Appendix 1(a): The Business Plan -- Financial Management
Contents:
1. Income Projection Statement/Instructions for Income Projection Statement
2. Balance Sheet/Instructions for Balance Sheet
3. Monthly Cash Flow Projection/Instructions for Monthly Cash Flow Projection
4. Information Resources
Income Projection Statement
Industry
J F M A M J J A S O N D Annual
% total %
Total net sales (revenues)
Costs of sales
Gross profit
Gross profit margin
Controllable expenses
Salaries/wages
Payroll expenses
Legal/accounting
Advertising
Automobile
Office supplies
Dues/Subscriptions
Utilities
Miscellaneous
Total controllable expenses
Fixed expenses
Rent
Depreciation
Utilities
Insurance
License/permits
Loan payments
Miscellaneous
Total fixed expenses
Total expenses
Net profit (loss)
before taxes
Taxes
Net profit (loss) after taxes.
Instructions for Income Projections Statement
The income projections (profit and loss) statement is valuable as both a planning tool and a key management tool to help control business operations. It enables the owner/manager to develop a preview of the amount of income generated each month and for the business year, based on reasonable predictions of monthly levels of sales, costs and expenses.
As monthly projections are developed and entered into the income projections statement, they can serve as definite goals for controlling the business operation. As actual operating results become known each month, they should be recorded for comparison with the monthly projections. A completed income statement allows the owner/manager to compare actual figures with monthly projections and to take steps to correct any problems.
Industry Percentage
In the industry percentage column, enter the percentages of total sales (revenues) that are standard for your industry, which are derived by dividing
Costs/expenses items x 100 percent.
___________________________
total net sales
These percentages can be obtained from various sources, such as trade associations, accountants or banks. The reference librarian in your nearest public library can refer you to documents that contain the percentage figures, for example, Robert Morris Associates' Annual Statement Studies (One Liberty Place, Philadelphia, PA 19103).
Industry figures serve as a useful bench mark against which to compare cost and expense estimates that you develop for your firm. Compare the figures in the industry percentage column to those in the annual percentage column.
Total Net Sales (Revenues)
Determine the total number of units of products or services you realistically expect to sell each month in each department at the prices you expect to get. Use this step to create the projections to review your pricing practices.
What returns, allowances and markdowns can be expected?
Exclude any revenue that is not strictly related to the business.
Cost of Sales
The key to calculating your cost of sales is that you do not overlook any costs that you have incurred. Calculate cost of sales of all products and services used to determine total net sales. Where inventory is involved, do not overlook transportation costs. Also include any direct labor.
Gross Profit
Subtract the total cost of sales from the total net sales to obtain gross profit.
Gross Profit Margin
The gross profit is expressed as a percentage of total sales (revenues). It is calculated by dividing:
gross profits _____________
total net sales
Controllable (also known as Variable) Expenses
Salary expenses-Base pay plus overtime.
Payroll expenses-Include paid vacations, sick leave, health insurance, unemployment insurance and social security taxes.
Outside services-Include costs of subcontracts, overflow work and special or one-time services.
Supplies-Services and items purchased for use in the business.
Repair and maintenance-Regular maintenance and repair, including periodic large expenditures such as painting.
Advertising-Include desired sales volume and classified directory advertising expenses.
Car delivery and travel-Include charges if personal car is used in business, including parking, tools, buying trips, etc.
Accounting and legal-Outside professional services.
Fixed Expenses
Rent-List only real estate used in business.
Depreciation-Amortization of capital assets.
Utilities-Water, heat, light, etc.
Insurance-Fire or liability on property or products.
Include workers' compensation.
Loan repayments-Interest on outstanding loans.
Miscellaneous-Unspecified; small expenditures without separate accounts.
Net Profit (loss)
(before taxes) - Subtract total expenses from gross profit.
Taxes - Include inventory and sales tax, excise tax, real estate tax, etc.
Net Profit (loss)
(after taxes) - Subtract taxes from net profit (before taxes)
Annual Total - For each of the sales and expense items in your income projection statement, add all the monthly figures across the table and put the result in the annual total column.
Annual Percentage - Calculate the annual percentage by dividing
Annual total x 100%
___________________
total net sales
Compare this figure to the industry percentage in the first column.
