financial management for...

Financial Management for Entrepreneurs

Presented by:Haroon Bhatti MBA/MSF

Importance of Financial Management

• Most small businesses fail because of poor Financial Management

• You can always trust the numbers

• Make decisions based on objective data

• Assist with future planning• Assist with future planning

• Lowers overall business risk

• Enables you to sell your business in the future for a great price

• Helps you with managing expenses

• A key requirement for raising capital

Types of Financial Statements

Income Statement

• Simple & Straightforward report on a business’ ability to generate a profit.

• Components of an Income Statement

Income/RevenueIncome/RevenueIncome/RevenueIncome/Revenue

Cost of Goods SoldCost of Goods Sold

Gross Profit MarginGross Profit Margin

Operating ExpensesOperating Expenses

DepreciationDepreciation

Interest & TaxesInterest & Taxes

Net ProfitNet Profit

Balance Sheet

• Shows the financial position of a Business at given point

• It’s called a balance sheet because it has to balance

• Assets – Liabilities = Equity

Cashflow Statement

• Shows how much cash is generated and used during a given time period.

• The cashflow statement reflects the actual amount of money the company receives from its operations.

Main Components of a Cashflow Statement:• Main Components of a Cashflow Statement:

What do Financial Statements Tell you?

• Understand trends

• Compare Actual Performance to Expected Performance

• Help you manage and understand your business

• Financial Ratios:• Financial Ratios:

Gross Profit Margin

Operating Profit Margin

Net Profit Margin

Return on Assets (ROA)

Return on Investment

(ROI)Quick Ratio

How do financials relate to the value of your Business?

• Without Proper Financials, you cannot value a business properly.

• Buyers do not trust buying business with poor financial management.

• A business is valued by its ability to create cashflow.

• Most commonly a small business (Under $2MM) is valued by Multiplying • Most commonly a small business (Under $2MM) is valued by Multiplying its Seller’s Discretionary Cashflow (SDE) by a Multiple.

• Lower & Middle cap businesses ($2MM - $50MM) are valued based on their EBITDA.

Current Multiples for Business Valuation

Thank you for your time!

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