How does a small business owner like Anthony Cruz go about creating financial statements for their small business?

The creation of pro-formal financial statements that hold up to the scrutiny of lenders looking to lend business loans, or potential partners looking to invest in the business, is one of the most important elements of successful business plans. We recommend than before small business owners like Anthony Cruz embark on writing their business plan, they first spend some time laying out some very well planned pro-forma financial statements.

The first step in creating the financial statements if of course to use our financial statements template that gives a small business owner like Anthony Cruz the ability to very efficiently craft a full set of pro-forma financials that include annual profit and loss statement, monthly profit and loss statement, balance sheet and cash flow for three years.

You will find detailed instructions on how to fill out templates in the Template section - here we will be discussing the various inputs that you will have to plan and enter into the template to make the financials come to life. Let's start with the modules tab.

Modules - Company name:

The company name for any House Cleaning Service is of course the name of a business like Spotless Homes Inc. In the case of an existing business, you would simply enter in the name of the business. In the event the business is a new enterprise, and you have not yet come up with a name, we highly recommend that you take some time to think of a relevant name and also look into forming a legal entity for the business. To get a better sense of the options available to you, please read our incorporation guide.

Modules - First year of pro-forma financials:

Typically all business plans have to have financial projections for three years just as in the case of Spotless Homes Inc. where we have created financials for 2015, 2016 and 2017. Once the first year has been entered by you, our templates will automatically enter the other two subsequent years.

Modules - Sales forecast for Years 1, 2 and 3:

Sales forecasts are the begining number for all financial statements analysis and here is where a small business owner like Anthony Cruz is asked to enter the sales forecast for three years out. These sales forecasts come from the templates 5.7, 5.8 and 5.9, each of which allow you to plan for the monthly, quarterly and annual sales of your goods or service.

Modules - Personnel summary and compensation forecast:

The personnel summary and compensation section of the modules tab is where the management and staff compensation costs for a small business like Spotless Homes Inc. will be input. Business loan lenders and potential partners always look at this section carefully to see if the estimates for compensation are reasonable. If you show very little or no compensation for the staff, it will not make much sense, since no one is going to work for a small business like Spotless Homes Inc. if the compensation is not appropriate.

What a business owner like Anthony Cruz can do if they are trying to preserve cash and lower expenses in the first and second year of the business is to not take any compensation or take a very small token compensation as owners for the first and second year of the business plan and then by year three start taking out a normal compensation. - this shows the personal commitment that the small business owner like Anthony Cruz is ready to make to the business.

Staff compensation as mentioned earlier needs to be realistic. We recommend that before you go go about putting these numbers into the plan template, you go a fairly detailed estimate of the amount you will be paying your staff per hour, and then come up with an annual rate of that compensation for the total hours that all the staff is anticipated to work.

Modules - Capital structure summary:

The capital structure section is where a small business owner like Anthony Cruz of Spotless Homes Inc. is able to show the potential lenders and partners just how much money owners or partners will be bringing to the table. It should not come as a surprise to anybody that banks and partners like to see if small business owners like Anthony Cruz have some skin in the game. The more of contribution that business owners make to their businesses, the better it makes their commitment look. We have also not included any section for distributions since most lenders and potential partners do not like to distributions of capital 3 years being projected in the financials. If you have to work distributions into the business plan, we recommend that you adjust the contributions to show them to be net of distributions.

Modules - Loan & Interest Expense summary:

Business loans and financing is the mother's milk of capitalism - there are very few businesses that are able to get off the ground, and grow without having to borrow some money at some point in their business. We have always advised small business owners like Anthony Cruz that like most other things, loans and lines of credit if used judiciously can prove to be an extremely valuable source of funding for both temporary business needs and long time asset purchases.

There are two kinds of loans and lines that a House Cleaning Service will most probably be able to access. The first is of course the traditional line of credit which requires the payment of principal and interest every month and amortizes like a term loan over the course of between 4 to 7 years. On the other hand, a small business may also be able to access a line of credit where the payment requirements are interest only. In an interest only payment, the principal balance remains untouched unless specific payments are made to pay the principal down - instead the the bank requires only the payment of intrest that is calculated on a simple interest basis on the balance outstanding of the principal.