BALANCE SHEET
COMPANY NAME
As of ______________________, ____
Assets (Current assets)
Cash $_______
Petty cash $_______
Accounts receivable $_______
Inventory $_______
Short-term investment $_______
Prepaid expenses $_______
Long-term investment $_______
Assets (Fixed assets)
Land $_______
Buildings $_______
Improvements $_______
Equipment $_______
Furniture $_______
Automobile/vehicles $_______
Other assets
1. $_______
2. $_______
3. $_______
4. $_______
Total assets $______
Liabilities
Current Liabilities
Accounts payable $______
Notes payable $______
Interest payable $______
Taxes payable:
Federal income tax $______
State income tax $______
Self-employment tax $______
Sales tax (SBE) $______
Property tax $______
Payroll accrual $______
Long-term liabilities
Notes payable $______
Total liabilities $______
Net worth (owner equity) $______
Proprietorship or Partnership:
(name's) equity: $_____
(name's) equity $_____
or
Corporation/Capital stock $_____
Surplus paid in $_____
Retained earnings $_____
Total net worth $_____
Total liabilities and total net worth $_____
(Total assets will always equal total liabilities and total net worth)
Instructions for Balance Sheet
Figures used to compile the balance sheet are taken from the previous and current balance sheet as well as the current income statement. The income statement is usually attached to the balance sheet. The following text covers the essential elements of the balance sheet.
At the top of the page fill in the legal name of the business, the type of statement and the day, month and year.
Assets
List anything of value that is owned or legally due the business. Total assets include all net values. These are the amounts derived when you subtract depreciation and amortization from the original costs of acquiring the assets.
Current Assets
Cash-List cash and resources that can be converted into cash within 12 months of the date of the balance sheet (or during one established cycle of operation). Include money on hand and demand deposits in the bank, e.g., checking accounts and regular savings accounts.
Petty cash-If your business has a fund for small miscellaneous expenditures, include the total here.
Accounts receivable-The amounts due from customers in payment for merchandise or services.
Inventory-Includes raw materials on hand, work in progress and all finished goods, either manufactured or purchased for resale.
Short-term investments-Also called temporary investments or marketable securities, these include interest- or dividend-yielding holdings expected to be converted into cash within a year. List stocks and bonds, certificates of deposit and time-deposit savings accounts at either their cost or market value, whichever is less.
Prepaid expenses-Goods, benefits or services a business buys or rents in advance. Examples are office supplies, insurance protection and floor space.
Long-term Investments
Also called long-term assets, these are holdings the business intends to keep for at least a year and that typically yield interest or dividends. Included are stocks, bonds and savings accounts earmarked for special purposes.
Fixed Assets
Also called plant and equipment. Includes all resources a business owns or acquires for use in operations and not intended for resale. Fixed assets may be leased. Depending on the leasing arrangements, both the value and the liability of the leased property may need to be listed on the balance sheet.
Land: List original purchase price without allowances for market value.
Buildings:
Improvements
Equipment
Furniture
Automobile/vehicles
Liabilities
Current Liabilities
List all debts, monetary obligations and claims payable within 12 months or within one cycle of operation. Typically they include the following:
Accounts payable: Amounts owed to suppliers for goods and services purchased in connection with business operations.
Notes payable: The balance of principal due to pay off short-term debt for borrowed funds. Also includes the current amount due of total balance on notes whose terms exceed 12 months.
Interest payable: Any accrued fees due for use of both short- and long-term borrowed capital and credit extended to the business.
Taxes payable: Amounts estimated by an accountant to have been incurred during the accounting period.
Payroll accrual: Salaries and wages currently owed.
Long-term Liabilities
Notes payable: List notes, contract payments or mortgage payments due over a period exceeding 12 months or one cycle of operation. They are listed by outstanding balance less the current position due.
Net worth
Also called owner's equity, net worth is the claim of the owner(s) on the assets of the business. In a proprietorship or partnership, equity is each owner's original investment plus any earnings after withdrawals.
Total Liabilities and Net Worth
The sum of these two amounts must always match that for total assets.
Monthly Cash Flow Projections
Name of Business
Owner
Type of Business
Prepared by Date
1. Cash on hand (beginning month)
2. Cash receipts
(a) Cash sales
(b) Collections from credit accounts
(c) Loan or other cash injections (specify)
3. Total cash receipts
(2a+2b+2c=3)
4. Total cash available (before cash out) (1+3)
5. Cash paid out
(a) purchases (merchandise)
(b) Gross wages (excludes withdrawals)
(c) Payroll expenses (taxes, etc.)
(d) Outside services
(e) Supplies (office and operating)
(f) Repairs and maintenance
(g) Advertising
(h) Car, delivery and travel
(i) Accounting and legal
(j) Rent
(k) Telephone
(l) Utilities
(m) Insurance
(n) Taxes (real estate, etc.)
