COMPUTE PROFITS AND PROJECTED FINANCIAL STATEMENTS

Whether a business is a start-up or already established, business implementation becomes

the responsibility of all the employees. Implementation is the process of executing a plan or
policy so that a concept becomes a reality. To implement a plan properly, managers should
communicate clear goals and expectations, and supply employees with the resources needed
to help the company achieve its goals.
Welcome to computing PROFIT.
The simplest formula is: total revenue – total expenses = profit.
Profit is calculated by deducting direct costs, such as materials and labor and indirect costs
(also known as overheads) from sales. Under normal accounting rules, sales and expenses are
included in profit when they occur, not when they are actually paid so profit will include
credit sales and purchases even when they are yet to be paid.
Source: https://informi.co.uk/finance/how-do-i-calculate-profit. Why is profit important? It
is important for a business to understand how much profit they’ve made to give it an idea as
to whether the business is successful. With so much money going in and out of a business, it
is not always easy to see whether what a small business owner is doing is actually making
money. By calculating profit, it helps give some clarity. If a business is making a profit it
can: • expand and grow • attract more investment • employ more staff. It is worth
mentioning that profit is different to cash. Some things will affect the cash flow of the
business, but won’t affect profit e.g. money taken out of the business for personal use.
Likewise, some items will affect profit but will not affect cash such as provisions e.g. where a
business makes an adjustment for a customer not paying.
https://informi.co.uk/finance/how-do-i-calculate-profit.
What Is Gross Profit?
Gross profit is the revenue a business brings in after covering the expenses required to make
a sale. Simply put, gross profit is a business’s total sales, less the cost of goods sold. Source:
http://www.businessdictionary.com What Is the Gross Profit Formula? The equation for
calculating gross profit is simple:
Sales – Cost of Goods Sold = Gross Profit
To fully understand gross profit, however, you have to understand the difference between
variable and fixed expenses.

Fixed Expenses
• Fixed costs don’t change based on production. Examples of fixed costs include:
• Rent
• Insurance
• Salaries of employees
• Payroll taxes and employee benefits
• Property taxes

Variable Expenses On the other hand, variable expenses are costs that can change based on
how much you’re producing. Examples of variable costs include:
. Materials used
. Shipping costs
. Direct labor
. Credit card fees
. Sales staff commissions

Both fixed costs and variable costs can have a large impact on gross profit. The more you can
keep your fixed costs down and lower your variable costs, the greater gross profit you can
expect. Cost of Goods Sold The cost of goods sold is the price of all inventory sold which
includes both fixed and variable costs. http://www.businessdictionary.com
As is often the case, however, quite a bit of data can get buried in the “cost of goods sold.”
This can include merchandise purchased for resale, raw materials, labor costs, and
sometimes merchant account fees. Business accountants and bookkeepers can debate for
days about what expenses actually belong in the cost of goods sold. You can help them out by
making sure your accountant or bookkeeper has a good understanding of your business
operations—you want them to set up your chart of accounts with the appropriate costs
posted to the cost of goods sold.
How to Calculate Gross Profit Example Let’s pretend you own a stand on the beach, and you
sell snorkel sets. The only cost associated directly with making a sale is the amount you paid
to purchase the snorkel sets you are selling to folks who come to the beach unprepared
If you price your snorkel sets at 200.00 each and you sell 10 sets before you hit the waves at
noon, you will have made P2000 in sales.
200.00 per snorkel set x 10 snorkel sets sold = P2000 in sales But you have to pay for the
snorkel sets you sold.
Chances are you paid in full before your supplier shipped them to you, but you need to
replenish your stock—otherwise, you won’t have anything to sell and your beach stand will
go out of business. Let’s pretend you purchased your snorkel sets for 85 each.
The cost of the 10 snorkel sets you sold, then, is 850.
85.00 cost per snorkel set x 10 snorkel sets purchased for resale = 850.00 in cost of goods
This means your gross profit is P1150: P2000 in snorkel set sales – 850.00 paid to snorkel set
supplier = P1150 gross profit
This Php 1150, in turn, gets used to maintain your beach stand, advertise at the tiki hut
down the shore, etc. Gross profit, then, is the money you have available to run your business
after paying for the goods or services that let you make the sales in the first place.
https://www.wikihow.com/Calculate-Profit

How to Calculate Gross Profit Margin

The gross profit formula can also be used to calculate your gross profit margin. The gross
profit margin is a good way to measure your business’s production efficiency over time.
Whereas gross profit is a peso amount, the gross profit margin is a percentage.
The gross profit margin formula is: Gross profit margin = Gross profit (Revenue – Cost of
goods sold) / Revenue Because gross profit can rise while gross profit margins can fall, it can
be misleading to simply calculate just gross profit without considering the gross profit
margin. Source: https://www.fundera.com/blog/how-to-find-gross-profit Analyze the
Liquidity Status of the Business Liquidity Ratios Current ratio = Current assets / Current
liabilities Quick ratio = (Current assets – Inventories) / Current liabilities = (Cash and
equivalents + Marketable securities + Accounts receivable) / Current liabilities

