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PowerPoint Slides for use with Building a Dream Dr. Walter Good Department of Marketing Asper School of Business University of Manitoba.

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Presentation on theme: "PowerPoint Slides for use with Building a Dream Dr. Walter Good Department of Marketing Asper School of Business University of Manitoba."— Presentation transcript:

1 PowerPoint Slides for use with Building a Dream Dr. Walter Good Department of Marketing Asper School of Business University of Manitoba

2 Stage 1 What is Entrepreneurship?

3 Principal Reasons Why People Start Businesses of Their Own To achieve a sense of accomplishment82% * To be their own boss73% To have an element of variety and adventure66% To make better use of their training and skills63% To be able to adapt their own approach to their work62% To be challenged by new opportunities61% * sums to more than 100% due to multiple responses

4 An Entrepreneur Someone who perceives an opportunity and creates an organization to pursue it. Bygraves

5 Entrepreneurs Can Play a Number of Roles in the Economy 1. Create new product and/or service businesses. 2. Bring creative and innovative methods to developing or producing new products or services. 3. Provide employment opportunities and create new jobs as a result of growing their businesses consistently and rapidly. 4. Help contribute to regional and national economic growth. 5. Encourage greater industrial efficiency/productivity to enhance our international competitiveness.

6 The Components of Successful Entrepreneurial Ventures Business Plan The Entrepreneur Opportunity Resources Organization Strategy

7 Outline of the Entrepreneurial Process Decide to go into business for yourself Assess your potential Find an appropriate product or service idea Buy a businessStart a new businessAcquire a franchise Conduct a feasibility study Technical feasibilityMarket acceptabilityFinancial viability Organize your business structure and legal requirements Protect your idea Arrange the necessary financing Develop a comprehensive business plan

8 Myths About Entrepreneurship Myth 1Entrepreneurs are born, not made. Myth 2Anyone can start a business. It’s just a matter of luck and guts. Myth 3Entrepreneurs are gamblers. Myth 4Entrepreneurs want to run the whole show themselves. Myth 5Entrepreneurs are their own bosses and completely independent. Myth 6Entrepreneurs work longer and harder than corporate managers. Myth 7Entrepreneurs face greater stress and more pressures, and thus pay a higher personal price in their jobs than do other managers. Continued

9 Myth 8Starting a business is risky and often ends in failure. Myth 9Money is the most important ingredient for success. Myth 10New business start-ups are for the young and energetic. Myth 11Entrepreneurs are motivated solely by their quest for the almighty dollar. Myth 12Entrepreneurs seek power and control over other people so that they can feel “in charge.” Myths About Entrepreneurship (Continued)

10 Rules of the Road 1. Spot the opportunity around you 2. Bring in the experts 3. Keep your options open 4. Be prepared to work 5. Learn when to hand off to suppliers 6. Look for value-added deals 7. Expand strategically 8. Think BIG 9. Lever relationships 10. Have a fallback

11 Stage 2 Assessing Your Potential for an Entrepreneurial Career

12 What is Your Entrepreneruial Potential? Realistically assess your potential for an Entrepreneurial Career Understand the personal attributes important for success in a business of your own Understand the demands the entrepreneurial role will make on you and your family Evaluate your managerial skills Conduct a personal financial assessment Develop a personal balance sheet Develop a personal budget Assess your strengths and weaknesses that will affect your ability to achieve your entrepreneurial goals

13 Attitudes and Behaviours Valuable for Turning a Business Dream into Reality Commitment, Determination, and Perseverance A Success Orientation Opportunity and Goal Orientation Action Orientation and Personal Responsibility Persistent Problem Solving and a Need to Achieve A Reality Orientation The Ability to Seek and Use Feedback Self-Reliance Continued

14 Self-Confidence A Tolerance of Ambiguity and Uncertainty Moderate Risk Taking and Risk Sharing The Ability to Respond Positively to Failure A Need for Status and Power Integrity and Reliability A Team Builder Attitudes and Behaviours Valuable for Turning a Business Dream into Reality (Continued)

15 An Entrepreneur’s Creed 1. Do what gives you energy - have fun. 2. Figure out how to make it work. 3. Anything is possible if you believe you can do it. 4. If you don’t know it can’t be done, then you’ll go ahead and do it. 5. Be dissatisfied with the way things are - and look for ways to improve them. 6. Do things differently. 7. Businesses can fail. Successful entrepreneurs learn from failure - but keep the tuition low. 8. It’s easier to beg for forgiveness than ask for permission in the first place. Continued

16 An Entrepreneur’s Creed (Continued) 9. Make opportunity and results your obsession - not money. 10. Making money is even more fun than spending it. 11. Take pride in your accomplishments - it’s contagious. 12. Sweat the details that are critical to success. 13. Make the pie bigger - don’t waste time trying to cut smaller pieces. 14. Play for the long haul. It’s rarely possible to get rich quickly. 15. Remember: only the lead dog gets a change in scenery.

