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Financing Your Business. Startup Costs. You need to be sure you have all expenses accounted for. Examples: Equipment and Supplies Furniture and Fixtures Vehicles Remodeling Legal and Accounting Fees Licensing Fees. Personal Financial Statement.

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startup costs
Startup Costs
  • You need to be sure you have all expenses accounted for.
  • Examples:
    • Equipment and Supplies
    • Furniture and Fixtures
    • Vehicles
    • Remodeling
    • Legal and Accounting Fees
    • Licensing Fees
personal financial statement
Personal Financial Statement
  • In order to determine if you have the resources to finance your business, begin by assessing your Net Worth (or equity).
  • Net Worth is the difference between what you own and what you owe (assets vs. liabilities).
  • To do this you should prepare a personal financial statement.
generating capital
Generating Capital
  • There are two ways to generate capital for your business
  • Equity financing
  • Debt financing
  • First you must calculate your debt to equity ratio.
    • The relation between dollars you have borrowed (debt) vs. the dollars you have invested (equity)
      • Total Liabilities ÷ Total Equity
    • A high ratio means company has been funded through debt (red flag)
    • Low ratio means company was financed through equity
equity financing
Equity Financing
  • Equity Capital: money invested in business in exchange for a share in the profits of the business.
  • Places to gain equity capital
    • Personal Contributions
    • Friends and Relatives
    • Venture Capitalists
      • Individuals or companies that make a living investing in startup companies
      • They look for companies who make above average profits, have a chance of making hundreds of millions within a few years, and are likely to go public
      • Not a solid option for small business because of above criteria.
debt capital
Debt Capital
  • Debt Capital: is money loaned to a business with understanding that money will be paid back with interest.
    • Friends/Relatives
    • Banks
bank loans
Bank Loans
  • Secured Loans: loans backed by collateral
    • (property that a borrower forfeits if he/she defaults on loan).
  • Types of loans:
    • Line of Credit
    • Long-Term Loan
    • Accounts Receivable Financing
    • Inventory Financing
be ready
Be Ready
  • A bank may decline you for a loan for these reasons:
    • Business is a startup
    • Lack of solid business plan
    • Lack of experience
    • Lack of confidence
    • Inadequate personal investment
other sources of loans
Other Sources of Loans
  • Small Business Administration (SBA)
  • Small Business Investment Co. (SBIC)
  • Minority Enterprise SBIC’s
  • Department of Housing and Urban Development (HUD)
  • Economic Development Admin (EDA)
  • State Governments
  • Local Municipalities
pro forma financial statements
Pro Forma Financial Statements
  • The financial statements you prepare for your business plan are called pro forma financial statements and are based on projections.
  • They consist of:
    • Cash Flow Statement
    • Income Statement
    • Balance Sheet
cash flow statement
Cash Flow Statement
  • Definition: An accounting report that describes the way cash flows in and out of your business over a period of time
  • Show how much cash you have to pay bills and whether you have enough to continue operating.
  • Equation
    • Cash Receipts – Cash Disbursements = Net Cash Flow