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Transcript of Finanacning Assessment
This is where you put in your own money to start up the business.
This is when you ask family and/or friends to help you fund your start up by adding their own money into the business.
Who Uses the Financial Information?
Creditors - they use the information to determine the worthiness of the company.
Investors - they use the information to determine if they want to invest and how much they want to invest.
Customer - they may use the the information to determine if the company would be a stable supplier.
Owner - to see the status of their investment and determine what future actions they may need to take
Managers - they use the information to analyze how the business is doing and what actions they can take to improve the company.
Employees - they use the information to determine the profitability of the company to decide if they want to continue working there
Types of Financial statements and their purpose
Easiest and quickest way to get money
Don’t have to add a partner or another person to your business
Only have to worry about your own opinions for the business
All profits go to the owner
If you choice to end the business you don’t have to talk with someone else about it first
Your personal resources may be limited
The limited resources may not allow you to grow the business as much as it could
You own all the risk. If the business fails you lose everything you invested
You may not have all the knowledge needed to run a business on your own
These people know you and trust you. They may be more willing to invest in your business than other investors because of this
They may be more willing to put up more money because they want you to succeed
They could offer you a lower interest rate
They may feel like they can’t say “No” when you ask and this may cause hard feelings in your relationship
If the business fails and you cannot pay them back, this could hurt your relationship
This is taking a loan from the bank
You keep full ownership of the business
There may be some extra tax deductions you can use
Lower interest rates
Multiple loan options
Convenient and accessible
You have to pay back the debit as scheduled even if sales are down
You could have higher interest rates
Effects your credit rating
Cash flow difficulties
Lengthy application process
Risk of losing collateral
The Income Statement presents the revenues, expenses, and profits/losses during a reporting period. Investors and creditors use this to see if the company if profitable. The internal people would use this to see the financial status of the company and make decisions based on that.
The balance sheet shows the company's assets, liabilities, and equity for a specific point in time. Some decisions that the company can make by looking at the balance sheet is if they need to make budget cuts, or if you need to make liquidation decisions. External uses would be for bank deciding how much line of credit to give or people making decisions about wanting to invest. The balance sheet also helps with figuring out some ratio like debt-to-equity ratio and the acid-test ration.
Statement of Cash Flows
This shows cash inflows and outflows of cash during a reporting period. It shows were the company has money coming in and where the company is sending out money. The Statement of Cash Flows help predict future cash flows, evaluate management decision, predict the ability of the company to pay off it debts.
Statement of Retained Earnings
This changes in equity during a reporting period. By looking at the Statement of Retain Earnings you can evaluate dividend payment practices. You can see what is done with any profit that was made. Lenders can look at dividends paid because this can increase the risk of them not being able to repay a loan.
Budgets are important for business because it can show you itemized summary of likely income and expense. It can help you figure out how you could better allocate you money within the business. It can could also help you pin-point issues by showing if you overspend in some areas.
This budgets is for identifying projected sales and production goals and other cost the company with incur while reaching the goals. To create this budget you need to 1) Calculate fixed expenses 2) Estimate expenses that vary depending on external factors 3) Add line for unexpected issues that may arise 4) Calculate projected sales. This will give you a operating Budget.
Cash Flow Budget
This is used to project how and when cash comes in and flows out during a specific time period. To create this you need to 1) prepare a sale forecast 2)project your cash inflows 3) project your cash outflows.
The master budget is to present a complete picture of how money used and received for the company. You would gather all of your budgets an present them to get this.
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Kelly, Marce, and Chuck 7001 Williams. BUSN: Introduction to Business. Print.