(o) Interest
(p) Other expenses (specify each)
(q) Miscellaneous (unspecified)
(r) Subtotal
(s) Loan principal payment
(t) Capital purchases
(specify)
(u) Other start-up costs
(v) Reserve and/or escrow
(specify)
(w) Owner's withdrawal
6. Total cash paid out (5a through 5w)
7. Cash position (end of month) (4 minus 6)
Essential operating data
(non-cash flow information)
A. Sales volume (dollars)
B. Accounts receivable (end on month)
C. Bad debt (end of month)
D. Inventory on hand (end of month)
E. Accounts payable (end of month)
Instructions for Monthly Cash Flow Projection
1. Cash on hand (beginning of month) -- Cash on hand same as (7),
Cash position, previous month
2. Cash receipts-
(a) Cash sales-All cash sales. Omit credit sales unless cash is actually received
(b) Gross wages (including withdrawals)-- Amount to be expected from all accounts.
(c) Loan or other cash injection-Indicate here all cash injections not shown in 2(a) or 2(b) above.
3. Total cash receipts (2a+2b+2c=3)
4. Total cash available (before cash out)(1+3)
5. Cash paid out -
(a) Purchases (merchandise)--Merchandise for resale or for use in product (paid for in current month).
(b) Gross wages (including withdrawals)--Base pay plus overtime (if any)
(c) Payroll expenses (taxes, etc.)-- Include paid vacations, paid sick leave, health insurance, unemployment insurance, (this might be 10 to 45% of 5(b))
(d) Outside services-This could include outside labor and/or material for specialized or overflow work, including subcontracting
(e) Supplies (office and operating)--Items purchased for use in the business (not for resale)
(f) Repairs and maintenance-Include periodic large expenditures such as painting or decorating
(g) Advertising-This amount should be adequate to maintain sales volume
(h) Car, delivery and travel-If personal car is used, charge in this column, include parking
(i) Accounting and legal-Outside services, including, for example, bookkeeping
(j) Rent-Real estate only (See 5(p) for other rentals)
(k) Telephone
(l) Utilities-Water, heat, light and/or power
(m) Insurance-Coverage on business property and products (fire, liability); also worker's compensation, fidelity, etc. Exclude executive life (include in 5(w))
(n) Taxes (real estate, etc.)-- Plus inventory tax, sales tax, excise tax, if applicable
(o) Interest-Remember to add interest on loan as it is injected (See 2(c) above)
(p) Other expenses (specify each)
Unexpected expenditures may be included here as a safety factor_____________________
Equipment expenses during the month should be included here (non-capital equipment)__________________________
When equipment is rented or leased, record payments here
(q) Miscellaneous (unspecified)--Small expenditures for which separate accounts would be practical
(r) Subtotal-This subtotal indicates cash out for operating costs
(s) Loan principal payment-Include payment on all loans, including vehicle and equipment purchases on time payment
(t) Capital purchases (specify)--Nonexpensed (depreciable) expenditures such as equipment, building purchases on time payment
(u) Other start-up costs-Expenses incurred prior to first month projection and paid for after start-up
(v) Reserve and/or escrow (specify)-- Example: insurance, tax or equipment escrow to reduce impact of large periodic payments
(w) Owner's withdrawals-Should include payment for such things as owner's income tax, social security, health insurance, executive life insurance premiums, etc.
6. Total cash paid out (5a through 5w)
7. Cash position (end on month) (4 minus 6)-- Enter this amount in (1) Cash on hand following month-
Essential operating data (non-cash flow information)--This is basic information necessary for proper planning and for proper cash flow projection. Also with this data, the cash flow can be evolved and shown in the above form.
A. Sales volume (dollars)--This is a very important figure and should be estimated carefully, taking into account size of facility and employee output as well as realistic anticipated sales (actual sales, not orders received).
B. Accounts receivable (end of month)-- Previous unpaid credit sales plus current month's credit sales, less amounts received current month (deduct "C" below)
C. Bad debt (end on month)-- Bad debts should be subtracted from (B) in the month anticipated
D. Inventory on hand (end on month)-- Last month's inventory plus merchandise received and/or manufactured current month minus amount sold current month
E. Accounts payable (end of month) Previous month's payable plus current month's payable minus amount paid during month.
F. Depreciation-Established by your accountant, or value of all your equipment divided by useful life (in months) as allowed by Internal Revenue Service
Information Resources
U.S. Small Business Administration (SBA)
The SBA offers an extensive selection of information on most business management topics, from how to start a business to exporting your products.
This information is listed in "Resource Directory for Small Business Management." For a free copy contact your nearest SBA office.
