1. Lecture 10 Financial Issues
Dr. Hatem Elaydi
ECOM 5368 Engineering Management (Entrepreneurship & ework)
Islamic University of Gaza
Oct 3, 2016

2. 5.1 Start-up Costs
Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship

3. Start-up costs: six steps
Calculate the amount of capital that you will need to start the business.
Determine whether or not the business has potential for profitability.
Prepare a projected cash flow as a viable tool for planning the most efficient uses of your cash.
Prepare a balance sheet to give you a snapshot of the financial position of the business on a specified date.
Develop a sales forecast based on industry and customer trends in order to provide everyone working in the business with a goal.
Determine how well is your business is doing compared with previous periods or other competitors by comparing certain data about your business. (sales ratio, return on investment, liquidity, debt management, activities, turnovers)
Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship

4. Definitions
Start-up costs: all expenditure a business will have prior to opening doors minus what owner will contribute.
Start-up costs don’t include existing assets of owner and owner’s spare labor.
Costs after opening doors: cost of goods sold and operating cost.
Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship

5. Summary of costs
Research & development: market research, product development, business plan development
Management: office supplies, legal & accounting, licenses and taxes, owner wages
Production assets: plant & equipment, land, transportation – company vehicle
Overhead: utilities(electricity, water, garbage pickup, gas), insurance(fire, liability, theft, life), leases, rents
Production costs: improvement & maintenance, inventory, materials, freight, customs duties
Sales costs: advertising, promotion, travel
Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship

6. Formulas
Start-up capital = start-up cost + operating requirements available funds of owner
Start-up capital: the amount of money or funds required to bring the business to the point of sales
Start-up cost: all costs involved in starting up a business
Operating requirements: the cost that you have to continue production, such as wages, inventory, and materials
Available funds of owner: funds that owner have available to invest in the business
Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship

7. 5.2 Income statement
Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship

8. Income statement
It provides the entrepreneur with a financial measure of profitability of the business over a specified period of time
Profit: the monetary increase or decrease of an owner’s business in a given accounting period.
Profitability: difference between revenues and expenses
Revenues: sales and receivables of goods and services
Expenses: costs incurred to bring those services and business to the point of sales
Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship

9. Income statement 2: five elements
Revenues: sales
Cost of goods sold: CofGS
Gross profit (markup): difference between revenues and CofGS. Gross margin: gross profit as percentage of sales
Expenses: operating cost (warranties, services, etc)
Net operating income: monetary profit or loss of a business over a specified period of time. Calculated by subtracting expenses from the gross profit margin
Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship

10. Income statement 3: formulas
Revenues: sales
Cost of goods sold: CofGS
Gross profit = revenues – CofGS
Net operating income = gross profit - expenses
Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship

11. 5.3 Cash flow
Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship

12. Cash flow: two elements
Inflows: all sources of cash received (sales, loans, capital sales, owners contributions
Outflows: all cash disbursements (inventory purchases, cash operating expenses, loan payment, capital expenditures, owner withdrawals)
Ending balance = beginning balance + inflows - outflows
Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship

13. 5.4 Balance sheet
Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship

14. Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship