2 Startup Costs You need to be sure you have all expenses accounted for. Examples:Equipment and SuppliesFurniture and FixturesVehiclesRemodelingLegal and Accounting FeesLicensing Fees
3 Personal Financial Statement In order to determine if you have the resources to finance your business, begin by assessing your Net Worth (or equity).Net Worth is the difference between what you own and what you owe (assets vs. liabilities).To do this you should prepare a personal financial statement.
4 Generating CapitalThere are two ways to generate capital for your businessEquity financingDebt financingFirst you must calculate your debt to equity ratio.The relation between dollars you have borrowed (debt) vs. the dollars you have invested (equity)Total Liabilities ÷ Total EquityA high ratio means company has been funded through debt (red flag)Low ratio means company was financed through equity
5 Equity FinancingEquity Capital: money invested in business in exchange for a share in the profits of the business.Places to gain equity capitalPersonal ContributionsFriends and RelativesVenture CapitalistsIndividuals or companies that make a living investing in startup companiesThey look for companies who make above average profits, have a chance of making hundreds of millions within a few years, and are likely to go publicNot a solid option for small business because of above criteria.
6 Debt CapitalDebt Capital: is money loaned to a business with understanding that money will be paid back with interest.Friends/RelativesBanks
7 Bank Loans Secured Loans: loans backed by collateral Types of loans: (property that a borrower forfeits if he/she defaults on loan).Types of loans:Line of CreditLong-Term LoanAccounts Receivable FinancingInventory Financing
8 Be Ready A bank may decline you for a loan for these reasons: Business is a startupLack of solid business planLack of experienceLack of confidenceInadequate personal investment
9 Other Sources of Loans Small Business Administration (SBA) Small Business Investment Co. (SBIC)Minority Enterprise SBIC’sDepartment of Housing and Urban Development (HUD)Economic Development Admin (EDA)State GovernmentsLocal Municipalities
10 Pro Forma Financial Statements The financial statements you prepare for your business plan are called pro forma financial statements and are based on projections.They consist of:Cash Flow StatementIncome StatementBalance Sheet
11 Cash Flow StatementDefinition: An accounting report that describes the way cash flows in and out of your business over a period of timeShow how much cash you have to pay bills and whether you have enough to continue operating.EquationCash Receipts – Cash Disbursements = Net Cash Flow