Marketing Essentials

1. Marketing Essentials nChapter 35 Developing a Business Plan Section 35.3 Financial Aspects of The Business Plan

2. SECTION 35.3 Financial Aspects of the Business Plan What You'll Learn • How to describe the elements found in the financial section of a business plan • How to identify sources of equity capital • How to identify sources of debt capital

3. SECTION 35.3 Financial Aspects of the Business Plan Why It's Important • It takes money to start and operate a business. Most entrepreneurs need to borrow money to begin business operations. Potential investors and lenders want to look at the financial estimates for a new business to insure that their efforts will be profitable for them.

4. SECTION 35.3 Financial Aspects of the Business Plan Key Terms • equity capital • debt capital • collateral • credit union

5. SECTION 35.3 Financial Aspects of the Business Plan Equity Capital • Raising money from within your company or by selling part of the interest in the business is called using equity capital. You do not need to repay the money or pay interest, but the investor becomes a co-owner. Equity capital sources include: • personal savings • partners • shareholders

6. SECTION 35.3 Financial Aspects of the Business Plan Debt Capital • Raising funds by borrowing money is called using debt capital. You must pay interest when you repay your loan, but the interest you pay is a tax-deductible business expense, and no ownership passes to the lender. Debt capital sources include: • banks • credit unions • friends and relatives • suppliers and previous owners Slide 1 of 5

7. SECTION 35.3 Financial Aspects of the Business Plan Debt Capital • Banks evaluate potential borrowers on criteria called the six Cs of credit: • Capital—your personal investment in the business. • Collateral—assets pledged to insure repayment. • Capability and Character—your background and credit history. • Coverage—insurance. • Circumstances—the general circumstances of your business. Slide 2 of 5

8. SECTION 35.3 Financial Aspects of the Business Plan Debt Capital Credit Unions A credit union is a cooperative association formed by labor unions or groups of employees for the benefit of its members. Credit unions often charge lower interest rates on loans than banks do, but you must be a member to borrow money. Slide 3 of 5

9. SECTION 35.3 Financial Aspects of the Business Plan Debt Capital • Friends and Relatives Many people begin their businesses with funds borrowed from relatives and friends. When borrowing money from family or friends, put all agreements in writing to avoid future problems and misunderstandings. Slide 4 of 5

10. SECTION 35.3 Financial Aspects of the Business Plan Debt Capital • Suppliers and Previous Owners Some suppliers may provide you with a low interest loan to purchase inventory, furniture, fixtures, and equipment on a delayed payment basis. • The previous business owner may provide you with a loan and a favorable repayment plan to get you started. Slide 5 of 5

11. SECTION 35.3 Financial Aspects of the Business Plan Financial Statements Your financial statements display your business’s projected income and expenses, and help persuade investors to loan you money.

12. ASSESSMENT 35.3 Reviewing Key Terms and Concepts • 1. Name the two major parts in the financial section of a business plan. • 2. Identify three main sources of equity capital. • 3. How can a corporation raise capital? • 4. What are the main sources of debt capital? • 5. What are the six Cs of credit?

13. ASSESSMENT 35.3 Thinking Critically • What factors would you consider in selecting a lender for a business?

14. Marketing Essentials End of Section 35.3