capacity Planning • Estimating Financial Reports Managing Financial Information

21. Finance Management – Final Thoughts? What is financial management? Prospect for work Simple Arithmetic Sets budgets and tracks your sales, costs and Profits. Request for quotation (RFQ) Why do it? Prepare an estimate & submit a quotation To give you control and help you achieve your profit targets and meet legal requirements Receive an order How do we do it? Plan & execute work To collect and understanding financial data. Deliver to customer Who does it? Send invoice YOU Receive payment

22. What Next? Familiarise yourselves with financial management tools. Confirm the credibility of your business costs and your profit targets

23. Thanks for listening The Entrepreneur Kick Start Business Start-Up Programme

24. Keep in touch! Keep in touch with each other, chat and network on Linked in. www.linkedin.com Join the ‘Business Start Up Group’ and then join ‘The Workshop Group’ subgroup to keep in touch!