Financing your business

Vocabulary Financing- is the use and manipulation of money to start a business; referred to as start-up-capital o OPM – Other people’s money Debt - business borrows money and pays it back over time with interest usually in the form of a promissory note. Equity - the business gives up ownership for money and in return, the investor receives a percentage of future profits NFTE, Ch7

A corporation- is owned by people who invested in it. A corporation is considered a legal “person” and can borrow money by issuing bonds or selling stocks Companies that rely heavily on debt financing are described as highly leveraged. NFTE, Ch7

The Business Plan The business plan may help to secure financing for the business. Five main sections of the business plan Introduction Marketing Financial Management Operations Concluding Statement Ch 3 South-Western

Introduction Detailed description What inspired your business idea? What is your business about? What are your short-term, medium term, and long term goals? Let’s begin………………… With the Statement of Purpose and Executive Summary Ownership and legal structure What is the legal structure? Sole Proprietorship; partnership; corporation Skills and Experience What are your skills in this business? Paid work, volunteer, experience related to this business What are the skills and experience of the people you will hire? Advantages What are your advantages over the competition? Price? Promotion? Quality? Distribution? Reputation? Reliability? Ch 3 South-Western

What to include Which of the four basic business types is YOUR business? (manufacturing, wholesale, retail, service) Which ‘root’ of opportunity can you fulfill? problems, changes, inventions, competition, technological advances Statement of Purpose- one or two paragraphs Explain why you need money and what you plan to do with it. Executive Summary- one or two pages be convincing describe your concept and why it is unique include projections for costs, sales, profits identify your needs (buildings, equipment, etc.) how much do you need to borrow

Financial Management Look at the financial risks, and the costs and expenses of running a business -- Identify the risks Will you borrow money? How will you borrow money? i.e. competitors cutting prices, costs exceeding projections, demand declines The Financial Worksheet Mrs G’s start-up costs sample

Financial Management Start-up Costs list your start-up costs in your spreadsheet Anticipate your costs Break even analysis Financing Basics

Marketing Describe the product or service, the market, the industry, and the location of your business. Products and services Describe yours and how they differ from others on the market What unique features does your product/ service have? Market Who will your customers be? How large the market is for your product? How will you deal with competition? Industry Describe the industry your business is in What are the growth forecasts for this industry? What are the economic trends? Cycles? Are there technology trends that affect this industry? Location Location of a business is often a critical factor in success Ch 3 South-Western