“Running by the Numbers”

 Used to “capitalize” the venture  A = L + OE  How much Owners Equity?  How much Debt?

 A sound financial strategy will answer these questions ◦ How much will it cost to startup? ◦ How much will it cost to run the venture?  Short term cash needs when revenue low ◦ Revenue and Expenses- operations ◦ Capital (for fixed assets and business expansion), how much and when. ◦ Sources of capital  Investors – equity  Loans - debt

 Sales forecasts  Selling costs  Gross profit  Admin. Costs  Pre-tax profit  Balance sheet  Working Capital  Return on Investment  Repayment proposal  Collateral

 All companies need money, therefore, financial objectives must be established and reached.  Examples of financial objectives:  Canadian Cancer Society ◦ Raise $5 for every Canadian ◦ Breakeven  Joe’s Pizza ◦ To increase market share to 10%

 Startup costs ◦ All costs associated with getting the venture up and running ◦ Fixed and variable, capital and expense ◦ Often funded with equity or debt ◦ Often included in the valuation of a business  Operating costs ◦ All costs needed to keep the business going after startup (i.e. support of revenue generation) ◦ Fixed or variable, expenses. ◦ Should be “funded” from revenues

 BREAKEVEN POINT  The point at which total revenues equal the total costs.  Variable Costs ◦ Directly dependent on the quantity of goods produced  Fixed Costs ◦ Constant, independent of sales or other variables  Gross Profit ◦ The selling price minus the variable costs ◦ This profit is used to pay the fixed costs, then to make money for itself

 Break-even Point = Fixed costs / gross profit  Example  Company sells teddy bears for $18. Variable costs are $3 per bear and fixed costs are $150,000  Calculate Gross Profit  Calculate BEP = FC / GP

 The percentage of one company’s sales in relation to the total sales of the industry.  Example-If the ACME company had a $225,000 of sales in a $1,500,000 industry, what is Acme’s market share in a percentage?  SOLUTION  = $225,000 / $1,500,000 x 100  = 15%

 The percent of the final selling price that represents the profit  Profit margin=Selling price-Cost price * 100 Selling price  Example-The Acme Corporation has a selling price of $30 and a cost of $20.  What is the profit margin?  SOLUTION  x 100 = 33% 30

 The amount of profit earned in return for the amount of capital invested.  Return on = Net Income * 100 Investment Amount Invested  Example- ◦ What is the return on investment for the Acme Corporation if it had $ in sales and $ in expenses on its business investment of $ ?  SOLUTION  = 150, ,000 = 30,000 = 3 = = 6.7% 450, ,000 45