Financial Planning and Accounting for Startups

Characteristics of a Financial Plan

• It's a roadmap that can be used to guide a company into the future.
• Can be used to attract investors.
• Explains how a business will manage its records and why.
• Describes any legal agreements that influence the way records are kept.

Six Things an Effective Plan Contemplates

• Identifies the assets that need to be purchased.
• Describes the amount of money a business needs to start and operate.
• Describes the expenses the business will incur and explains how a business will cover its expenses.
• Describes how a business will document and report financial reports.
• Forecasts finances to project future profitability.
• Explains how the business will acquire money to grow or expand.

Startup Capital

Startup capital is the money used to pay for the various assets and expenses of a new venture or business.

Major Sources of Startup Capital

For entrepreneurs, personal resources are key: friends, family, and others. This can include savings, loans, and investments.

Types of Expenses for a New Business Venture

• Startup Expenses: Often require a large amount of cash.
• Operating Expenses: Include payroll, rent, utility bills, and bank fees.

Things a Financial Forecast Observes

• Business conditions in the future.
• Might show that a new business will not make money in the first year.
• It's best to be conservative when preparing financial forecasts.
• Keep estimates for income low and estimates for expenses high.

Benefits of Budgeting

• Helps business owners predict how much money the business will need.
• Helps to control spending.
• Helps secure its future.

Types of Budgets

• Startup Budget: Plans for your income and expenses from the time you start a business to an estimated time it will make a profit.
• Cash Budget: Plans for the actual money the business owner spends on a daily, weekly, or monthly basis.
• Operating Budget: Plans for the amount expected to be spent and earned over a given period, usually six months or a year.

What is Accounting?

Accounting is the systematic process of recording and reporting the financial position of a person or organization. It is often called the language of business.

What is an Accountant?

An accountant is a person that maintains and reviews business records.

What is an Audit?

An audit is a review of accounting records and procedures.

GAAP and Its Function

Generally Accepted Accounting Principles (GAAP) are a set of rules to prepare financial statements. The functions are to prepare reports and provide a way to communicate financial information to others.

Financial Reports

Financial reports provide summarized information about the financial status of a business.

Accounting Period

An accounting period is the period of time reflected by an accounting report.

Income Statement

An income statement is also known as a profit and loss statement.

Importance of Cash Flow

Cash flow is important because businesses can run out of cash even when they make a profit.

How Accounting Helps Businesses

Accounting helps a business keep track of the money that is received and spent.