Unit 8

Financial Issues & Accounting Records

Small Business Operations

Determine Start-up Capital Needs

Every business is different and has its own specific cash needs at different stages of development.

Some businesses can be started on a shoestring budget, while others may require considerable investment in inventory or equipment.

Source: www.sba.gov Frameworks 8.2.1

It is vital to know whether or not you will have enough money to launch

your business venture.

To determine your startup costs, you must identify all the expenses your business will incur during its startup phase.

Some of these expenses will be one-time costs, such as the fee for incorporating your business and the price of a sign for your building.

Some expenses will be ongoing, such as the cost of utilities, inventory, insurance, etc.

Source: www.sba.gov Frameworks 8.2.1

Determine Start-up Capital Needs

Capital Expenses Vs. Operating Expenses

Capital expenses are long-term investments in land, buildings, and equipment.

Operating expenses are the costs of day-to-day operations. These include wages, utilities, insurance, supplies, and advertising.

Source: Marketing, 3e, pages 559-560 Frameworks 8.2.2

Sources of Start-up Capital

Equity capital or owner capital is the small business owner’s personal financial contribution to the business.

Debt capital or creditor capital is money that others loan to the small business.

Source: Business Principles and Management, 12e, page 421 Frameworks 8.2.3

Most small business owners will use a combination of equity capital and debt

capital to start their business.

Create a Start-up Budget

A start-up budget projects income and expenses from the beginning of a new business until it becomes profitable.– Create a start-up budget for the school based

enterprise.

Frameworks 8.2.4Source: Business Principles and Management, 12e, page 421

The Importance of Finances

The small business will generate revenue – the money received from the sale of products and services. – Revenue minus All Costs = Profit or Loss– If the School Based Enterprise generated $478 in

sales during the week and all expenses were $276 what would the profit be for the week?

$202

Frameworks 8.3.1Source: Marketing, 3e, page 556

What is the “Z” Report?

The “Z” report is created by the point-of-sale terminal and lists all cash sales, credit sales, and total revenue for the completed shift.

Interpret a “Z” report for the School Based Enterprise.– What was the amount of the beginning

change fund?– What was the amount of credit sales?– What was the amount of cash sales?– What was the total sales for the day?– How much money should be in the

cash drawer?Frameworks 8.4.2

Financial Statements

A financial statement is a detailed summary of the specific financial performance for a business or a part of a business. – An income statement reports on

the amount and source of revenue and the amount of and type of expenses for a specific period of time.

– A balance sheet describes the type and amount of assets, liabilities, and capital in a business on a specific date.

Frameworks 8.4.1Source: Marketing, 3e, pages 564-565

The Balance Sheet

The balance sheet includes 3 categories:– Assets include the things

the business owns.– Liabilities are the amounts

the business owes.– Capital is the difference

between the amount of assets and the amount of liabilities, this is the value of the business.

Frameworks 8.4.1Source: Marketing, 3e, page 565

Accounts Receivable Vs. Accounts Payable

Accounts receivable are sales for which the small business has not yet been paid – this is money owed to the business. Marketing, 3e, page 576

Accounts payable is the record of money owed and paid to other businesses/vendors or creditors. Business Principles and Management, 12e, page 390

Frameworks 8.5.1

End of Unit 8

Visit the website www.quizlet.com to review the terms associated with this unit of instruction. If you have not already done so, create an account with

Quizlet.com. Use your first and last name (without a space) as your

login. Use your first name (or anything you can remember!) as

your password. Using the Quizlet.com search feature, search for

cdorman and find Mr. Dorman’s dashboard. Open the Subjects folder “Small Business Operations.” Study the flashcards. Use the test feature and use the scatter feature.