In the event a small business like Spotless Homes Inc. needs financing and is not able to access any kind of loans and lines, a small business owner like Anthony Cruz may decide to use either personal or corporate credit cards to come up with the financing. While credit cards can be useful for short term financing needs, they are not good to use for long term loans and financing. We recommend that a credit card be paid off just like a four or five year term loan and entered into our template in like manner.

Modules - Fixed Asset & Depreciation summary:

The fixed asset depreciation summary is where a small business like Spotless Homes Inc. is able to project the purchase of fixed assets and the extent to which they will be depreciated for the three years in the business plan. A fixed asset is defined as an asset that cannot be easily converted to cash by a small business owner like Anthony Cruz. Items that have been purchased by a small business with the intention of using them over an extended period of time can be classified as fixed assets and so a small business owner like Anthony Cruz would classify all purchases of land, building, automobiles, office furniture, office equipment, computers, plant and machinery as fixed assets.

Once a fixed asset is purchased it is not worth the same amount as it was the day a small business like Spotless Homes Inc. purchased it. As time progresses, the asset devalues due to age and obsolescence and in order to be able to absorb this loss, a business has the ability to write off a part of that depreciation every year. The rate of depreciation of course depends on the kind of asset itself. Typically all items like computers and office equipment be depreciated over 5 years at 20% a year; machinery is depreciated over 7 years at 14.28% a year; Leasehold improvement depreciate over 10 years at 10% per year; residential buildings depreciate over 27.5 years at 3.63% per year and commercial buildings depreciate over 40 years at 2.5 percent per year.

In order to find out the exact rate of depreciation for your particular fixed asset we recommend that you touch base with your CPA and also visit IRS websites which often contain a wealth of information.

The depreciation for Spotless Homes Inc. in our plan is calculated on a straight line method where the same rate of depreciation is used each year to calculate the depreciation for all fixed assets. Fixed assets like the purchase price paid to buy a new business cannot be depreciated as they are intangible. Land is another example of a fixed asset that does not depreciate.

Modules - Purchases, Inventory & Cost of Goods Sold summary:

This section of the modules gives a small business owner like Anthony Cruz the ability to input the purchases made by a small business like Spotless Homes Inc. to facilitate the production of goods or service; this section is also where the cost of goods sold are calculated and opening and closing inventory are entered.

Purchases of raw material and other items that go into the production of goods which are the final output of a small business is what we are referring to when we look at purchases. These purchases are different from operating expenses that a small business like Spotless Homes Inc. had to incur during the day to day operations of the business. Typically if your small business is a restaurant, the cost of all the food items that you have to buy before you turn them into the food you serve is what you would list here; if you were a small manufacturing firm, then all the raw material that you purchased along with the cost of acquiring these materials would be included in the Purchases section. In the service business like that of a lawyer, realtor, broker, there are very few items that can qualify as a purchase.

Inventory deals with the items that you keep on hand so that you can facilitate the production of goods and services. Thus when you begin a new restaurant, you may go out and buy a whole bunch of food which you can use to cook and serve your clientele - that would constitute the opening inventory. Later at the end of a year, you may have some raw material left over on hand - that would be your closing inventory.

In the case of service oriented companies, there is typically no inventory and so if you were writing a business plan for a realtor's office, your inventory would be $0 as would be your purchases.

Modules - Accounts Receivable summary:

When a small business like Spotless Homes Inc. sells its good or services, a small business owner like Anthony Cruz can expect that there will be some customers who will not always pay the business on time. In many instances, a small business has no choice but to carry their customers for a while and provide them with lenient payment terms due to the business conditions and to stay competitive. As with most businesses, there is a good chance at the end of every year, there will be some customers who have not yet paid the business and these become the accounts receivable for the business. It is recommended that the AR for most businesses should not exceed more than 5% of the total sales, but each industry has its own acceptable ranges. We recommend that as a general rule just like Anthony Cruz you set the accounts receivable to be around 1/2% to 3/4% of the annual sales every year in the pro-forma financial statements.

Modules - Accounts Payable summary:

Just like the AR process. Every small business like Spotless Homes Inc. makes purchases of goods and raw materials and operating expenses from other vendors and has to pay these vendors. Sometimes certain vendors may offer good terms of payment wherein a small business owner like Anthony Cruz can extend out the time taken to make these payments out to as much as 90 days. This is of course a good strategy in times when the cash collection is slow and you need to conserve as much cash as possible by making purchases and paying for them later down the line. These payments that are due to vendors by you become the accounts payable (AP). It is recommended that you always project a small token AP amount which is as a percentage of purchases.

Very large accounts payable amounts (say more than 15% of purchases) may show that you are having trouble with cash flow and many business loan lenders and potential partners don't like to see that in the pro-forma financial statements.

Modules - Security Deposit:

Unless you own the property where you are conducting your business, just like any House Cleaning Service and its owner Anthony Cruz, you will probably have to pay rent. Almost all rental agreements require a security deposit of some sort and this section is where you project what that security deposit will be. Don't take this section of the modules tab lightly, location is one of the key parameters for success in many small businesses that we have consulted with, and one of the key factors in getting a good location is making sure that the lease and security deposit are structured in a manner which will provide maximum leverage to the small business.

Annual Profit & Loss Statement:

The profit and loss statement for any House Cleaning Service like Spotless Homes Inc. gives the reader of the business plan a clear idea of the anticipated financial health of the business in the coming years as projected by a small business owner like Anthony Cruz. Our free financial statements template gives a small business owner the ability to quickly construct pro-forma profit and loss statements by inputting some basic information about operating expenses and letting our templates do the rest.

Annual P&L - Employer Tax Rate for a House Cleaning Service:

The employer tax rate is one of the first items that to be input by a small business owner like Anthony Cruz in the annual profit and loss statement tab. This employer tax rate is the rate of employment taxes that a small business like Spotless Homes Inc. can be expected to pay and it is recommended that all items like FUTA, SUTA, Medicare and others be entered into this one combined number. This number can range from 7.5% to 9.5% depending on the state the business is located in and we recommend that you do some research online and consult with your CPA if you want a precise number. While it is good to be as detailed and specific as possible when projecting pro-forma annual profit and loss statements, a general estimated employer tax rate of 7.5% will not be looked upon negatively by most business loan lenders or potential borrowers. The point is that you must provide at least a base number to show that your planning has realistically anticipated every possible operating expense a small business like Spotless Homes Inc. may encounter in the three years being projected in the plan.

The statutory deductions that every small business owner like Anthony Cruz is required to withhold from their employees taxes are:

1. Federal Income Tax (depending on the employees tax bracket).
2. Social Security
3. Medicare
4. State Income Tax (depending on the employees tax bracket ).

Annual P&L - Income Tax Rate for a House Cleaning Service:

The federal income tax rate for a small business like Spotless Homes Inc. will vary depending on factors like the amount of income and state income tax rates, we recommend that you do some research online or consult with a CPA before inputting this number in the financial statements template. Our template uses this number to come compute the net profit for your firm.

Annual P&L - Operating Expenses for a House Cleaning Service:

The operating expenses for a business like Spotless Homes Inc. are the costs that a small business faces during its regular course of its operations. Thus any cost that is required to operate the business is classified into an operating expense. Remember that the distinction between an operating expense and purchasing cost is that purchases are expenses that are made to procure goods and or services that serve as the raw material that is needed by the small business so that they can in turn use that raw material and turn it into a finished product.

Thus day to day expenses that a small business like Spotless Homes Inc. faces like cost of selling, marketing, administration would typically be classified as operating expenses and these are different from purchases and also different from capital expenses which are expenses that a small business like Spotless Homes Inc. has to undertake in order to acquire the items that will give them the means to produce their goods or services. Plant, machinery, furniture, copy machines etc are capital expenditures into fixed assets that are different from operating expenses.

While different businesses have different operating expenses, there are some generic operating expenses that are borne by almost all small business owners like Anthony Cruz as follows:

1. Accounting & Legal fees: These are expenses that are paid by a small business like Spotless Homes Inc. to their accountants and CPA's and to their attorneys as a part of the regular business operations.
2. Advertising: Almost every small business like Spotless Homes Inc. indulges in some form of advertising. A realtor may choose to advertise locally in magazines and pamphlets, an attorney may choose to advertise in the yellow pages, an orthodontist may choose to advertise in the local school annual publication. Almost every small business will face some sort of advertising cost at some point in their operations and it is advisable to include the cost of advertising as a percent of the total sales in your pro-forma annual profit and loss statements.
3. Auto Expenses: Automobile expenses are expenses connected to any automobile costs that have to be faced for the upkeep and maintenance of delivery trucks, vans etc. Thus a restaurant that has a small car that delivers its product locally to clients will have the ability to expense out the cost of maintenance for this asset as a part of its operating expense.
4. Bad Debts: Every business will have debtors that owe the business some money that in the end cannot be collected. The local fuel delivery guy probably has a few customers that have not paid him, as the same is true for a dentist, doctor and a House Cleaning Service. We recommend that to be realistic a small percentage of the annual sales be set aside as Bad Debts - simply put - money that is owed to us, that we will not be able to collect and be forced to write off as a part of our operating expense.
5. Bank Charges: Another ubiquitous expense that almost every small business owner like Anthony Cruz loves to hate is the lovely fees that they have to pay their banks - these can range from fees for opening an account, overdrawn checks, overdrawn lines of credit, cost of wires, cost of certified checks and any other fees that the bank feels that they can get away with! While there is no business owner that is happy with these fees, at least these can be written off as a part of your operating expenses.
6. Credit Card Processing: If you are a small business that is planning on accepting credit cards as a method of payment for your goods or services, you will most certainly be facing another wonderful series of fees and charges from credit card companies - these can range from setup fees, annual fees and of course the typical 2 percent to 5 percent of the amounts being 'run' through the credit card. These fees are disliked by the small business community in general but have become an necessary nuisance in today's business world - we highly recommend that a small business owner like Anthony Cruz offer their clients the choice of paying by credit card since they will almost certainly loose some business if they don't. The fees charged by credit card companies can of course be written off as a part of the operating expenses.
7. Cleaning & Janitorial Services: Most small businesses may not require the use of cleaning and janitorial services and then again many small businesses don't have a choice if they rent an office in a large office complex that hires a cleaning crew. These are costs that have to be borne by small businesses to keep their facilities clean and presentable and are a regular feature in the operating expenses section of the annual profit and loss statement.
8. Charitable Donations: In the event your small business is doing well, you may consider contribution locally or nationally to some small charitable causes - these deductions become a part of your operating expenses.
9. Entertainment: Every small business owner at some point has to spend a few bucks on wining and dinning their clients and staff. These expenses are also considered to be a part of the day to day operations of a business. We recommend that these expenses be set at a modest percentage of the annual sales of the business.
10. Gifts: Small businesses are allowed to make small gifts to staff and business relationships - for example a realtor or mortgage broker may present a bottle of wine to the closing staff of the bank attorney and clients after a deal is closed - these are classified as gift items and are also a parf of the operating expensse structure of a business. Here it may be a good idea for a small business owner like Anthony Cruz to have a set dollar amount every month instead of having gifts set up as percentage of sales.
11. Office Supplies: Pencils, paper, pens, staples and other such office supplies typically form the bulk of office supplies. These expenses tend to be modest in the small business world and we recommend that you set them up to either a set amount for each year of the pro-forma profit and loss statements, or calculate them to be a modest percentage of the total annual sales figure.
12. Subscriptions, Licenses & Fees: Almost every business tends to subsribe to publications and periodicals relating to their field. Thus a a doctor will probably subscribe to the American Medical Association publications, a restaurant owner may subscribe to either the online or print version of some restaurant magazine. In addition, business owners may choose to enroll themselves as members of the local chamber of commerce; a Hispanic business may choose to join the local Hispanic business diversity programs and forums. All these are expenses that can be broadly classified as subscriptions, licenses and fees and they are a part of the operating expenses of a small business like Spotless Homes Inc..
13. Security / Computer maintenance: A House Cleaning Service may choose to separate these two expenses in their annual profit and loss statement, but to us physical security and data secrity along with computer maintenance are increasingly becoming part of a larger solution that small business owners are categorizing under one umbrella. Both kinds of expenses are of course a standard operating expense. If you as a small business owner do not spend anything on computer maintenance and data backup services we recommend that you consider doing that immediately. Remote backup services are now available at very reasonable rates and including a projection for this operating expense in your annual profit and loss statement reflects the soundness of your business planning for the future.
14. Telephone: Which business can do without telephone and internet services? This regularly occuring operating expense is also a part of almost every small business annual profit and loss statement.
15. Training: Many small business owners like Anthony Cruz are increasingly using third party services to train their employees. The cost of this training is a direct expense for the business. Great solutions are now available for online training of employees for many professions and industies and even small businesses are increasingly utilizing these resources to train new and existing employees.
16. Utilities: The most common utility expense is of course the electricity bill that a small business owner like Anthony Cruz has to pay to keep the lights on every month. This can be written off as an operating expense.
17. Web Design: Few businesses today don't have a web presence and we recommend that if you don't have a website for your small business, that you seriously consider getting one created. The cost of web site design, hosting and maintenance is a regularly occurring operating expense and a business like Spotless Homes Inc. should include that in the annual profit and loss statement.
18. Rent: Who can get away from rent?! - you can't turn the key in the door of your business unless you have a door and to have that door you have to pay rent, unless you are one of the few small business owners that happens to own their own real estate where their business is located.

Besides the regularly occurring operating expenses there are others that are unique to each business, thus if you are a restaurant you will have operating expenses like kitchen utensils, linen and laundry, musicians, decorations; if you are an auto repair shop you may encounter expenses like disposal of used motor oil, lift maintenance, state inspection sticker purchases etc. Make sure that add all these operating expenses to the annual profit and loss expenses. For all expenses that you add, you have the ability to add a description and then select them to be a percentage of the annual sales along with a stipulated annual increase in the amount of expenses to account for inflation. Alternatively, you can always enter a manual number for each of the three years of the operating expense that you are inputting.

Other Items like Sales, Cost of Goods Sold, Depreciation, Gross Wages, Employer taxes, interest expenses and provisional taxes are computed automatically based on inputs made in the Modules tab of the financial statement template. Once done all you have to do is to navigate to the output tab to copy and paste the fully prepared pro-formal annual profit and loss statement into your business plan word document.

Monthly Profit and Loss statement for a House Cleaning Service:

In the monthly profit and loss statement tab of our financial statement template, a small business owner like Anthony Cruz has to perform only two tasks as follows:Enter in the monthly sales allocation: This is the section where a small business owner gets a chance to explain to the reader of the business plan what the anticipated seasonal fluctuations of sales may be. We highly recommend that folks take the time to understand the seasonal nature of their business. For example it is well known that for most consumer oriented businesses, summer tends to be a slow time and especially the month of August since many families tend to take their vacations around that month before school starts up in September. Thus a small business owner must be cognisant of this seasonal fluctuation in their sales and make sure that they plan for that in their pro-forma monthly profit and loss statement.

While having a montthly profit and loss statement is not mandatory, a detailed and well thought out statement shows the a business loan lender or potential partner you have done your homework and have thought about your plan in a careful and deliberate manner.

Expense Allocation: Each operating expense that was entered into the annual profit and loss tab is also automatically presented here in the monthly profit and loss statement. A small business owner like Anthony Cruz has the ability to allocate that expense over the entire year using any of the five options available to them as follows:

1. - Percent of Monthly Sales - here the monthly operating expense will be calculated as a percentage of the monthly sales sales amount.
2. - Fixed each month - this for operating expenses like rent which do not change from month to month.
3. - Quarterly - in the case of expenses which occur only 4 times per year like quaterly estimated taxes
4. - Semi-Annually - for all those expenses which may occur only 2 times per year like insurance premiums.
5. - Annually - for all those expenses that may be calculated only once per year like annual fees.

Once these two tasks of monthly sales allocation and monthly expense allocations are completed by the small business owner the template does the rest and the final monthly profit and loss statement can be copied and pasted from the outut tab directly into the business plan word document.

