Chapter 10- Financial Plan

A set of flashcards summarizing key financial concepts from the lecture on the financial plan and pro forma statements.

Balance Sheet

A financial statement that shows a company’s financial position at a specific point in time, representing assets, liabilities, and equity.

Income Statement

A financial statement that shows a company’s performance over a period of time, calculated as Revenue minus Expenses to determine Net Income.

Cash Flow Statement

A financial statement that shows how cash moves in and out of a business, categorized into Operating, Investing, and Financing activities.

Pro Forma Income Statement

Projected net profit calculated

from projected revenue minus projected costs and

expenses.

Pro Forma Balance Sheet

A summary of projected assets, liabilities, and net worth of a venture at a specific moment in time.

Operating Budget

An estimate of the expected volume of sales and associated operating costs.

Sales Budget

A projection detailing the expected sales volume by month.

Assets

resources that can be turned into cash within one year.

THE FINANCIAL PLAN

It provides the entrepreneur with a complete picture

of:

- The amount funds and when they are coming

into the organization.

- Where funds are going and how much cash is

available.

- The projected financial position of the firm.

The plan explains how the entrepreneur intends to

meet financial obligations and maintain the venture’s

liquidity.

Sales budget

An estimate of the expected volume

of sales by month.

Operating costs

includes fixed expenses incurred

regardless of sales volume.

PRO FORMA CASH FLOW

Projected cash available calculated from projected

cash accumulations minus projected cash

disbursements.

It is not the same as profit.

Sales may not be regarded as cash.

Use of profit as a measure of success may be

deceiving if there is significant negative cash

flow.

PRO FORMA BALANCE SHEET

Summarizes the projected assets, liabilities, and net

worth of the new venture.

It is a picture of the business at a certain

moment in time and does not cover a period of

time.

Consists of assets, liabilities, and owner’s

equity

What are the basic differences between a balance sheet, income statement, and cash flow statement?

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Balance Sheet (Snapshot 📸):

• Shows what a business owns (assets) and owes (liabilities)

• Includes owner’s equity

• Represents a single point in time

Income Statement (Performance 🎬):

• Shows revenue – expenses = profit or loss

• Measures performance over a period of time

Cash Flow Statement (Cash Reality 💵):

• Tracks actual cash coming in and going out

• Shows if the business has enough cash to operate

Key Difference:

• Balance Sheet = Financial position (now)

• Income Statement = Profitability (over time)

• Cash Flow = Actual cash movement (over time)

Summary:
Each statement shows a different part of financial health—what you have, what you earn, and what cash you actually have available.

Debt vs equity capital

equity personal funds) and outside investors/ debt is loans