Statements Flashcards
The Application Of Funds Worksheet
Two important questions most investors will ask you about your business start-up are: “How much money does your business need and what will it be used for?” The following section will help you answers these questions and provide information you’ll need to prepare your opening balance sheet.
The Application Of Funds Worksheet will have all the support information required to prepare the assets (what the business owns) section of your opening balance sheet.
The Application Of Funds Worksheet
Your start-up business will need funding for four broad categories
- General start-up costs
- Leasehold improvements
- Equipment
- Cash reserve
Cash Reserve Fund
It is your total cash on hand immediately before the business opens.
There is no set formula for estimating the amount of cash reserve that you will require for your business
Equipment
Those things which are used to produce your product or service and to create revenue are classified as equipment. Unlike inventory or office supplies, usually equipment lasts for more than one year.
tables, chairs, desk, file cabinets, work benches, storage cabinets, computer, copier, fax machine, auto, etc.
Leasehold Improvements
those renovations and other changes you do to the physical structure to satisfy the needs of the business
carpeting, mirrors, light fixtures, electrical, plumbing, signage, washrooms, air conditioning, wallpaper and painting etc.
General Start Up Costs
“once only” expenses that you will incur before opening your doors excluding leasehold improvements and equipment
these start-up costs into four categories consisting of:
Organizational Costs
Prepaid Expenses
Inventory
Office Expenses
Source of Funds
will tell you how much you the owner (equity) and others (debt or liabilities) will contribute to the business.
Source of Funds Steps
Determine equity investment
Calculate how much you must borrow or loan
Determine equity investment
The main point here is that equity is not necessarily a cash injection. It is anything of value that the owner invests into the business including patents and copyrights; franchise agreements; marketing rights for a specific territory or hard assets such as computers, furniture or inventory.
Calculate how much you must borrow or loan
The most common or primary types of loans or debt instruments issued by banks and other financial institutions to small businesses are: 1. shareholders loans; 2. Canada Small Business Financing (CSBF) Loans; 3. operating loans; 4. term loans; and 5. government programs.
Opening Balance Sheet
A balance sheet is a snapshot of what your business owns and what your business owes at a point in time. In the case of an opening balance sheet, the point in time is immediately before you open your doors.
Projected Cash Flow
A projected or pro forma cash flow is a financial statement , which helps you control the money that comes into your business and the money, which is spent. You don’t want to run out of cash, so the cash flow statement is a tool to help you control this money flow. Normally, you should do a monthly cash flow for at least the first year and then quarterly cash flows for the next two years.
The five major steps to creating a monthly projected cash flow are:
- Calculate your opening balance (Opening Balance Column)
- Project your monthly sales (Line 1)
- Forecast your monthly receipts (Lines 5 – 12)
- Forecast your disbursements (Lines 15 - 33)
- Summarize your cash flow (Lines 35 – 39)
Projected Income Statement
A pro forma (or projected) income statement is an itemized statement of sales (or revenues) and corresponding expenses. Like the cash flow, it provides another indicator of the financial health of your business. The major difference is that the income statement is not about cash
The major elements or categories of an income statement are:
- Sales
- Cost of good sold
- Gross profit
- Operating expenses
- Other expenses
- Total expenses
- Net profit (before taxes)