Balance Sheet for a House Cleaning Service:

The balance sheet is the snapshot of the financial health of a business and every small business like Spotless Homes Inc. has to have a pro-forma balance sheet for each of the three years that are being projected in the financials. Our templates have been structured to automatically create the balance sheet for a small business like Spotless Homes Inc. based on the information entered into the modules, annual and monthly profit and loss accounts. Thus a small business owner like Anthony Cruzdoes not have to do much else but copy and paste the final balance sheet from the output tab.

On the rare instance that there is the need to add a manual entry or change any of the automatically calcualted numbers manually, we have provided users with the facility to do just that. Please ensure that your asets equal your liabilities for each of the three years for which projections are being made.

Balance Sheet items for Spotless Homes Inc. - Cash:

Cash is the amount of cash that is available to the business on the date the balance sheet has been prepared. It repersents the cash in the bank and in any other accounts like money market funds where it can be made readily available to a small business like Spotless Homes Inc.. Underwriters at banks looking to lend business loans to small business owners and potential partners tend to look at this number very carefully to ascertain the profitability of a small business like Spotless Homes Inc. to generate cash. Even the great Warren Buffet is reputed to look for businesses that are able to generate high amounts of free cash flow. The cash number is calculated automatically by our template and while a small business owner like Anthony Cruz does have the abilty to manually enter this number, we highly recoomend that a manual entry only be done on rare occasions.

Balance Sheet items for Spotless Homes Inc. - Accounts Receivable:

As discussed earlier in the modules section of our business plan, AR represents the amounts of billing that had not yet been collected by a small business owners like Anthony Cruz from their clients. Typically AR is represented as a small percentage of the sales for any given year. The AR number that we have in our pro-forma balance sheet is automatically populated and we recommended that you use the manual entry override option only in rare exceptions.

Balance Sheet items for Spotless Homes Inc. - Inventory:

Inventory for a small business like Spotless Homes Inc. in a pro-forma balance sheet represents the closing inventory number of inventory as valued at the end of the financial year. The reason that the inventory shows up under current assets is because it is an asset that is expected to be utilized in the short term as opposed to a fixed asset which will remain with the business for a longer period of time. Again our templates automatically grab the number from the modules tab and we recommend that the manual overide option made available in the balance sheet tab be used on in rare and exceptional occasions.

Balance Sheet items for Spotless Homes Inc. - Total Current Assets:

The three items of cash, accounts recievable and inventory together constitute the current assets of Spotless Homes Inc. and they are sub totaled under the 'Total current assets' heading. Thus the total current assets of the business represent all the assets that will be utilized by the business in the short term.

Balance Sheet items for Spotless Homes Inc. - Fixed Assets:

A fixed asset is an asset that will be used by the business for a long time and is therefore classified separately from the current assets section. Fixed assets typically include plant, machinery, equipment, furniture, land and buildings. As explained earlier, each fixed asset will have its own shelf life and is subject to depreciation that a small business owner like Anthony Cruz can claim as a part of the operating expenses. Out templates calculate the fixed assets directly from the modules and we recommend that you use the manual override options only when waranted.

Balance Sheet items for Spotless Homes Inc. - Accumulated Depreciation:

Since all fixed assets for a House Cleaning Service will eventually age and become obsolte and worthless, a small business owner like Anthony Cruz is able to write off these yearly depreciations as an operating expense. In a balance sheet, it is important for Anthony Cruz to not only show the original value of the fixed assets but also show the accumulated depreciation on these assets so that the reader of the business plan will be able to get the true book value of these assets in the years for which the balance sheet is being projected.

Balance Sheet items for Spotless Homes Inc. - Security Deposit:

The security deposit for a small business is a fixed asset since it will be no used during the short run and will typically be used only when it is returned back to the business by the landlord. Our balance sheet gets the total number for the security deposit directly from the modules tab of this template.

Balance Sheet items for Spotless Homes Inc. - Total Fixed Assets:

Total fixed assets are quite simply the fixed assets plus the accumulated depreciation and the security deposit all added up together. This number represents all those assets of a small business like Spotless Homes Inc. that the business expects to employ over the course of many years.

Balance Sheet items for Spotless Homes Inc. - Total Assets:

The total assets is nothing but the sum of all the current assets and fixed assets and shows what the business is worth at the end of any given financial year when it comes down to the assets it holds on its balance sheet. The total assets number has to tie up with the total liabilities number that we will be covering next.