17 Business Skills Needed by Successful Entrepreneurs 1.Managing Money 2.Managing People 3.Directing Business Operations 4.Directing Sales and Marketing Operations 5.Setting Up a Business

18 Kinds of Entrepreneurs CRAFTSPEOPLE: 60% of all small business owners Derive their sense of self-worth form their mastery of a craft or trade FREEDOM FIGHTERS: 30% of all small businesses Prime motivation is simply being in business for themselves MOUNTAIN CLIMBERS: 10% of all small businesses Growth-oriented business owners who are motivated almost solely by achievement.

19 Stage 3 Exploring New Business Ideas and Opportunities

20 Searching for Ideas Search for a product or service idea Evaluate the possible alternatives Determine your preferences From your previous employment From hobbies From casual observation From a deliberate search Magazines and other publications Trade shows and conventions Product licensing information services Government agencies and departments Use creative thinking

21 Ideas VS. Opportunities Initial New Venture Ideas Potential New Opportunities Decision to Start a New venture

22 Sources of Ideas for a New Business Your Job Your Hobbies Personal Observation –Casual Observation –Deliberate Search Publications Inventors’ Shows, Trade Shows and Conventions Patent Brokers and Product Licensing Information Services Friends, Acquaintances, and Other Social Contacts Federal and Provincial Government Agencies and Departments Using Creative Thinking

23 Faith Popcorn’s Predictions for the Future 99 Lives Anchoring AtmosFEAR Being Alive Cashing Out Clanning Down-Aging Egonomics EVEolution Fantasy Adventure Icon Toppling Pleasure Revenge Small Indulgences SOS (Save out Society) Vigilante Consumer

24 Top 10 Business Opportunities 1.Personal coaches 2.Sex Toys 3.Teen gadgets 4.Outsourced business services 5.Specialist financial advisors 6.Vanity products for aging boomers 7.Escape Inc. 8.E-biz security 9.High-tech marketers 10.Youth education

25 Shirley Robert’s Best Businesses for Beyond the Year 2000 1.Self-diagnostic medical tools 2.Affordable organic foods 3.Educational books, videos, and CD- ROMs 4.Technology-training centres 5.Customized information services 6.Anti-aging cosmetics 7.Pet-related products and services 8.Financial services tailored to women 9.Activewear for aging adults 10.Home-safety devices

26 How to Select the Right Opportunity for You Step 1:Identify Your Business and Personal Goals Step 2:Research Your Favourite Industries Step 3:Identify Promising Industry Segments Step 4: Identify Problem Areas and Brainstorm Solutions Step 5:Compare Possible Solutions with Your Objectives and Opportunities in the Marketplace Step 6:Focus on the Most Promising Opportunities

27 Characteristics of the “IDEAL” Business Requires no investment Has a recognized, measurable market A perceived need for the product or service A dependable source of supply for the required inputs No government regulation Requires no labour force Provides 100% gross margin Buyers purchase frequently Continued

28 Receives favourable tax treatment Has a receptive, established distribution system Has great publicity value Customers pay in advance No risk of product liability No technical obsolescence No physical perishability Impervious to weather conditions Possesses some proprietary rights Characteristics of the “IDEAL” Business (Continued)

29 Stage 4 Buying a Business

30 Buying a Business Buy an existing business Where can you find a business to buy? Evaluate all the aspects of the potential acquisition Determine an appropriate price Business brokers and real estate agents Current job contacts Local newspapers and trade associations Lawyers, accountants and other professionals Your personal network Purchase assets of business Purchase shares of business

31 Where to Find a Business to Buy 1. In your present business activity 2. From direct, independent contact 3. Through business brokers and other middlemen 4. Through confidential advisors 5. From other sources

32 Ratio Analysis 1.Current Ratio 2.Quick Ratio 3.Debt to Net Worth Ratio 4.Gross Profit to Sales Ratio 5.Net Profit to Sales Ratio 6.Return on Assets 7.Sales to Inventory Ratio 8.Average Collection Period

33 Example of a Simplified Balance Sheet THE CAMPBELL CO. BALANCE SHEET AS OF DEC. 31, 200Y ASSETS (000s) Current Assets Cash$ 25 Accounts receivable53 Inventory 80 Total current assets$ 158 (A) Fixed Assets Machinery$ 40 Less: Accumulated depreciation 25 15 Equipment and fixtures30 Less: Accumulated depreciation 18 12 Total fixed assets27 (B) Total Assets (C = A + B)$ 185 (C) LIABILITIES AND OWNER’S EQUITY Current Liabilities* Accounts payable$ 60 Notes payable 35 Total current liabilities95 Long-Term Liabilities Notes payable**$ 40 Total long-term liabilities 40 Total liabilities$ 135 (D) OWNER’S EQUITY Capital investment20 Retained earnings 30 Total owner’s equity 50 (E) Total Liabilities and Owner’s Equity (F = D + E)$ 185 (F) * Debt is due within 12 months.** Debt is due after 1 year.

