What is “bootstrapping”?

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Bootstrapping is operating a business as frugally as possible and cutting all unnecessary expenses.

What is the most common source of start-up capital for entrepreneurs?

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Personal resources—friends, family, savings, credit cards, loans, and investments—are the most common source of start-up capital.

What is the difference between debt and equity financing?

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With debt financing, an entrepreneur borrows money and must repay it with interest. When raising capital by borrowing, the entrepreneur retains full ownership of the business. Equity sources trade cash for a portion of ownership.

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TODAY’S

OBJECTIVES

1. Describe the resources available to entrepreneurs for starting a business.
2. Compare and contrast sources of financing for start-up ventures.
3. Describe the information needed to obtain financing.
4. Explain the types of growth financing available to entrepreneurs.

Why? You need to Know Your Numbers for someone to show you the money ...

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Investment Proposal

• Describe why you are applying for financing and how you plan to raise and use the money
• Project the total cash needed to start the business
• Include details about revenue streams the business will generate
• Project when your investors can expect to:
• Recoup their investment (i.e., breakeven) AND
• Earn a sufficient return.
• Define how investors can cash out their investment and achieve liquidity.

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How Can Investor Make Money?

• Define how investors can cash out their investment and achieve liquidity.
• Distributions/Dividends
• Sale of Business (“M&A”)
• Initial Public Offering
• Buyback (i.e., repurchase or “put option”)

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What do private investors look for when investing in a new business?

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Strong management team

What are the three categories of funds you need to estimate to determine your start-up capital?

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Capital expenditures

Working capital

Contingency funds

3 Keys: Executive Summary, Management & Financial Returns

What are types of start up expenses?

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Capital expenditures

Working capital (for operating expenses

Contingency funds

What are other types of assumptions are part of your financial model?

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Sales price

COGS (cost of goods sold)

Number of units sold

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• Take your assigned seat

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TODAY: Income, Expense & Cash Flow!

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Admin:

• Unit 3 of Business Plan due Block Day (Narrative AND Model)
• Guest Speaker Friday: Pitching Investors ...
• Executive Summary & Full Business Plan due next Tuesday

What are common mistakes entrepreneurs make in their projections?

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Unrealistic growth rate

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Insufficient working capital to cover operating expenses

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TODAY’S

OBJECTIVES

1. Use assumptions to project income, expense and cash flow for three years
2. Determine amount of capital needed for your business plans

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Why? You need to Know Your Numbers for someone to show you the money ...

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Projected Three-Year Income & Cash Flow Statement

• Prepare a three-year income projection that includes monthly projections for revenues, expenses, and profits for the first year, and annual projections for years 2 and 3.
• Plan a cash budget that forecasts monthly cash inflow (cash revenue from sales) and outflow (cash disbursements) projections for the first year, and annual projections for years 2 and 3.
• Prepare a break-even analysis detailing when the company’s expenses will match the income. If this occurs in years 2 or 3, estimate the month in which it will occur and explain this estimate.
• Present data in at least two (2) graphical formats.

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NOTE: The estimated expenses should reflect the promotional plan budget AND be consistent with the other aspects of your business plan.

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TODAY’S

OBJECTIVES

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• Review key assumptions for your financial model
• Develop assumptions for your business based on data

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Why? You need to Know Your Numbers for someone to show you the money ...

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Financial Assumptions

• Identify, categorize, and analyze the start-up costs, and the ongoing cost of goods sold (“COGS”) and operating expenses.
• State the other assumptions on which the financial projections are based.
• Explain how you derived forecasts for sales, costs of goods sold, operating expenses and any other items in the financial model. These explanations must include references to the sources of the data you used for the assumptions in the financial projections.

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Model Review

• Review Google Classroom assignment
• Model is one of two files to be submitted as part of Unit 3 assignment
• Review Assumptions page
• Other resources:
• Classroom Copy of Chapter 19
• Slides in “About” section

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• Take your assigned seat

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TODAY: Investment Proposal

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Admin:

• Unit 3 of Business Plan due Midnight TODAY (Narrative AND Model)
• Guest Speaker Friday: Pitching Investors ...
• Executive Summary & Full Business Plan due next Tuesday

What are ways investors will make money off your business?

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Distributions of profits to owners

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Sale of business (“strategic” or “private equity” buyers)

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TODAY’S

OBJECTIVES

• Create an appealing investment proposal
• Finish your financial plan (i.e., Unit 3)

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Why? You need to Know Your Numbers for someone to show you the money ...

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• Investment Proposal
• Describe why you are applying for financing and how you plan to raise and use the money.
• Project the total cash needed to start the business
• Include details about revenue streams the business will generate
• Project when your investors can expect to:
• Recoup their investment (i.e., receive back an amount equal to their investment) AND
• Earn a sufficient return (e.g., 5-10X their investment)

Define how investors can cash out their investment and achieve liquidity. [NOTE: Discuss with Mr. Newkirk whether and how to cover this point.]

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Model Review

• Review Google Classroom assignment
• Model is one of two files to be submitted as part of Unit 3 assignment
• Review individual worksheets
• Extra credit for creating monthly income/expense/cash flow/cash balance for years 2-3 (up to 5 points per year)
• Other resources:
• Classroom Copy of Chapter 19
• Slides in “About” section