The quick ratio measures its short-term obligations with its most liquid assets and therefore
excludes inventories from its current assets.
Financial statements are important in a company management as a means of communicating
past successes as well as future expectations. The financial statement records all the
operating results such as sales, expenses and profits or losses.
Return of Investment (ROI)
The Return of investment (ROI) measures the amount of net income per peso invested to the
business.
https://www.businessdictionary.com
The formula to compute ROI is as follows. Return on investments = Net income Average total
assets
The average total assets are by dividing the sum of the total assets at the beginning and end
of the period.
Balance Sheet includes spending and income that isn’t in the Profit and Loss. For example,
the money you spend to repay a loan or buy new assets doesn’t show up in the Profit and
Loss. And the money you take in as a new loan or a new investment doesn’t show up in the
Profit and Loss either. The money you are waiting to receive from customers’ outstanding
invoices shows up in the Balance Sheet, not the Profit and Loss. The Balance Sheet shows
many reasons why profits are not cash, and why cash flow isn’t intuitive. It’s all related to
the essential principles of cash flow.

The Balance Sheet shows your financial picture – assets, liabilities, and capital – at some
specific moment. It helps to understand that the Profit and Loss shows financial performance
over a length of time, like a month, quarter, or year. The Balance, in contrast, is a moment.
Usually it’s the end of the month, quarter, or year. Sometimes it’s the end of the business
day.
Balancing is a common term associated with bookkeeping, accounting, and finance. We
“balance the books.” It’s a lot like reconciling a checkbook: if it isn’t right down to the last
penny, then it’s wrong. Assets have to equal liabilities plus capital. Always.
A traditional Balance Sheet statement shows assets on the left side and liabilities and capital
on the right side or the bottom, as in this illustration
The balance sheet involves the other three of the six key financial terms (the ones that aren’t
on the Profit and Loss: Assets, Liabilities, and Capital).
▪ Assets. Cash, accounts receivable, inventory, land, buildings, vehicles, furniture, and other
things the company owns. Assets can usually be sold to somebody else. One definition is
“anything with monetary value that a business owns.”
▪ Liabilities. Debts, notes payable, accounts payable, amounts of money owed to be paid back.
▪ Capital (also called equity). Ownership, stock, investment, retained earnings. Actually
there’s an iron-clad and never-broken rule of accounting: Assets = Liabilities + Capital. That
means you can subtract liabilities from assets to calculate capital.

As a future entrepreneur, one should always remember that nothing is permanent in the field
of entrepreneurship. What is applicable to one entrepreneur may not be applicable to
another. Certain things may happen to one entrepreneur but may not happen to another.
Entrepreneurship should be practiced not as a science but as an art. Creativity should always
be applied to entrepreneur by regularly evaluating the market and the environment and
responding to the changes in them.
The owner of an ordinary small business has the freedom to manage and operate. Ideally,
he/she prefers business activities which are done easily. However, the entrepreneur has to
perform the entrepreneurial activities correctly regardless of whether they are undertaken
easily or not. The important in entrepreneurship is that the business activities are performed
correctly.
http://www.smarta.com/advice/business-planning/businessplans/how-to-makerevenue-
forecasts/ Katie Jensen, “Factors Considered in Financial Forecasting.” Chron. Hearst
Newspapers. Acessed December 10, 2018.
 Business Implementation
Whether a business is a start-up or already established, business implementation becomes
the responsibility of all the employees. Implementation is the process of executing a plan or
policy so that a concept becomes a reality. To implement a plan properly, managers should
communicate clear goals and expectations, and supply employees with the resources needed
to help the company achieve its goals.

How to implement a business plan

Writing a business plan is actually quite a daunting prospect. Most start-ups do not know
where they will be in one month’s time, let alone five years. Many business plans are
unrealistic, as people dream of setting up the next “unicorn”
The concept of having a solid business that simply makes money and is sustainable seems to
be lost. However, even the most realistic well-thoughtout business plan is just a stack of
paper if it isn’t implemented. So how do you implement a business plan?
www.arabianbusiness.com
Your business plan has to be realistic
First and foremost you have to go back to the beginning. Is your business plan realistic and
does it have clear goals, objectives and aims that suit your aspirations? Do not get sucked
into following the mass opinion of what your plan should be like. Although the list below is
not exhaustive, your business plan should contain a clear outline of the following:
• Business proposition – What is your product/service? Who are your clients? Who is your
competition? How are you going to sell your product or service?
• Management team – Who is your management team – directors, key personnel and any
strategic partners and alliances you may have?
• Marketing – How are you going to promote (marketing, including market research, and
pricing) your product or service?
• Staff – Who do you need to employ and what is your organizational structure?
• Operations – More information about your office premises, and infrastructure needed, such
as IT, website, telecoms, and similar.
• Infrastructure – What is your trading entity, insurance needed, lawyers and accountants
you will be using?
• Finances – More information about your profit and loss forecasts, cash flow, finance needed,
and investment opportunities.
Source: www.arabianbusiness.com

Set out your objectives Once you have your business plan you should set out your objectives,
for example, in the recruitment industry, some of your objectives could include the
following:
• Secure your first deal within two months of trading.
• Make one business deal every month from there on for the first year.

