intro to business finance

What is business finance

The management of a businesses financial resources to achieve its goals. Involves the processes, strategies and tools used to make financial decisions, manage resources, and secure funding

Financial plan

Documents a businesses’ short and long term financial goals and includes a strategy to achieve them

They are comprehensive and highly customizable

They provide guidance overtime and serve as a way to track progress towards goals

Why is a financial plan important

• Forecast the businesses future finances

• Budget for expenses (startup costs)

• Get financing from lenders or investors

• Grow your business

What does the financial plan include

• Business expenses

• Financial projections

• Financial statements

• Break-even point

• Funding requests

• Exit strategies

Examples of revenue models

One time unit sales, usage fees, subscription fees, renting/leasing, advertisement/sponsorship, franchise fees, licensing fees, brokerage fees, consultation fees

Revenue vs Expenses

R = money coming into your business

E = money going out to support your business or earn revenue

Expenses examples

Direct costs, marketing & promotion, administrative, premises, debt and financing, wages

Fixed vs Variable expenses

Fixed: Remain the same regardless of how much is being produced (sometimes called overhead) and are time sensitive and due at set intervals (rent, insurance, salaries)

Variable costs: Change as the volume changes (raw materials, labour, commission)

Startup costs

Pre-opening costs: include a business plan, research expenses, borrowing costs, and expenses for technology

Post-opening costs: includes advertising, promotion and employee expenses

Why itemizing startup costs are important

Helps determine how much money you need to start your business. You will want to be sure you have accounted for all the items you will need to get your business up and running

Profit

Also known as net income, calculated by subtracting revenue from expenses (P = R - E)