SBA has offices throughout the country. Consult the U.S. Government section in your telephone directory for the office nearest you. SBA offers a number of programs and services, including training and educational programs, counseling services, financial programs and contract assistance. Ask about Service Corps of Retired Executives (SCORE), a national organization sponsored by SBA of over 13,000 volunteer business executives who provide free counseling, workshops and seminars to prospective and existing small business people.
Small Business Development Centers (SBDCs), sponsored by the SBA in partnership with state and local governments, the educational community and the private sector. They provide assistance, counseling and training to prospective and existing business people.
Business Information Centers (BICs), offering state-of-the-art technology, informational resources and on-site counseling for start-up and expanding businesses to create business, marketing and other plans, do research, and receive expert training and assistance.
For more information about SBA business development programs and services, call the SBA Small Business Answer Desk at 1-800-U-ASK-SBA (827-5722).
Other U.S. Government Resources
Many publications on business management and other related topics are available from the Government Printing Office (GPO). GPO bookstores are located in 24 major cities and listed in the Yellow Pages under the "bookstore" heading. You can request a "Subject Bibliography" by writing to Government Printing Office, Superintendent of Documents, Washington, DC 20402-9328.
Many federal agencies offer publications of interest to small businesses. There is a nominal fee for some, but most are free. Below is a selected list of government agencies that provide publications and other services targeted to small businesses. To get their publications, contract the regional offices listed in the telephone directory or write to the addresses below:
Consumer Information Center (CIC)
P.O. Box 100
Pueblo, CO 81002
The CIC offers a consumer information catalog of federal publications.
Consumer Product Safety Commission (CPSC)
Publications Request
Washington, DC 20207
The CPSC offers guidelines for product safety requirements.
U.S. Department of Agriculture (USDA)
12th Street and Independence Avenue, SW
Washington, DC 20250
The USDA offers publications on selling to the USDA. Publications and programs on entrepreneurship are also available through county extension offices nationwide.
U.S. Department of Commerce (DOC)
Office of Business Liaison
14th Street and Constitution Avenue, NW
Room 5898C
Washington, DC 20230
DOC's Business Assistance Center provides listings of business opportunities available in the federal government. This service also will refer businesses to different programs and services in the DOC and other federal agencies.
U.S. Department of Health and Human Services (HHS) - Public Health Service
Alcohol, Drug Abuse and Mental Health Administration
5600 Fishers Lane
Rockville, MD 20857
Drug Free Workplace Helpline: 1-800-843-4971. Provides information on Employee Assistance Programs.
National Institute for Drug Abuse Hotline: 1-800-662-4357. Provides information on preventing substance abuse in the workplace.
The National Clearinghouse for Alcohol and Drug Information:
1-800-729-6686 toll-free. Provides pamphlets and resource materials on substance abuse.
U.S. Department of Labor (DOL)
Employment Standards Administration
200 Constitution Avenue, NW
Washington, DC 20210
The DOL offers publications on compliance with labor laws.
U.S. Department of Treasury
Internal Revenue Service (IRS)
P.O. Box 25866
Richmond, VA 23260
1-800-424-3676
The IRS offers information on tax requirements for small businesses.
Environmental Protection Agency
Office of Small Business Ombudsman
U.S. Environmental Protection Agency (EPA)
Small Business Ombudsman (Mail Code 2131)
Room 3423
401 M Street, S.W.
Washington, D.C. 20460
1-800-368-5888 except in DC and VA
202-260-1211 in DC and VA
The EPA offers more than 100 publications designed to help small businesses understand how they can comply with EPA regulations.
U.S. Food and Drug Administration (FDA)
FDA Center for Food Safety and Applied Nutrition
200 C Street, SW
Washington, DC 20204
The FDA offers information on packaging and labeling requirements for food and food-related products.
For More Information
A librarian can help you locate the specific information you need in reference books. Most libraries have a variety of directories, indexes and encyclopedias that cover many business topics. They also have other resources, such as Trade association information. Ask the librarian to show you a directory of trade associations. Associations provide a valuable network of resources to their members through publications and services such as newsletters, conferences and seminars.
Books
Many guidebooks, textbooks and manuals on small business are published annually. To find the names of books not in your local library check Books In Prints, a directory of books currently available from publishers.
Magazine and newspaper articles
Business and professional magazines provide information that is more current than that found in books and textbooks. There are a number of indexes to help you find specific articles in periodicals.
In addition to books and magazines, many libraries offer free workshops, lend skill-building tapes and have catalogues and brochures describing continuing education opportunities.