Set tasks to reach your objectives Once you have set out your objectives, consider what tasks
need to be completed so you can achieve these. Assign a person who is responsible for each
step so that roles are clearly defined and there is accountability in completing the tasks.
Avoid micromanaging people with detailed explanations of how to complete each task.
Some generic examples of this could be:
• Setting up an established company – You
• Finding an office – Office manager
• Setting up internet, phones and computers – Office manager
• Marketing collateral - Marketing manager
• Recruitment – HR manager Securing new clients and business - Business development
manager
• Opening company bank account – You
• Social media management – Marketing manager

Time allocation
Each task should be paired with an appropriate time frame for completion. You should be
aggressive, but reasonable with your time allocation in order to ensure, not just completion
but competent work as well. For assistance in framing this timescale, create your own Gantt
chart – a helpful tool that shows how long it will take to complete different tasks and in what
order the tasks should be finished.

Progress and review

You or a member of your management team needs to be in charge of monitoring each task’s
progress and the completion percentage of each objective. When delays occur, try to get to
the root of the problem. Did the person responsible drop the ball? Did he or she have too
many responsibilities to handle? Did a third party, such as a supplier or the bank, fail to hold
up its end of a deal?

While the above steps may seem like overkill, the early days of a start-up are critically
important – it’s a time when good management patterns are set and also probably a lean era
when revenue has yet to start rolling in. The more efficiently you start implementing your
business plan, the more likely it is that you will survive this early period.
Keep a tab on your finances
Keep reviewing your finances. Are you hitting your targets? If not, why not? Implement
changes to tackle this. Have a regular review with your accountant to manage income, costs
and any tax liabilities. It is so important to keep disciplined, focused and motivated by cash
flow, even more so in the early stages of your business.

Join a trade association or networking group

Business plans are always dynamic. Make sure you join a networking group so you can keep
up to date with on the ground market knowledge, connections, and legal and financial
updates. You may need to react and change accordingly. Don’t get totally blinkered into your
business plan, you always have to see what is going on around you

Liam Mooney, Founder of Blue Pencil and Club Fit For Business.
https://www.arabianbusiness.com/how-implement-business-plan 625819.html

Guidelines for successful business plan implementation:

1. Objectives- the entrepreneur should have a clear idea on what is his purpose of putting up
his enterprise.
2. Tasks- this means that the entrepreneur must know what the tasks are he has to perform
in order that his objectives will be realized.
3. Time allocation- This means that the entrepreneur should have a timetable or a schedule
to follow every task, so that it will be accomplish on time and realize his objective.
4. Progress- This means that the entrepreneur should monitor the development of the tasks
and the accomplishment of the objective.

In Operating a business, the entrepreneur should first consult professional for advices, like
accountants or consultants from small enterprises. In your case, you can consult your
teacher in entrepreneurship or anyone you think that could help you.

The following are the basic requirements to start a business in the Philippines:
Securities and Exchange Commission (SEC) Registration - for partnership or Corporation.
https://www.sec.gov.ph Department of Trade and Industry (DTI) Registration - for your
business trade name.Department of Trade and Industry Philippines www1.dti.gov.ph
Mayor’s Business Permit - for getting the license to operate in the city or municipality and
payment of your local business taxes.
Bureau of Internal Revenue (BIR) Registration - for getting TIN, official receipts and invoices,
registering your books of accounts and paying your national Internal revenue taxes. Bureau
of Internal Revenue | Official Gazette of the Republic ...www.officialgazette.gov.ph

SSS, PhilHealth, and Pag-Ibig Fund registration - for registering yourself or company as an
employer and for remitting your employees’ contribution together with your employer’s
share.

Other steps to follow before operating a Business are as follows:

1. Set up an accounting system or hire an accountant. Knowing how the business is doing
financially is important for planning and survival.
2. Advertise the business. No one will buy the products or services if customers do not know
that the company exists. You can make use of the social media.
3. Secure insurance for the business. Liability insurance protects the business in the event of
litigation. Consider life and disability insurance, health insurance and fire insurance when
you are leasing an office or storefront.

Keeping Business Records

Good record keeping can help protect the business, measure the performance and maximize
profit.

Records are the source documents, both physical and electronic, that specify transaction
dates and amounts, legal agreements and private customer and business details.

Developing system to log, store and dispose of records can benefit the business.
A systematic recording allows you to;
A. Plan and work more efficiently
B. Meet legal and tax requirements
C. Measure profit and performance
D. Protect your rights, and
E. Manage potential risks
https://smallbusiness.chron.com/importance-business-implementation34571.html
Proper business record keeping provides the business a real advantage over the competition
in different ways.
1. It helps you to manage your accounts, interests, taxes and working costs effectively.
2. Tells about cash in hand
3. Act as resource for new strategies.
4. Helps in finding solutions for business issues.
5. Tells about the customer service and employee efficiency.
6. Helps in monitoring company growth rate and profit.
7. How your business performs against your competitors.
8. Tells about hidden and unexpected costs.
9. And most of all it is the most resourceful adviser whenever your business is in serious
trouble