34 Example of a Simplified Income Statement THE CAMPBELL CO. INCOME STATEMENT FOR YEAR ENDING DEC. 31, 200Y (000s) Gross sales$ 428 Less: Returns 3 Net Sales$ 425(A) Cost of goods sold: Beginning inventory$ 75 Plus: Net purchases 297 Cost of goods available372 Less: Ending inventory 80 Cost of Goods Sold292(B) Gross Profit (C = A  B)$ 133(C) Selling Expenses$ 29(D) Administrative expenses: Office salaries$ 60 Interest9 Depreciation10 Other administrative expenses 7 Total Administrative Expenses86(E) Profit Before Income Tax (F = C  D  E)$ 18(F) Income Tax (G = 25% of F)4.5(G) Net Profit (G = F  G)$ 13.5(H)

35 Determining an Appropriate Price to Pay for a Business Balance Sheet Methods –Net Book Value –Modified Book Value –Liquidation Value Earnings-Based Methods –Capitalization of Earnings –Discounted Future Earnings –Discounted Cash Flow

36 Advantages of Buying an Established Business Reduced risk Increased likelihood of successful operation for the new owner A proven location for successful operation Has a product or service that is presently being produced, distributed, and sold A clientele has already been developed Financial relationships have already been established with banks, trade, creditors and other sources The equipment needed for production is already available and its limitations and capabilities are known An existing firm can often be acquired at a good price relative to the value of the assets

37 Disadvantages of Buying an Established Business The physical facilities and product line may be old and obsolete Union/management relationships may be poor Present personnel may be unproductive and have a poor track record The inventory may contain a large amount of “dead” stock A high percentage of the assets may be in poor-quality accounts receivable The location of the business may be bad The financial condition of the business, and its relationships with its creditors may be poor As a buyer, you inherit any ill will or unfavourable reputation that may exist toward the business among customers or suppliers You have more freedom of choice in defining the nature of the business if you start one of your own

38 Key Points to Consider in Buying a Business Take your time and verify the information you are given before you commit yourself Don’t fall in love with the business before you do your homework Be careful not to pay too much for goodwill Buy a business within an industry you know well Buy based on the return on investment, not the price Don’t use all your cash for the purchase Investigate before you buy

39 Stage 5 Considering a Franchise

40 Interested in a Franchise? Consider a franchise Finding a franchised business Check out the franchise opportunity Evaluate disclosure and other legal requirements Is a franchised business for you? Area franchise Single-unit franchise Master franchise

41 Advantages of Franchising Enables you to compete through the use of a well-known trademark or trade name Franchisor may provide you with with assistance in such areas as site selection, equipment purchasing, national advertising, bookkeeping, the acquisition of supplies and materials, business counseling and employee training Reduced risk of failure May be able to take advantage of large-scale, centralized buying May have access to special financing and credit arrangements The opportunity to acquire a proven system that has already been developed, tested and refined

42 Disadvantages of Franchising The high degree of control which franchisors exercise over their franchisees Contractually required to report regularly to the franchisor and subject to frequent inspection and constant supervision The cost of the services provided to you by the franchisor is based on your total sales revenue, not your profitability Franchisor may add a mark-up to the supplies and equipment you are required to buy from them, thereby increasing your operating costs Must pay the franchisor an initial franchise fee as well as periodic royalty payments and advertising contributions Continued

43 The benefits available through franchising may not always materialize Termination policies of many franchisors give franchisees little or no security in many cases Disadvantages of Franchising (Continued)

44 Types of Franchises Product Distribution Arrangements Business Format Franchises Single-unit franchise Area franchise Master franchise

45 The Top 10 Franchise Organizations 1.Subway 2.Mail Boxes Etc. 3.McDonald’s 4.Jiffy Lube Int’l Inc. 5.Taco Bell Corp. 6.The Quizno’s Corp. 7.Sonic Drive-In Restauarants 8.RadioShack 9.General Nutrition Centers 10.Jani-King

46 Articles in a Typical Franchise Agreement The full initial costs and what they cover Use of the franchisor’s trademarks by the franchisee Licensing fees Land purchase or lease requirements Building construction or renovation requirements Equipment needs Initial training provided Starting inventory requirements Promotional fees or allowances Use of operations manual Royalties payable Continued

47 Other payments that must be made to the franchisor Ongoing training requirements Cooperative advertising fees Insurance requirements Interest charges on financing Requirements regarding purchasing supplies from the franchisor and prices Restrictions that apply to competition with other franchisees Terms covering termination, renewal rights, sale of the franchise and similar topics Articles in a Typical Franchise Agreement (Continued) Slide 5.6B Building a Dream

48 A Sampling of Canadian Franchisors Boston Pizza2138$45,0007%3%$1-1,200,000 Dollar Rent-a-Car--24$15-59,00072 $90-150,000 Great Canadian Dollar Store--100+$15,0004--$125,000 Molly Maid176$14,00062$18,000 Dairy Queen Canada--527$35,00046$500-1,200,000 We Care Home Health Services252$40,00052$150,000 McDonald’s Restaurants of Canada334771$45,00017%--$600-800,000 (including rent, service fees and advertising) Midas Muffler--241$25,00055$225,000 Yogen Fruz3295$25,00063$125-150,000 Second Cup Coffee Co.13226$20,00092$250-300,000 Tim Hortons--1553$50,00034$360-390,000 Kwik-Kopy Printing474$29,50073$200,000 Shred-It1339$45,000US51.5$300,000 NumberNumber ofApproximate of OwnedFranchiseesInvestment Units/DealersInitial FeeRoyaltyAdvertisingRequired Source: Adapted from The 1999 Franchise Annual, Info Franchise News Inc., 1999.

49 Future Trends in Franchising Conversion franchising Increase in the number of women involved in franchising Growth in non-food retail stores Impact of computer technology Growth of franchised medical services Continuing importance of restaurants Growth of auto repair franchises Growth in such areas as automobile leasing, packaging and rapid delivery of parcels, home building, medical centres, temporary help services, business brokers and financial planners Increased number of convenience stores Growth of franchised educational services

50 Stage 6 Conducting a Feasibility Study Part 1: Technical and Market Assessment

51 Conducting a Feasibility Study: Part 1 Start a new business Develop the concept for your venture Develop a sales forecast Flesh out your marketing plan Develop a detailed marketing program for each channel you plan to use Market through traditional distribution channels Market direct to the consumer Market to the government Market in foreign markets Market through specialty channels Evaluate technical feasibility How will product be produced Determine fixed production costs Establish a price structure for your product or service Determine variable production costs Develop a preliminary marketing plan Research customers and markets Test your product or service Assess market size, segments and trends Evaluate the competition

52 A Typical Feasibility Study Explain clearly and concisely the principal concept underlying your venture and what sets it apart from other businesses. Indicate the degree of innovativeness of your venture idea and the risks associated with it. Does it need to be subjected to some form of technical evaluation or assessment? Describe the profile of your principal target customers. Indicate current market size, trends and seasonal patterns. How do you plan to test your idea? Describe any market research or customer surveys you plan to conduct. Assess the nature of your competition. Estimate your expected sales and market share. Concept for your venture Technical feasibility of your idea Market assessment Continued Feasibility Study Contents

53 A Typical Feasibility Study (Continued) Detail the marketing strategy you plan to use. Describe your marketing plan, including your sales strategy, advertising and promotion plans, pricing policy, and channels of distribution How do you plan to assure continuing access to critical supplies of raw materials and component parts at reasonable prices? Will you produce or subcontract your production? Feasibility Study Contents Your marketing plan Managing the supply situation Continued

54 A Typical Feasibility Study (Continued) Conduct cost and profitability assessment Plan for future action Determine the funds required to set up your business. Develop short-term financial projections including: Cash flow forecasts Pro forma profit and loss statements Pro forma balance sheet Breakeven analysis Whet were the strong and weak points of your venture idea? Did your assessment indicate the business was likely to be profitable? Is it sufficiently attractive to proceed with the development of a complete business plan? Feasibility Study Contents

55 Some Guidelines for Market Research Questionnaires Pre-test the survey on a small group of people Make certain you are asking the “right” questions Decide how you intend to use the information when designing the questionnaire Keep your survey concise and readily understandable Ask direct questions that relate specifically to the topic in which you are interested If you are providing a finite range of possible answers, try to provide a maximum of five possible responses Make sure your questions can be easily answered by your respondents Continued

56 Some Guidelines for Market Research Questionnaires (Continued) Don’t offend anyone Don’t mislead respondents about the purpose of the survey Don’t answer the questions for them by prompting them for answers Give respondents sufficient time to provide an appropriate response Don’t bias their responses by personally reacting to their answers Ask all personal information at the end of the survey Always be courteous; remember they are doing you a favour

