Finance Workshop 02/23/2014

1. Finance Workshop 02/23/2014

2. Introductions Making a Case for Financial Sustainability Basic Financial Information Income Statement Cash Flows, Balance Sheet, Breakeven Sample Exercise Recap Q&A Appendix - Glossary Agenda / Table of Contents 6:00 to 6:30 6:30 to 7:00 7:00 to 7:45 Ask Questions & Take Breaks as needed 7:45 to 8:00 2

3. Introductions • Workshop Facilitator - Mike Gibson • BS in Accounting, Master of Business Administration • 30+ years experience in Corporate Accounting and Finance • Colonial Penn Life, GE Financial Assurance, ING US • 10+ years small business experiences as officer/treasurer of HOA • U-Innovate! Teams • Team members • Team Project Description Name Major Academic Year • Faculty Leaders • Carol Cirka- Business and Economics • Rebecca Jaroff– English • April Kontostathis– Mathematics and Computer Science 3

4. Making a Case for Financial Sustainability • Financial sustainability - achieved when a venture is able to deliver products and services to the market at a price that covers their expenses over the long term. • In the assessment of financial sustainability: • Economic logic is present and estimates seem to be based on reasonable assumptions, i.e.: • Price to the customer, costs, sales needed to breakeven, sales forecast, gross margin, etc. • Estimates indicate that the venture has significant potential for financial sustainability. • Financial Sustainability requires the team to apply finance concepts in understanding, tracking and managing its revenues and costs! 4

5. Elements of Information for Financial Sustainability • Basic Financial Statements • Income Statements - Revenue, Expenses • Balance Sheet • Statements of Cash Flow • Assumptions • Time Horizon – 3 to 5 years • Source of Capital/ Financing • Company organization – e.g. For-Profit vs. Non-profit • Source and Estimates of Revenues • Methods/source for developing cost assumptions • Analytics • Break Even Analysis, Other Metrics • Relevant Benchmarks/Comparisons to Peer Companies • Supporting Documents – leases, licenses, loans, etc. 5

6. Financial Information – Income Statement • Expenses • Costs incurred in a period related to the generation of revenue • Cost of Sales - variable • Cost of materials • Labor related to the production or sale of goods/services • General and Admin Expenses • Fixed Costs – Administrative & Overhead Expenses • Salaries/staff expenses – employees not related to production • Rent • OtherCosts • Recognition factors • Revenue • Income realized in a period related to normal business activities • Sources of Revenue • For Profit vs. Non-profit • Types of Revenue: • One-time • Product sales • Software license • Recurring • Software maintenance • Recognition factors 6

7. Other Financial Data • Balance Sheet • Assets = • Liabilities & Equity • Cash Flow: • Operations • Source of cash to fund start-up • Time to break-even • Investing – buying, selling assets • Financing – changes in debt, equity • Analytics • Break-even analysis $ Revenue Profit Breakeven Total costs Fixed costs Loss 0 Units 7

8. Financial Statements – Pulling it Together • Income Statement • Net Sales (Revenue) • -Cost of Sales (COS) • = Gross Profit • Fixed operating costs (except depreciation) • = Earnings Before Interest, Taxes, Depr & Amort (EBITDA) • Depreciation and amortization • = Net Operating Income = EBIT • Interest • = EBT • Taxes • = Net Income • Cash Flow: • Net Income + Depreciation & Amortization (non-cash) = Net Cash Flow Revenue per Unit minus COS per unit = Gross Profit Margin 8

9. Exercise – Pop-a Bears Popcorn Company! • Assumptions • Start-up • One F/T employee • Two P/T employees • Campus retail location • Selling Prices • Plain = $3.00 • Caramel = $3.50 • Drinks = $1.00 • Gross profit margin = $2.50 • Sales Opportunity • Healthy snack • Easy to carry around • Gaining in popularity • Geographic advantage • No direct competition Revenue & Expense Exercise 9

10. Pop-a Bears Popco – Assumptions • Operating Assumptions • Campus location in Student Union, and presence at activities (football, etc.) • One full-time employee – owner/manager • Two part-time student employees • 1st year operations grade up; normalized volume of 18k units attained in year 2 • Offering popcorn and cold beverages • Research shows that popcorn consumption will grow 20% annually with college-age groups, with high potential for repeat business 10

11. Pop-a Bears Popco –Breakeven Analysis Breakeven Example Exercise 11

12. Pop-a Bears Popco – Financial Projections What are the actions to improve profitability? Breakeven in year 5 12

13. Summary – Q&A 13

14. Appendix - Glossary • Income Statement -shows sources of revenues and expenses for certain periods • Revenue - income that a company receives from its normal business activities, usually from the sale of goods and services to customers. • Expense - an outflow of cash or other valuable assets from a person or company to another person or company. • Variable Cost - A periodic cost that varies in step with the output or the sales revenue of a company. • Fixed Cost - A cost that does not change with an increase or decrease in the amount of goods or services produced. • Gross Profit - Revenue less Cost of Sales (COS) • Gross Profit Margin - Revenue per unit less COS per unit. • Breakeven – Revenue = Expenses. Price x Quantity = Fixed Cost + (Variable Costs x Quantity) • Nonprofit - an organization that uses surplus revenues to achieve its goals rather than distributing them as profit or dividends. While not-for-profit organizations are permitted to generate surplus revenues, they must be retained by the organization for its self-preservation, expansion, or plans. 14