Introduction to Business Finance

Finance 101

What causes most businesses to fail? Lack of money. Having a strong understanding of your finances is absolutely essential for running a business. So where do you start?

Calculating costs to start your business
Calculating costs to run your business
Calculating how much revenue you will need to make to break-even on expenses.
Create a budget as well as establish financial goals
Managing your finances: track revenue coming in and expenses going out.

Cashflow

Consistent cash flow is necessary for a company to keep its doors open. Being mindful of cash flow trends is necessary to know how much money a company needs to save during slower times. For example: a lawn and landscape company will have higher cash flow during the warmer months of the year. So it is important for them to plan for the winter months in order to pay their bills, make payroll, and any other expenses during that time.

Expenses

An expense is the cost of operations that a company incurs to generate revenue. This is cash or credit that is being put towards inventory, payroll, insurance, rent, utilities, etc.

Revenue

Gross revenue is the total amount of money (cash) that is being brought in from the sale of goods or services. Expenses are what a company spends money (cash or credit) towards to run its operations. Net revenue is the profit (money left over) after taking the total revenue number minus the money the company spent.

Cash vs. Credit

Cash and credit are two different ways to spend and receive money. Cash expenses are money spent on goods or services from physical cash or debit that is being pulled directly from your bank account. Cash revenue is physical money you receive from a customer for your goods or services.

Credit or expenses from a loan (debt) is money being borrowed and paid back at a later date. Interest is usually attached to credit or loans for the convenience of borrowing money. Interest is money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

Setting Financial Goals

When setting financial goals for your business, it is important to ask yourself: what goals are your business trying to accomplish? This will help guide you on how much money you need to make and how much money you need to spend to achieve these goals.

Step 1: Create SMART Goals around what you want to accomplish financially and within your company.
Step 2: Once you have your SMART Goals, create a budget around your goals.
Step 3: Track your progress through an income statement.

Budget Definition: “A budget is an estimation of revenue and expenses over a specified future period of time and is utilized by governments, businesses, and individuals.”

A company’s budget is their guide for how they want to spend their money over a period of time. Sometimes you may over or underestimate your budget. Following your budget instead of “winging it” will help you achieve your financial goals.

Needs vs. Wants

Establish what your business needs vs. a want. A “need” is something your business cannot run without. A “want” is something that your business can survive without at the time.

Make a plan to get your “wants”. If you have areas you want to grow and invest resources into, figure out a savings goal around how to eventually get there.

Ex: maybe you purchased a traditional Spirit Box, but down the road you want to purchase a beverage box. This will help increase your revenue; however, it is a “want” not a “need”. A need for your Spirit Box business is your inventory in order to bring in more revenue for your future purchase of a beverage box.

Spirit Box Connection

Current teams: visit the Spirit Box Team Resources to download the PowerPoint, lesson plan, and activities to help you get started creating a stronger financial plan for your Spirit Box.

Interested teams: Step 1 when beginning your financial plan for your Spirit Box, is calculating costs. Download the full lesson, PowerPoint, and activities completely free! These resources are here to help you figure out if Spirit Box is a good fit for your school.

The Business of Making Money