57 How to Market Test Your Idea 1. Develop a Prototype 2. Obtain Opinions from Prospective Distributors 3. Compare with Competitor’s Products 4. Conduct a One-Store Test 5. Exhibit at Trade Shows 6. Conduct a Customer Survey

58 Stage 7 Conducting a Feasibility Study Part 2: Cost and profitability Assessment

59 Conducting a Feasibility Study: Part 2 Evaluate financial feasibility of concept Estimate one-time start-up expenditures Estimate expected monthly operating expenses Develop short-term financial projections Determine your breakeven point Forecast your cash flow Pro forma income statement Pro forma balance sheet

60 Sample Pro Forma Income Statement TOUGH GUYS SPORTING GOODS PRO FORMA INCOME STATEMENT For the year ending [date] Net sales$714,000(A) Less: Cost of goods sold: Beginning inventory$195,000 Plus: Net purchases 483,000 Goods available for sale$678,000 Less: Ending inventory 210,000 Cost of goods sold 468,000(B) Gross margin$246,000(C) Operating expenses 231,000(D) Net Profit (Loss) Before Income Tax$ 15,000(E)

61 Completed Pro Forma Income Statement TOUGH GUYS SPORTING GOODS PRO FORMA INCOME STATEMENT For the Year (date) 1. Gross Sales$714,000 2. Less: Cash Discounts 0 A. NET SALES714,000 Cost of Goods Sold: 3.Beginning Inventory$167,000 4. Plus: Net Purchases 483,000 5.Total Available for Sale$528,000 6.Less: Ending Inventory 210,000 B. COST OF GOODS SOLD$468,000 C. GROSS MARGIN$246,000 Less: Variable Expenses 7.Owner’s Salary40,000 8.Employees’ Wages and Salaries71,384 9.Supplies and Postage0 10.Advertising and Promotion20,706 11.Delivery Expense5,712 12.Bad Debt Expense0 13.Travel0 14.Legal and Accounting Fees4,284 15.Vehicle Expense0 16.Miscellaneous Expenses 46,124 Continued

62 Completed Pro Forma Income Statement (Continued) TOUGH GUYS SPORTING GOODS PRO FORMA INCOME STATEMENT For the Year (date)  Continued D.TOTAL VARIABLE EXPENSES$189,210 Less: Fixed Expenses 17.Rent11,424 18.Repairs and Maintenance3,570 19.Utilities (Heat, Light, Power)7,140 20.Telephone1,000 21.Taxes and Licences1,000 22.Depreciation7,140 23.Interest8,568 24.Insurance3,570 25.Other Fixed Expenses 0 E.TOTAL FIXES EXPENSES$ 43,412 F.TOTAL OPERATING EXPENSES$231,000* G.NET OPERATING PROFIT (LOSS)$ 15,000 * Numbers may not match operating expense percentages exactly due to rounding.

63 Sample Cash Flow Forecast Year 1 Jan.Feb.Mar.Apr.MayJuneJulyAug.Sept.Oct.Nov.Dec. Total Cash Flow from Operations (during month) 1. Cash Sales12,00018,00022,20028,80030,00036,60039,00030,00024,00024,00021,00030,000315,600 2. Payments for Credit Sales08,00012,00014,80019,20020,00024,40026,00020,00016,00016,00014,000190,400 3. Investment Income0000000000000 4. Other Cash Income0000000000000 A. TOTAL CASH ON HAND$12,000$26,000$34,200$43,600$49,200$56,600$63,400$56,000$44,000$40,000$37,000$44,000$506,000 Less Expenses Paid (during month) 1 5. Inventory or New Material-13,200-19,800-24,420-31,680-33,000-40,260-42,900-33,000-26,400-26,400-23,100-33,000-314,160 6. Owner’s Salary-3,000-3,000-3,000-3,000-3,000-3,000-3,000-3,000-3,000-3,000-3,000-3,000-36,000 7. Employees’ Wages and Salaries-2,000-3,000-3,000-3,500-4,300-4,300-4,500-4,500-3,000-2,500-2,500-3,900-41,000 8. Supplies and Postage0000000000000 9. Advertising and Promotion-2,000-1,000-500-700-700-700-800-1,000-500-800-800-1,500-11,000 10. Delivery Expense-200-250-250-300-300-400-400-500-300-300-300-500-4,000 11. Travel0000000000000 12. Legal and Accounting Fees-500-250-250-250-250-250-250-250-250-250-250-250-3,250 13. Vehicle Expense0000000000000 14. Maintenance Expense-1,00000-8000-1,0000-500-1,0000-7000-5,000 15. Rent-1,100-1,100-1,100-1,100-1,100-1,100-1,100-1,100-1,100-1,100-1,100-1,100-13,200 16. Utilities-450-450-450-450-450-450-450-450-450-450-450-450-5,400 17. Telephone0000000000000 18. Taxes and Licences-1,000000000000001,000 19. Interest Payments0-90-125-135-140-110-90-300000-720 20. Insurance-60000-60000-60000-60000-2,400 21. Other Cash Expenses-2,000-2,000-2,000-2,000-2,000-2,000-2,000-2,000-2,000-2,000-2,000-2,000-24,000 B. TOTAL EXPENDITURES(27,050)(30,940)(35,095)(44,515)(45,240)(53,570)(56,090)(46,330)(38,000)(37,400)(34,200)(45,700)(494,130) Pro Forma Cash Flow Forecast for Tough Guys Sporting Goods 12-Month Cash Flow Projections Minimum Cash Balance Required = 5,000 1. Expenses and other payments should be entered as negative (-) numbers. Continued

