Week 7 balance sheet cash flow startup assumptions

LIFESTYLE BUSINESS ACCELERATOR 90 Day Program | 7 Balance Sheet, Cash Flow, & Startup Assumptions

WHAT DOES P&L TELL YOU? (PROFIT AND LOST IS ALSO CALLED THE INCOME STATEMENT)

P&L

This shows the summary of revenue and expenses over a specific period of time.

Example P&L of January 2016 Revenue - Cost of Goods Sold =Gross Profit

$100 $50 $50

-Operating Expenses =Operating Profit

$30 $20

-Interest -Taxes =Net Profit

$3 $5 $12

All of this is summed up on the Profit & Loss Statement.

There are 2 other important financial statements for you to understand: balance Sheet and Cash Flow Statement

It can tell you if you are making $ or if not why you are not.

It can also tell you when compared to your budget how you are doing compared to how you planned to do.

ACCRUAL ACCOUNTING

CASH FLOW Difference between Profit & Loss and Cash Flow

Revenue & Expenses recorded before cash actually changes hands. Recorded when sale is made or expense incurred.

CASH ACCOUNTING Revenue & Expenses recorded when cash changes hands.

PAYMENT TERMS Between you and your vendors/providers and you and your customers

CASH ON DELIVERY - COD Net 7, 10, 15, 30, 45, 60 or 90 usually

CASH FLOW Watch Video Why it matters - Example of inventory

CASH FLOW EXAMPLE

Handout

BALANCE SHEET DEFINITION

BALANCE SHEET Why?

A balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.

WHAT A BALANCE SHEET CAN SHOW YOU

Cash problems

Times when inventory is outpacing Revenue

Problems with collecting Accounts Receivable

BALANCE SHEET The balance sheet adheres to the following formula: ASSETS = LIABILITIES + SHAREHOLDERS’ EQUITY

BALANCE SHEET DEFINITIONS DEPRECIATION Is a method of allocating the cost of a tangible asset over its useful life. Businesses depreciate longterm assets for both tax and accounting purposes.

AMORTIZATION The spreading out of capital expenses for intangible assets over a specific period of time (usually over the asset's useful life) for accounting and tax purposes. Amortization is similar to depreciation, which is used for tangible assets, and to depletion, which is used with natural resources.

Amortization roughly matches an asset’s expense with the revenue it generates.

GOODWILL Goodwill is an intangible asset that arises as a result of the acquisition of one company by another for a premium value. The value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill.

Goodwill is considered an intangible asset because it is not a physical asset like buildings or equipment. The goodwill account can be found in the assets portion of a company's balance sheet.

LIQUID ASSETS An asset that can be converted into cash quickly and with minimal impact to the price received.

Liquid assets are generally regarded in the same light as cash because their prices are relatively stable when they are sold on the open market.

ASSETS

BALANCE SHEET CONT. LIABILITIES =

CURRENT ASSETS (LIQUID ASSETS) Cash Accounts Receivable Inventory Deposits

CURRENT LIABILITIES (WILL

FIXED ASSETS Capital Assets (Things that can be moved or sold - furniture, furnishings, etc) Depreciation - loss of value in capital assets

LONG TERM LIABILITIES Mortgages Deferred Taxes Long Term Loans

OTHER ASSETS Intangible assets (Goodwill, Trademarks, Patents)

COME DUE IN LESS THAN 1 YEAR)

Accounts payable Short-term notes Other ST liabilities

EQUITY

CAPITAL INVESTMENTS Retained Earnings Owner’s withdrawals & Dividends

BALANCE SHEET EXAMPLE

Handout

STARTUP ASSUMPTIONS

Go over the worksheet

ACTION ITEMS

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Watch Finance Videos

Complete financials and send to accountability partner by 7/12/16