Balance Sheet items for Spotless Homes Inc. - Accounts Payable:

Accounts payable represents the sum of all the purchases that we have made but have not yet paid for - these of course are liabilities for a small business like Spotless Homes Inc. since they will have to be paid at some point in the near future. Our pro-forma balance sheet automatially calculates the AP from the accounts payable module.

Balance Sheet items for Spotless Homes Inc. - Total Current Liabilities:

The total current liabilities represents the sum of all the liabilities that the a small business like Spotless Homes Inc. will have face in the near future typically less than 1 year. We have provided room for a small business owner like Anthony Cruz the ability to add more current liabilities but again we recommend that this kind of manual override be done only in rare circumstances where our templates are erroneous.

Balance Sheet items for Spotless Homes Inc. - Long Term Loans Outstanding:

As the name suggests, long term loans outstanding are quite simply all the loans that have a duration of more than 1 year and will have to be paid off by the business at a later point in time. Out template calculates this number directly from the modules tab and we recommend that the manual entry override provided for in the balance sheet be utilized in rare circumstances.

Balance Sheet items for Spotless Homes Inc. - Total Long Term Liabilities:

The Total long term liabitilies of course as the name suggests is a sum of all the current liabilties of a small business like Spotless Homes Inc. and the long term liabilities.

Balance Sheet items for Spotless Homes Inc. - Capital:

The capital section of the balance sheet for a House Cleaning Service reflects the total amount of contributions that the owners and partners of the business have made in the business it also reflects the total amount of earnings that have been retained by the business over time. Both these numbers in the balance sheet for Spotless Homes Inc. are derived directly from the modules tab and a manual entry override is not recommended. The total capital number is of course the sum of the contributions in the form of paid up capital and the retained earnings.

Balance Sheet items for Spotless Homes Inc. - Total Liabilities & Capital:

As the name implies the total liabilities and capital represents is a simple sum of the total current liabilities, total long term liabilities and total capital for a small business like Spotless Homes Inc.. This number has to equal the total assets number that represents all the assets owned by the business.

Cash Flow for a House Cleaning Service:

The cash flow tab in the financial statements template is where the cash flow statement for a small business like Spotless Homes Inc. is automatically created based on input from the modules and profit and loss statements. Even though we have provided you with the ability to manually enter and override the existing computation, we highly recommended that this option only be deployed in the rare circumstances.

A cash flow statement for a House Cleaning Service shows the relationship between the annual profit and loss statement and the balance sheet. The final closing cash number from the cash flow statement has to tie up to the closing cash number that shows up in the balance sheet. The cash flow statement for a House Cleaning Service like Spotless Homes Inc. is broken up into 3 distinct sections - operating activities, investing activities and financing activities leading to the final balance of cash at the end of the year.

Cash Flow from operating activities - Net Income for Spotless Homes Inc.:

The net income that shows up here of course indicates how much free cash flow a small business like Spotless Homes Inc. has generated during the course of its operations for the years 2015, 2016 and 2017 in the business plan. This number is derived directly from the annual profit and loss statement.

Cash Flow from operating activities - Depreciation & Amortization for Spotless Homes Inc.:

Depreciation and amortization is just a number that a business is allowed to deduct from its operating expenses, but as we know from earlier discussions, there is no actual expense and so no real cash is actually spent by a small business like Spotless Homes Inc.. Thus the annual amount of depreciation and amortization is added back to the cash flow statement so that a proper ending cash amount can be computed.

Cash Flow from operating activities - Change in AR for Spotless Homes Inc.:

Accounts receivable represent money that has not yet been received by a small business like Spotless Homes Inc. but is expected to come in when our clients pay us for the amounts that we have billed. Since this cash has not yet come in to the business, we cannot of course add it to our ending cash position and so any changes in the AR position has to be subtracted if the new AR number is larger than the previous years number. Thus if all our customers owed us $1000 in year 1 and owe us $1500 in year 2, we would have to subtract the $500 which we have not yet received. For the first year we would have to subtract the entire $1000 since there was no prior year's AR to deal with.