64 Sample Cash Flow Forecast (Continued) Year 1 Jan.Feb.Mar.Apr.MayJuneJulyAug.Sept.Oct.Nov.Dec. Total Capital Purchase of Fixed Assets0000000000000 Sale of Fixed Assets0000000000000 C. CHANGE IN CASH FROM PURCHASE OR SALE OF ASSETS$0$0$0$0$0$0$0$0$0$0$0$0$0 Financing Payment of Principal of Loan0000-4,000-3,000-7000-30000000-17,000 Inflow of Cash from Bank Loan11,0004,0001,0001,0000000000017,000 Issuance of Equity Positions0000000000000 Repurchase of Outstanding Equity0000000000000 D. CHANGE IN CASH FROM FINANCING$11,000$4,000$1,000$1,000($4,000)($3,000)($7,000)($3,000)$0$0$0$0$0 E. INCREASE (DECREASE) IN CASH($4,050)($940)$105$85($40)$30$310$6,670$6,000$2,600$2,800($1,700)$11,870 F. CASH AT BEGINNING OF$10,000$5,950$5,010$5,115$5,200$5,160$5,190$5,500$12,170$18,170$20,770$23,570$10,000 2 PERIOD G. CASH AT END OF PERIOD$5,950$5,010$5,115$5,200$5,160$5,190$5,500$12,170$18,170$20,770$23,570$21,870$21,870 MEET MINIMUM CASH BALANCE Accept.Accept.Accept. Accept.Accept.Accept.Accept.Accept.Accept.Accept.Accept.Accept.Accept. Pro Forma Cash Flow Forecast for Tough Guys Sporting Goods 12-Month Cash Flow Projections (Continued) Minimum Cash Balance Required = 5,000 2. This entry should be the same amount as for the beginning of the year. All other rows will be the total for the entire year. Copyright © 2000, McGraw-Hill Ryerson Limited Slide 7.4B Building a Dream

65 Sample Pro Forma Balance Sheet ASSETS Current Assets: 1.Cash10,000 2.Accounts Receivable30,000 3.Inventory210,000 4.Other Current Assets30,000________ A. Total Current Assets$280,000 Fixed Assets: 5.Land and Buildings0 less depreciation0 6.Furniture and Fixtures90,000 less depreciation5,00085,000 7.Equipment0 less depreciation0 8. Trucks and Automobiles0 less depreciation0 9.Other Fixed Assets34,000 less depreciation3,00031,000_______ B. Total Fixed Assets$ 116,000 C. Total Assets (C = A + B)$396,000 TOUGH GUYS SPORTING GOODS BALANCE SHEET End of Year 1 Continued

66 LIABILITIES Current Liabilities (due within 12 months) 10.Accounts Payable123,000 11.Bank Loans/Other Loans39,000 12.Taxes Owed_______ D. Total Current Liabilities$162,000 Long-Term Liabilities 13.Notes Payable (due after one year)150,000 14.Other Long-Term Liabilities68,000_______ E. Total Long-Term Liabilities$218,000 F. Total Liabilities (F = D + E)$380,000 NET WORTH (CAPITAL) SHARE CAPITAL Common Shares1,000 Preferred Shares0 RETAINED EARNINGS 15,000 G. Total Net Worth (G = C  F)$ 16,000 H. Total Liabilities and Net Worth (H = F + G)$396,000 TOUGH GUYS SPORTING GOODS BALANCE SHEET End of Year 1 (Continued) Sample Pro Forma Balance Sheet (Continued)

