AgendaAgenda

• Please Silence Your Cell Phone • Q&A• Learning Objectives• Chapter 8 Financial Strength & Viability• Reminders

Completed Phase 1 – Concept

Completed Phase 2 – Industry

Complete Phase 3 – Organization

…This Chapter – Phase 4

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1. Identify Financial Management Objectives and Tools

2. Estimate Sales Forecast and Expenses

3. Draft Proforma Cash Flow Statement

4. Review Purpose of Financial Ratios

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How Will You Know How Will You Know When Your Business is When Your Business is

Successful? Successful?

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What Have You Learned in College or Through Experience That Has Prepared You to Manage the Financial Aspects of Your Business?

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Raising Money (Chapter 10):◦Sales (Internally Generated)◦ Loans/Debt (Externally Generated)◦ Investment/Equity (External)

Tracking and Managing Money:◦Seek Highest Return◦Track How Much and Where It Is◦Able to Pay Bills and Obligations?

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Profitability – Earn Profit

Liquidity – Pay Bills

Efficiency – Cut Costs

Stability – Avoid Financial Problems

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Historical Financial Statements:◦ Income Statement – Moving Picture◦Balance Sheet – Snapshot◦Cash Flow Statement – Checkbook

Proforma Financial Statements - Forecasts of Projected Sales and/or Expenses

Budgets (Itemized Forecasts)

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Individually Read Case Study 8.2 on Page 252

Individually Formulate Answers to Discussion Questions

Teams Discuss

Class Discussion:◦ Profitability◦ Liquidity◦ Efficiency◦ Stability

Prioritize: Profitability, Liquidity, Efficiency, Stability 9

Who Already Has 3 Reliable Estimates of First Year Sales?

Who Has Completed Pro Forma Cash Flow Statement?

How Can Any New Business Estimate Sales and Expenses?

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1. Trade Association

2. Magazine or Journal Articles

3. Distant Competitor/Mentor

4. Multiplication Method

Feasibility Report Requirements:◦ Three Estimates ◦ From Two of Above Sources◦ Indicate Reliability (High, Medium, Low)

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“We Make Doohookies an Art Form”

Definition: doo·hick·ey ◦n. pl. doo·hick·eys Informal ◦An unnamed gadget or trinket

http://www.stratsplace.com/rogov/doohickeys.html

Our Sales Forecast…

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Start-Up Expenses:◦ .

On-Going Expenses:◦ .

What Expense Categories Will Your Company Have?

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Cash Flow Statement vs. Income Statement

Sources of Income Other Than Sales

Typical Expense Categories

Documenting Start-Up Costs

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Task: Team Will Fill Out Groovy Doohickies’ Cash Flow Statement

Three Months of Activity

Must Identify Where Information Should Be Written on Form

Might Need Calculator

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1. Personal Investment - $30,000

2. First Month’s Rent - $2503. Placed Newspaper Ad - $5,0004. Purchased Goods/Materials - $5,0005. Allocated to Petty Cash - $1006. Paid Self & Partner - $2,0007. Lunch w/ Prospective Customers/Vendors - $508. Travel Expenses - $1509. Contracted for Monthly Janitorial Services - $15010. Purchased Equipment -

$10,00011. Paid Attorney for Incorporation - $50012. Miscellaneous Expenses - $2013. Loan from Bank - $10,000

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1. Interest on Loan - $3502. Contracted with Accountant - $5003. Purchased More Inventory - $5004. Replenish Petty Cash - $255. Monthly Janitorial Service - $1506. Travel for Business - $1507. Developed & Placed Radio Ads - $4,0008. Sales - $1,5009. Paid Self and Partner - $2,00010. Luncheon Meetings with Vendors - $5011. Rent - $25012. Taxes - $20013. Loan Principal Payment - $50

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1. Purchased Inventory - $3,0002. Contracted for Telemarketing Service - $2003. Rent - $2504. Interest on Loan - $3505. Dinner w/ Prospective Customers - $1506. Travel Expenses - $1507. Website - $5,0008. Hired Consultant - $3009. Replenished Petty Cash - $7510. Payment on Loan Principal - $15011. Paid Self and Partner - $2,00012. Taxes - $20013. Monthly Janitorial Service - $15014. Purchased Laptop - $1,000

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What Happened?

Why Did it Happen?

How To Prevent?

Implications for Seasonal Businesses?

Where to Get Estimates?

When to Apply for Loan?

Why Have Assumptions in Writing…

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Complete Projections Before Opening Business

Open Business Checking Account Before Opening Business

Accountant, QuickBooks Pro, or Quicken

Bootstrap!

Remember Murphy’s Laws?

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Everything That Can Go Wrong… Will

Everything Costs More Than You Think

Sales Will Be Worse Than You Project

Everything Will Take Longer Than You Ever Thought It Could

You Will Be Missing Some Important Document

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Sources of Budget Estimates

Compare With Sales Forecast: ◦Will You Generate Enough Sales to Cover

These Budgeted Costs?

Control Tool: ◦Accuracy of Estimate/Forecast◦Efficiency in Spending Budgets

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Develop Draft of Your Company’s Cash Flow Statement

Must Be Included in Feasibility Report

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Illustrate Relationships Between Items in Financial Statements

Reveal Internal Financial Trends

Compare Firm’s Financial Condition to Competitors in Your Industry

Use Ratios to Explain Financial Strengths and Needs to Lenders and Investors

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How Many Products or Services Must Be Sold Before Earning a Profit?

Various Ways to Calculate

Required for Feasibility Report

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1. Identify Financial Management Objectives and Tools

2. Estimate Sales Forecast and Expenses

3. Draft Proforma Cash Flow Statement

4. Determine Usefulness of Financial Ratios

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◦Exam 2 Chapters 6, 9, 8

◦Networking Report

◦Chapter 7 – Ethics & Legal Issues

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