[MUSIC] Okay, so we've looked at a couple of different elements. Let's have a look at the general business cycle, and have a look and see what goes on. Well, the whole purpose of a business plan, what it is that you're creating here, is to obtain finance. And that finance can come in your own finance if you wish, that you're putting in, but also the finance that comes from either a bank loan or maybe from an external investor. What is it you then plan to do with that finance? Well, of course, what most organizations do is they spend it on what's called assets. And it's these assets, these things of value that the business owns, that it buys, that generate a revenue. When we talk about these assets, we're talking about long-term assets, what we call non-current assets, things like buildings, motor vans, vehicles, machinery, computers, all things that you're going to be using in the business for a long period of time that you will be utilizing and using to generate your revenue or your income or your sales. And that's the next stage of the cycle, the sales. These assets generate sales, but of course, there are other costs that are involved as well. Those other costs we call operating expenses. And these are the day to day running costs, the electricity, the telephone, the rent, the rates, depreciation, something that I'll come onto a little bit later on. If you take your sales revenue and you deduct on of your operating costs, then you're left with what's called operating profit. Now, we're going to look at three different profit figures, the first of which is the operating profit. So rather to be simple, this is the sales that you made, and these are the expenses incurred during this particular period in time in making those sales. But when we're presenting these financial statements, really, what we're doing is we're providing information for people to look at. And now, some key things that we need to make stand out from all the rest of the information. One of those key things relates to bank loans that you may have taken onboard, and that, of course, is the interest payment. Interest will be deducted from your operating profit. What comes after your interest is what we call profit before tax. Okay, and then you can think it's quite logical. I think you can probably guess what's coming next, which is your taxation, the amount of tax that you're paying on your profit before tax or profit after interest, depending, of course, how you want to think about that. Once you have deducted your tax payment, anything that's then left over belongs to the owners of the business. In other words, it's the owners' earnings, profit after tax. Now, the owners will also want to see a return. For a sole trader, we've already looked at the return that they would get, the money that they take out of the business on a monthly basis, and we call those drawings. But when we look at a limited company, and I've already mentioned there's no such thing as drawings, the equivalent for a limited company is what we call a dividend. And it's these dividends that will be taken from the profit of the tax and given back to the owners. Now, there's no obligation for any limited company to pay a dividend. What's the benefit then of buying shares in a company if you're never going to receive a dividend? Well, what it means they're doing is they're retaining and keeping all of the profit in the business and reinvesting it into the business, in other words, reinvesting it in some new assets. It becomes part of the finance package. And the hope, therefore, is if they do reinvest all of the profits, it generates a higher profit in the future. So owners are sometimes willing to forego a dividend. Hoping that they'll actually make more money in the future via increased profits, increased growth. And, therefore, one way of actually receiving any money would then be to sell a share, which, of course, is increased in price due to this increase in growth and increase in earnings. Once again, of course, your organization can pay its entire profit for the year back as a dividend. But what that's really saying here is the management don't really have any ideas about where to reinvest for the future. So, all we'll do is we'll give you back all of this year's profits in the form of a dividend. The most common, however, and for most limited companies, is that part of the profit will be paid back in a dividend, and part will be reinvested into the organization. This business cycle sort of is what permeates throughout the three statements that you will need to do and need to produce for your business plan. The cash flow statement, we've already sort of looked at that. We've looked at it in terms of a cash budget, a cash forecast on a monthly basis. I think it's also a worthwhile having a look at that for the entire period. And, of course, what we're talking about here is the first year. The second one is the income statement. It's the income statement is not so much concerned with cash, but more concerned about calculating profit. And the final statement that we'll be looking at, and you will be producing for your business plan, is the balance sheet. And the balance sheet lists all the assets, all the things that the business owns that have a value. And it also lists all of the things that the business owes, its liabilities, and how those assets and liabilities are funded through what we call equity or capital [MUSIC]