67 Determining Your Break-Even Point 100 200 300500 400 600 700 Sales Revenue (thousands of dollars) 100 200 300 400 500 600 700 Expenses (thousands of dollars) Fixed Expenses Loss Area Breakeven Point Total Costs Sales Profit Area

68 Stage 8 Organizing Your Business

69 Organize Your Business Select the organizational structure for your business Sole Proprietorship PartnershipCorporation Select and register a business name Select and register a partnership name Select a corporate name Draw up a partnership agreement Draw up articles of incorporation File for incorporation with provincial or federal government Comply with provincial licensing requirements Comply with municipal licensing requirements Deal with mandatory deductions Consider employment standards

70 Forms of Business Organization Sole Proprietorship Advantages Simple and inexpensive to start Individual control over operations All profit to the owner Losses deductible from any other income Disadvantages Unlimited liability More difficult to obtain financing Limited resources and opportunity

71 Forms of Business Organization Partnership Advantages Pooling of financial resources and talents Simplicity and ease of organization Increased ability to obtain capital Potential for growth Disadvantages Unlimited liability Divided authority

72 Forms of Business Organization Limited Partnership Advantages Limited liability for limited partners Disadvantages Centralized management Difficulty in changing ownership

73 Forms of Business Organization Corporation Advantages Limited liability Continuity of the business Easier to raise capital Potential employee benefits Tax advantages Disadvantages Cost Legal formalities Inability to flow losses through to the shareholders Need for personal guarantees

74 Other Legal Requirements Licences and Permits –Municipal –Provincial –Land Use and Zoning Mandatory Deductions –Income Tax –Employment Insurance –Canada Pension Plan Taxes –Provincial Sales Tax –GST/HST Employment Standards Insurance

75 Types of Insurance 1.General Liability Insurance 2.Business Premises Insurance 3.Business Use Vehicle Insurance 4.Business Interruption or Loss-of-Income Insurance 5.Disability or Accident and Sickness Insurance 6.Key Person Insurance 7.Credit Insurance 8.Surety and Fidelity Bonds 9.Partnership Insurance 10.Workers’ Compensation

76 Stage 9 Protecting Your Idea

77 Protect Your Idea Protecting your intellectual property Apply for any patents Register your trademarks Copyright protection Integrated circuit topographies

78 Forms of Intellectual Property Patents Trademarks Copyright Industrial Designs Integrated Circuit Topographies

79 Patent Can be granted to the inventor of any new and useful product, chemical composition, machine or manufacturing process Awarded on a “first to file” basis Protection provided for 20 years from date of application The onus is on you to protect your rights under the patent Holding a patent does not necessarily mean commercial success

80 Trademark A word, symbol, picture, design, or combination of these that distinguishes your goods and services from those of others Can be registered to enable you to obtain exclusive use Non-mandatory that it be registered but does establish obvious proof of ownership Registration is effective for 15 years and may be renewed for a series of 15-year terms as long as it is still in use Onus is on the owner to police the use of the trademark Registration in Canada provides no protection in other countries

81 Copyright Copyright precludes others from reproducing or copying your original published work--books, leaflets, lectures, maps, musical compositions, computer programs, etc. Exists for the duration of your life plus 50 years after your death No legal requirement the work be registered; copyright is automatically acquired upon creation of an original work Responsibility for policing copyright rests with the holder A copyright in Canada provides simultaneous protection in most other countries of the world

82 Stage 10 Arranging Financing

83 Sources of Financing How will you finance your business? Personal savings Credit from suppliers Loans and mortgages from banks, credit unions and others Government assistance programs Love money Equity capital from private sources Leasing Friends and neighbours Local professionals and angel investors Prepare loan or grant request package Employees Venture capitalists

84 Major Sources of Funds Personal Funds “Love Money” Banks and Similar Institutions –Operating Loans –Term Loans Federal Government –Canada Small Business Financing Program –Industrial Research Assistance Program (IRAP) –Program for Export Market Development (PEMD) –Community Futures Program (CFP) –Women’s Enterprise Initiative Loan Program –Aboriginal Business Canada – Youth Entrepreneurship –Business Development Bank of Canada (BDC) Continued

85 Provincial Government Programs Venture Capital and “Angel” Investors Other Sources of Financing –Personal Credit Cards –Canadian Youth Business Foundation –Suppliers’ Inventory Buying Plans –Leasing vs. Buying –Negotiated Leasehold Improvements –Advance Payment from Customers Major Sources of Funds (Continued)

86 Getting the Best From Your Banker Know what your banker is looking for Don’t “tell” your banker, “show” him Interview your banker Passion makes perfect Ask for more money than you need Get your banker involved in your business Increase your credit when you don’t need it Make professional introductions If all else fails, keep looking