Cash Flow from operating activities - Change in Inventory for Spotless Homes Inc.:

In order to have an inventory, a small business like Spotless Homes Inc. has to go and spend cash to acquire the inventory - this of course represents a cash outflow for the firm. Thus if the following year if the closing inventory is higher this the prior years closing inventor, it indicates that the small business spent more money to acquire the extra inventory during the year and that change is what would be recorded in the cash flow statement. For example if the first years inventory was $100 and the second years closing inventory was $175, the difference of $75 would have to be deducted from the second years ending cash calculation.

Cash Flow from operating activities - Prepaid Expenses for Spotless Homes Inc.:

Prepaid expenses are those expenses that are prepaid by a small business for services it has not yet received. We have not included these expenses in our financial statements since it is not reasonable to project pro-forma expenses in the future that a small business will have to prepay. Nevertheless, we have included a placeholder for prepaid expenses since most cash flow statements tend to have prepaid expenses as items that are subtracted from the cash flow statement to determine the true amount of cash on hand.

Cash Flow from operating activities - Security Deposit for Spotless Homes Inc.:

When a small business owner like Anthony Cruz lays down a security deposit, it represents cash going out of a small business like Spotless Homes Inc. In order to arrive at the correct cash amount at the end of the year, this amount of security deposit has to be deduced from the cash flow statement.

Cash Flow from operating activities - Changes in AP for Spotless Homes Inc.:

Accounts payable represent bills that we have yet to pay for purchases that we have made and since these payments have not yet been made, we have to make sure that these future payable are added back to our existing cash position to reflect an accurate end of year cash number. For the first year the entire amount of AP is added back to the cash flow statement, for the subsequent years only the difference between the prior year and current year is added back.

Cash Flow - Net cash from operating activities for Spotless Homes Inc.:

When we add up the cash flow impact of all the operating activities for a small business like Spotless Homes Inc. we come up with the net cash from investing activities. While we have provided some extra room for manual items that you may want to enter, we highly recommend, that the manual option only be selected in rare circumstances.

Cash Flow from investing activities - Purchase of Fixed Assets for Spotless Homes Inc.:

The purchase of a fixed asset of course requries cash and represents a reduction in the amount of cash from a small business like Spotless Homes Inc. The investing activities section is where the purchase of all fixed assets is recorded in the cash flow statement.

Cash Flow from financing activities - Capital from shareholders of Spotless Homes Inc.:

A contribution from shareholders represents an inflow of cash and this has to be recorded under the cash flow from financing activites of the prof-forma cash flow statement for a small business like Spotless Homes Inc. These numbers are obtained directly from the modules tab of the financial statements template.

Cash Flow from financing activities - Long Term Loans o/s for Spotless Homes Inc.:

When a loan is taken out by a small business like Spotless Homes Inc. it means that cash will be coming into the small business. Thus the following year when a portion of the principal of the loan is paid down, it represents a net cash outflow for the business and this change is represented here in the cash flow from financing activities section of the pro-forma cash flow statement.

Cash Flow - Increase / Decrease in Cash for Spotless Homes Inc.:

The increase or decrease in cash for a small business like Spotless Homes Inc. is calculated by adding up the net cash from operating activities, net cash from investing activities and net cash from financing activities.

Cash Flow - Cash at the beginning of the year for Spotless Homes Inc.:

For the first year of the pro-forma cash flow statements for a small business like Spotless Homes Inc. the beginning cash position will always be $0, the opening cash position for year 2 will be the closing cash position for the prior year and so on.

Cash Flow - Cash at the ending of the year for Spotless Homes Inc.:

The cash flow for the first year is the opening cash ( always set at $0 in our models ) adjusted for the net increase / decrease in cash for the year. For the second year the closing cash at the end of the year will be the opening cash balance for the year adjusted for the net increase and decrease in the second year's cash position.

The cash amount at the end of the each year has to match up with the cash amount that is being computed in the balance sheet. That is how a small business owner like Anthony Cruz knows that the pro-forma financials are being computed corrrectly.

Quick Links:

1. Go to the Corresponding Template section for this industry.
2. Go to the Corresponding Business Plan section for this industry.