Hello, and welcome to Module 10 of this training course. This is where we're going to be discussing the financial plan and the financial plan is a key component of your overall business plan. This is a very important module, but it's fairly long. So we're going to be splitted into three key components. This is where we're going to be discussing the profit and loss statement or the income statement is sometimes called the balance sheet and the cash flow statement, we're going to be covering a whole lot of detail here. And some of this may be out of your comfort zone.

So if there's any part of this module that that you get confused about or don't understand, please feel free to watch the module again, or get in contact to ask any specific questions you have about the subject matter. We've touched on the financial aspects of the business plan throughout the proceeding, modules and sections but he is really where the rubber meets the road. This is where we bring it all together in the form of a profit and loss statement, or income statement, as we've said before, a balance sheet and a cash flow statement. These statements will be driven by the research that you've done as part of your your business plan, and experienced based assumptions that have been made. And these will add a snapshot give the reader of the business plan understanding of the anticipated financial view of the business. This module is not meant to be a lesson in finance, or accounting, but should contain enough detail to enable you to put together a basic set of financial statements or assumptions for the purpose of supporting a business plan.

Accounting for the actual numbers in the business does get a little more complicated. And for more guidance on this, please see the section on professional advisors that we talked about previously. Each statement will provide a monthly view for at least the first year or should provide a monthly view for at least the first year and then in Annual year or an annual review for years two, three and four of your business. Let's take a look at these statements in a little more detail. Firstly, the profit loss statement. So parts of this have already been covered primarily in the section that discusses profitability.

And in this section we're going to bring together the total view of revenue costs and profitability. The profit and loss statement basically explains how much money you've made, what your expenses have been, and how much money is left afterwards. The profit and loss statement is split into a number of key sections. Firstly, we're going to look at revenue. And while it's acceptable to lump all of your anticipated revenue into a single figure, it's often good practice to break this down into a number of lines. It's not expected that this be our product or skill level.

But you can usually do this at a slightly higher grouping for instance, the revenue section might contain a lot of revenue from product sales, and another line revenue from services or from consulting. Income such as interest earned should not be included in the section. And this should be detailed on its own a little bit later. Don't worry about the some of the detail because I will be showing examples of profit and loss statement later on in this module. Next comes cost of sales. This is where you calculate the end cost.

Sorry, the the anticipated costs directly attributable to the products that you plan on selling. Again, this is what we've covered off in the previous section, the economics of the business. And this is important as unsold inventory is accounted for elsewhere. And including unsold inventory here would distort the anticipated profitability figures. So be really careful. Make sure that you only account for the stuff in the section that you actually sell stuff that you don't sell.

We'll get dealt with a little bit later and we will cover that. The cost of sales figure is generally the amount that you Pay your supplier for the goods, or the cost of the raw materials and direct labor to produce these goods, the cost incurred to get the goods to the place of sale should also be included. So, you know, any kind of shipping costs to your warehouse should also be included at this point. The cost of shipping goods to the customer is not part of the cost of sales. Sometimes this is accounted for separately or it's covered by the customer themselves. Next gross margin or profit.

And this is simply the difference between the revenue and the cost of sales. And for the purposes of a profit and loss statement. This should be expressed as an absolute amount. The percentage calculation as we explained earlier in this training can also be included below the absolute amount. And again, you'll see this in the example a little bit later operating expenses. The operating expenses section should not detail all the planned costs to be incurred in the operation of your business.

So examples of these costs are things like advertising, bad debt rated, returns. off, all planned to be written off because this will happen. bank charges depreciation costs of items such as computer equipment and furniture and things like insurance, meals and entertainment office expenses, office supplies, salaries and wages, professional fees rent, telephone expenses, training and development expenses, travel costs utilities, vehicles, and computer and internet costs. All these costs should be added up to specify your total anticipated operating expense. Please note that the operating expenses do directly influence the amount of profit and hence the corporation tax paid on the profit. So due to different tax authorities, expenses are dealt with in different ways.

So things like entertainment and interest and interest expenses are accounted for differently in different tax jurisdictions or countries. So it's best to check with your local tax authority or accountants to best understand how you actually account for these sorts of things. Let's take a look at their profit next. And this is net profit before tax. calculating your net profit is now quite straightforward. And this is done by simply subtracting your operating expenses from the previous point from your gross profit or gross margin.

Next comes tax would be silly not to talk about this. And as with anything, success comes with a price in this case income tax. The company tax is payable on company profits, and it's important that you plan for this. The flip side of this is also true. If there are no profits anticipated, then company tax is obviously not payable. And in some instances, a loss amount can be carried forward to the next year and netted off against any profit declared for that year before taxes payable.

Again, as we've said company tax laws do vary widely by country and in some instances by state And I recommend that you perform the necessary research or employ the services of a tech specialist when you get to this topic. Next is net profit and this comes off to Tech's, or the portion of net profit after tax anyway. So once your company tax amounts being calculated, this amount can then be subtracted from your net profit to provide your net tax, sorry, your net profit after tax. And this is generally the amount that can be distributed to shareholders of the company. You might also want to plan on retaining some of this money or in fact, you might want to retain all of it to help you fund and grow the company in the coming year or the coming years. Depending on your local tax authority, secondary tax might be payable, and this is payable on dividends that you make to shareholders.

Sometimes the company is responsible for paying this to the tax authorities. And sometimes a shareholder is responsible for paying this again, please check with your local tax authority. To check with the taxation specialist, right let's take a look at our profit and loss statement example. so here we can see, this is for the year ending the 31st of March 2016. And you can see, we've broken revenue down into number of lines. In the example that we used earlier on in the training, where we started looking at the economics of the business, we simply lump this into one one turtle.

And here you can see we looking at the example of a virtual offices or an office rental company, where they have a number of a number of lines of revenue. So for instance, they make revenue from short term leases. They make money from prepaid services and they make money from ad hoc services. This gives them in this example, total revenue of 425,000 pounds or dollars, whichever you prefer. Next, there is a cost that is directly associated with the generation of this revenue this year. Example it's 160,000 pounds and 800.

Subtracting this from the 425,000 give us a gross margin of 264,200. Looking at a gross margin calculation, again, we can express this as a percentage. Next, we need to start looking at the operating expenses. And this is what we used in the example. Things like advertising, bad debt, bank charges, depreciation of computer equipment, depreciation of office furniture, insurance, meals and entertainment, office expenses, office supplies and the list goes on. You can see all of these operating expenses come up to 131,000 pounds.

And in order to then calculate your net profit before tax, you take the 264,000 subtract the hundred and 31,000 and this gives you a net profit of 133,000. Now I've done a sample calculation on text in this exam. The tax payable is 46,000 pounds. And this leaves us with a net income after tax of 86,000 pounds. 504 expensing this as a percentage, we can look at the net profit before tax which is 31.31% or the net profit after tax which is 20.35. Now typically this amount is the month that you would distribute to your shareholders or you would retain going into the year in advance to help grow your business.

So, the profit and loss statement is fairly simple. Again, it builds on the basics that we've talked about in the economics of the business training section. And here we've expressed it in a little more detail.