87 Stage 11 Preparing Your Business Plan

88 Preparing Your Business Plan Prepare your business plan Develop a vision statement Formulate your mission statement Develop clear and specific objectives Develop a realistic business plan A typical business plan Letter of transmittal Title page Table of contents Executive summary and fact sheet Body of the plan Description of the company and the industry Overview of your product/service offering Market analysis Your marketing plan Your development plan Your production/operations plan Your management team Your implementation schedule Your financial plan Appendices

89 Steps in the Business Planning Process 1. Develop a Vision Statement 2.Formulate a Mission Statement 3.Define the Fundamental Values by Which You Will Run Your Business 4.Set Clear and Specific Objectives 5.Making It Happen! Develop a Realistic Business Plan

90 Types of Business Plans The Summary Business Plan –10 pages or so –Can be used by early-stage business to apply for a bank loan or may be all that is needed for a lifestyle business The Full Business Plan –Will run from 10 to 40 pages plus appendices –Covers all key areas in enough depth to permit a full exploration of the principal issues –Used when trying to raise a substantial amount of external financing The Operational Business Plan –Usually exceeds 40 pages in length –Used when a business is growing very rapidly or as part of an annual planning process

91 Advantages of Preparing a Business Plan Helps you face reality and the facts Forces you to think ahead and consider the future Assists you in summarizing your skills Helps you identify and define your strategic program Establishes the amount of financing you require Outlines the financial future or your business through projected statements Provides you with an effective sales tool Inspires confidence in yourself and projects that confidence to others

92 What Should a Business Plan Contain? 1. Letter of Transmittal 2.Title Page 3.Table of Contents 4.Executive Summary and Fact Sheet 5.Body of the Plan The Company and Industry The Product/Service Offering Market Analysis The Marketing Plan The Development Plan The Production/Operations Plan The Management Team Implementation Schedule and Risks Associated with the Venture The Financial Plan 6.Appendices

93 A Typical Business Plan 1. Letter of Transmittal 2. Title Page 3. Table of Contents 4. Executive Summary and Fact Sheet Introduce your business plan to the reader Outline the major features that may be of interest Provide identifying information about you and your proposed business. Name, address and contact numbers for the business as well as key company contacts A list of the major headings and sub-headings contained in your plan. A 1-2 page summary of the most important points in your plan May be the most important part of your business plan Your Fact Sheet summarizes the basic information that relates to the venture Business Plan Contents Continued

94 A Typical Business Plan (Continued) 5. Body of the Plan History and current situation of your company Goals and objectives for the business Principal characteristics and trends in the industry Detailed description of your product or service Outline stage of development and proprietary position Describe the profile of your principal target customers Indicate current market size, trends, and seasonal patterns Assess the nature of your competition Estimate your expected sales and market share Company and the Industry Product-Service Offering Market Analysis Continued

95 A Typical Business Plan (Continued) Detail the marketing strategy you plan to use Describe your marketing plan insofar as your sales strategy, advertising and promotion plans, pricing policy, and channels of distribution Your Marketing Plan Outline of the development status of your product and what is still required to get it to a market-ready state Are there regulatory, testing or other requirements that still have to be met? Your Development Plan Outline the operating side of your business Describe your location, kind of facilities, space requirements, capital equipment needs, and labour requirements Your Production/Operations Plan Continued 5. Body of the Plan (Continued)

96 A Typical Business Plan (Continued) Continued Present an overall schedule indicating what needs to be done to launch your business and the timing required to bring it about Discuss the major problems and risks that you will have to deal with as well Your Implementation Schedule Identify your key management people, their responsibilities and their qualifications Indicate the principal shareholders of the business, your principal advisors and the members of your Board of Directors Your Management Team 5. Body of the Plan (Continued)

97 A Typical Business Plan (Continued) Indicate the type and amount of financing you are looking for and how the funds will be used Outline your proposed terms of investment, the potential return to the investor, and what benefit is being provided Provide an overview of the current financial structure of your business Prepare realistic financial projections that reflect the effect of financing. Include: Cash flow forecasts Pro forma profit and loss statements Pro forma balance sheet Breakeven analysis Your Financial Plan Continued 5. Body of the Plan (Continued)

98 6. Appendices Supporting material for your plan including: Detailed resumes of the management team Product literature and photographs Names of possible customers and suppliers Consulting reports and market surveys Copies of legal documents Publicity material Letters of reference A Typical Business Plan (Continued)

99 Tips for Developing Your Business Plan Be prepared to spend weeks – or months - completing your plan Work on individual sections at a time Be brief but complete Focus on the intended reader Use layman’s terms Treat your business plan as a “living” document Be realistic Discuss the business risks of your firm Don’t make vague or unsubstantiated statements

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