Accounting and Finance 101 Cassie Davis and Marissa Milligan

Agenda Develop sources and uses of cash One unit cost Operating cash flow projection Debt: business loans, (will not be using personal debt to fund business – not be using your credit card) Main source of cash is Equity that investor is going to purchase Uses: Two Types (1) Start up –Example: Andrew and Sarah the costs incurred for start up will include the designing of the dispenser, manufacturing the product and holding inventory, advertising expenses to show that your product exists Everything you need to be able to sell your product 2) The costs incurred after you begin selling your first unit will include storage, continuing advertising, manufacturing additional runs of your product.

Uses of Cash (1) Start-up Costs Uses: Cash outlays before selling one unit (1) Start-up Costs Organizational Costs: professional fees, legal fees, patent fees Expenses incurred to produce prototype Hire/train people before production Advertising expenses Capital expenditures Programmers Graphic Designers Debt: business loans, (will not be using personal debt to fund business – not be using your credit card) Main source of cash is Equity that investor is going to purchase Uses: Two Types (1) Start up –Example: Andrew and Sarah the costs incurred for start up will include the designing of the dispenser, manufacturing the product and holding inventory, advertising expenses to show that your product exists Everything you need to be able to sell your product 2) The costs incurred after you begin selling your first unit will include storage, continuing advertising, manufacturing additional runs of your product.

Uses of Cash (2) When Revenue is less than Operating Expenses Cash you need to have in order to keep your business running until you are able to make a profit Direct Materials Direct Labor Overhead

Debt: borrow money bank Equity: how much money the investor gives you Sources of Cash Debt: borrow money bank Equity: how much money the investor gives you

Direct Materials Direct Labor One Unit Cost Direct Materials Direct Labor

Revenue Revenue = Selling Price x Units Sold Selling Price = Direct Material + Direct Labor + Profit Markup Units Sold: Following Marketing Assumptions Who is your market? How big is your market? What percentage of the market do you expect to capture? How many units is each person buying?

Breakeven Analysis Revenues > Expenses Positive Cash Flow Need to know how much cash need to make a profit

Questions? Kirk Help

Appendix

Why is Accounting Important for Entrepreneurs? Ability to account for sales and expenses Understanding sources and uses of cash to develop a budget Needs to be factual and reliable When will I reach $100,000 in sales? Accounting is going to develop platform for how your business can be successful. The tools of understanding sales and expenses will help to provide guidance to how much money you need to get your business up and running.

What is Accounting Accounting is a record of the financials of your company Fundamental accounting equation Assets = Liabilities + Owners Equity Financial Statements Income Statement, Statement of Cash Flows, Balance Sheet The basics include:

Definitions Balance Sheet: Snapshot: summarizes financial position at a give point in time Asset: a resource with economic value that is owned or controlled with expectations to provide a future benefit Cash, Accounts Receivable, Inventory, Land, Property Liabilities: financial debt or obligations; used to finance operations Accounts Payable, Debt (long term and short term) Owners Equity: shareholders interest and accumulated earnings of a company Common Stock and Retained Earnings Asset example: Joe the finished product of your wearable products (inventory) Liabilities example: Marharita you still owe money to your manufacturer who produced your product (Accounts Payable) Equity example: Shannon you own 60% of your company, BGSU owns 7.5% of your company, and the investor owns 32.5% Long term: more than a year vs Short term: less than a year

Balance Sheet Assets Cash 100,000 Accounts Receivable 120,000 Inventory 150,000 Total Assets 370,000 Liabilities and Owners’ Equity Accounts Payable 50,000 Debt 100,000 Total Liabilities 150,000 Common Stock 100,000 Retained Earnings 120,000 Total Owners’ Equity 220,000 Total Liabilities and Owners’ Equity 370,000 Here is an example of the Balance Sheet, it shows assets, liabilities, and equity. Totals Assets = Total Liabilities + Owners Equity

Definitions Income Statement: Shows the bottom line: whether the company is making a profit. (Revenue – Expenses = Net Income) Sales: Selling Price x Number of Units Sold Cost of Goods Sold: total cost to make product Gross Profit (Loss): the profit a company makes after deducting the cost associated with making its products Other Expenses: Advertising, Interest, Insurance, and Taxes Net Income: Profit or Loss Cost of Goods Sold: Would be manufacturing costs such as direct material, direct labor, and variable overhead. Fatima this would be your material and the labor involved in sewing your product Other Expenses: Fixed Costs such as Selling, General Administrative (service costs) Fatima your fixed costs would be storage for your inventory and advertising

Income Statement Sales (Revenue) 500,000 Cost of Goods Sold (200,000) Gross Profit (Loss) 300,000 Other Expenses (100,000) Net Income 200,000 Here is an example of an Income Statement. Which shows your Revenue – Expenses = Net Income Also = a P/L

Statement of Cash Flow Operating Activities Cash Received from Customers 100,000 Cash Paid to Suppliers and Employees (50,000) Cash Flow from Operations 50,000 Investing Activities Capital Expenditures (50,000) Cash Flow from Investing Activities (50,000) Financing Activities Debt 50,000 Stock 50,000 Cash Flow from Financing Activities 100,000 Change in Cash Position 100,000 This is the BREAD AND BUTTER. The basic idea with cash flow is to make sure you have enough funds to get your business up and running and to continue to run until you produce a profit If you want to be successful, you need enough cash.

Pricing and Profit Target Costing Selling Price – Desired Profit = Maximum Cost of Product Cost Plus Pricing Cost of the Product + Markup Percentage = Selling Price Return On Sales (ROS): Net Income/Net Sales = Profit Margin % It measures a company's performance by analyzing what percentage of total company revenues are actually converted into profit

Projected Financial Statements Using certain assumptions and projections to make future financial statements We would like to individually meet with each team to discuss and put together these financial statements

Questions? Kirk Help