The Business Plan: Startup Costs and Financing
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The Business Plan: Startup Costs and Financing Week 8 – November 23, 2004 FM20731 – Entrepreneurship
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Week 8 – November 23, 2004. The Business Plan: Startup Costs and Financing. FM20731 – Entrepreneurship. The Financial Section. Startup Costs Financing Projected financial statements Opening-day balance sheet Projected income statements Projected cash flow statements Break-even point. - PowerPoint PPT Presentation
Transcript of The Business Plan: Startup Costs and Financing
The Business Plan: Startup Costs and Financing
Week 8 – November 23, 2004
FM20731 – Entrepreneurship
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The Financial Section
• Startup Costs• Financing• Projected financial statements
– Opening-day balance sheet– Projected income statements– Projected cash flow statements
• Break-even point
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Startup Costs
• Inventory– Merchandise– Raw Materials– Supplies– Get estimates from suppliers
• Furniture and Fixtures– Office furniture– Shelving, counters, displays, etc.
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Startup Costs
• Machinery and Equipment– Computers, registers, copiers, faxes, etc.– Manufacturing equipment– Construction equipment
• Prepaid expenses/services– Legal fees– Insurance– Grand opening advertising– Everything that will be paid before opening
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Startup Costs• Training costs for employees• Deposits
– Lease
– Utilities
– Taxes
• Renovations/building purchase• Working capital
– Cash reserve
– Covers expenses until self-sufficient
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Working Capital Example• No Working Capital• Buy $10,000 of merchandise/month C.O.D.• Pay $1,000 for labor weekly• Generate $600 revenue/day
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Working Capital Example• $10,000 of Working Capital• Buy $10,000 of merchandise/month C.O.D.• Pay $1,000 for labor weekly• Generate $600 revenue/day
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Working Capital Example• $5,000 of Working Capital• Buy $5,000 of merchandise on 1st and 15th• Pay $1,000 for labor weekly• Generate $600 revenue/day
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Working Capital Example II
• $10,000/month in inventory C.O.D.• $15,000 Accounts Receivable/month
– Terms: Net 30
• Must replenish stock• How much Working Capital needed?
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Financing
• How will you get the money?• Debt financing
– Borrowed
• Equity financing– Sell portion of the company
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Debt financing
• Borrowed• Must be repaid with interest
– Interest rate usually prime plus 1-3%– Repayments can be a burden for startup– Personal assets used for collateral at risk!– Term depends on type of asset(s) bought
• Real Estate: 15-30 years
• Equipment: 3-5 years
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Debt Financing: Bank Loans
• Can be difficult to find• Different banks have different tastes
– Some have tried 30 banks before success!
• SBA: Small Business Lending Report– Ranks banks by loans to small businesses– Use to find a bank to pursue
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Debt Financing: Government• Federal
– Small Business Association• Provides many services
– Including loan programs
• Guarantees loans from local banks– If you default, they pay
• State & local– Provide loan programs
– Varies
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Debt Financing: Finance Co’s
• Finance high-risk companies• Finance specific situations• Usually much higher rate
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Equity Financing
• Investment, not a loan• Investor gets portion of company
– Share in profits– Share in sale of company
• May also get part of control
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Equity Financing: Personal Funds
• You may invest your own money• May be expected by other investors
– “Skin in the game”
• Don’t risk more than you can lose
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Equity Finc’ng: Private Investors• Friends & Family
– May strain or ruin relationship• Disagreements
• Business failure
• Wealthy individuals– A/k/a “Angels”
– Matching networks exist
• Partner(s)– See Legal section
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Equity Fin.: Venture Capitalists• Interested in:
– Very rapid growth companies
– 25-40% annual rate of return
– Go public or get sold within 5-7 years
– So, invest $1 mil., expect at least $3-5 mil.
– Excellent management team
• Often invest in specific industry(ies)• May want 40% ownership or more than 50%
– Rather own 100% of $1 mil. or 45% of $10 mil.?
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Equity Fin.: Stock Sales
• Public? – Not a new company!
• Private, up to $1 million– May be OK in your state – check
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Include in Your Business Plan
• Source of funds• Uses of funds• Type of funding• Repayment, if necessary
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Next Classes• November 30
– Financial Statements– Assembling the Business Plan– Work in class
• December 7– Financial Statements recap– Managing Growth– Work in class
• December 14– Business Plans due– Final presentations
