who is score ?
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Who is SCORE ?. Welcome to this Seminar An Introduction to Starting & Growing a Small Business. Financial Management. Funding the Business. How Much Will You Need?. A Basic Question…. “How Much Will You Need To Start & Run a Business ?”. How Much Will You Need?. - PowerPoint PPT PresentationTRANSCRIPT
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Who is SCORE ?
Welcome to this Seminar
An Introduction to Starting & Growing a Small Business
2
Fundingthe
Business
Financial Management
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How Much Will You Need?
“How MuchWill You Need To Start & Runa Business ?”
A Basic Question…..
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How Much Will You Need?
There is no Easy AnswerDepends on
type of business.
You will have to work that out
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How Much Will You Need?
Low cost – Easy entry•
• Technical Services – Writer. Bookkeeper. Graphic Artist.• Home Services - House Cleaning. Landscaping.• Construction Trades - Plumber. Painter. Electrician.
Higher cost – Tougher entry (Start Small & Grow)•
• Retail Store – Hardware. Clothing. • Food Industry - Grocery. Catering Service. Restaurant.• Manufacturing – Machine Parts. Toys
Compare Start-up & Running Costs
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How Much Will You Need?Make a Plan
Do the Math ! Calculate the following :
•Start-up Costs – legal, leases, inventory, equipment, training etc.• Monthly Operating Expenses – rent, utilities, travel, inventory,• Expected Sales Income – assume a slow start• Cash Flow – balance sales income & operating expenses.
.
Is this a profitable, long-term business ?Does it provide an adequate income for owners ?
Make your plan with help from SCORE.
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How Much Will You Need?
DON'T FORGET WORKING CAPITAL
That's the money you will need to get started and to live with until income starts to flow
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Profit and Loss Statement
Jan Feb Mar Dec Full Year Next Year
Sales RevenueProduct/Service 1Product/Service 2Total Sales Revenue [J] 0 0 0 0 0 0Cost of SalesProduct/Service 1Product/Service 2Total Cost of Sales [K] 0 0 0 0 0 0
Gross Profit [L=J-K] 0 0 0 0 0 0General and AdminstrativeWages and salariesSuppliesRentTelephoneUtilitiesOther expenses (specify)Total General and Adminstrative Expenses [O] 0 0 0 0 0 0
Total Operating Expenses [P=M+N+O] 0 0 0 0 0 0
Income from Operations [Q=L-P] 0 0 0 0 0 0
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What will this tell you
Do you have a viable business
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ExampleClient wants to open a bakery o Sell pies for $4.00 each o Costs $2.00 to make o Net Profit is $2.00 per pie
Income goal: $500 per week
Must make and sell 250 pies per week
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What does this tell us
1. Can you sell 250 pies per week
2. Can you make 250 pies per week
It prepares you for what is to come and helps set realistic expectation
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Financial Management
Can a Profitable Business
be In Financial Trouble?
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Can a Profitable Business be in Trouble?
Yes !When there is No Cash at Bank
to pay the bills
Why & When ?• Too much inventory
• Giving too much credit.• Late payers - Non-payers.
• Late delivery of a large contract.• Excessive withdrawals by owners.
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Cash & Cash Flow
For your very survivalCash at Bank
& Managing Your Cash Flow
Are VERY, VERY Important
“No Cash – No Business”“CASH is KING”
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Cash Flow Example30 Day Collection Cycle
Pre-Startup EST
Jan-05 Feb-05 Mar-05 Apr-05
Cash on Hand (beginning of month)
200 200 0 300 600
CASH RECEIPTS
Credit Sales 500 500 500 500
Collections fm CR accounts 0 500 500 500
Cost of Goods Sold 200 200 200 200
Total Cash Available (before cash out)
200 0 300 600 900
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Cash Flow 2Poor Collection Process
Delayed Collection Cycle
Pre-Startup EST
Jan-05 Feb-05 Mar-05 Apr-05
Cash on Hand (beginning of month)
200 200 0 -200 100
CASH RECEIPTS
Credit Sales 500 500 500 500
Collections fm CR accounts 0 0 500 500
Cost of Goods Sold 200 200 200 200
Total Cash Available (before cash out)
200 0 -200 100 400
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What is Cash Flow – keeping the bucket full
$
INCOMESales. Interest. Etc.
CASH at BANKCash Flow is:- Maintaining
Sufficient Cash at Bank to Pay Due Bills
Loans & Investments.
Owners Drawings
FIXED COSTSRent. Insurances ,Vehicle Payments.
VARIABLE COSTSInventory. Salaries. Utilities, Repairs.
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Funding the Business
FindingThe MoneyYou Need
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Sources of Funding
Banks are usually very reluctantto make loans to any business
without a 2 or 3 year track record.
Small local banks may be more helpful
Personal & Private Fundingare most likely options for a start-up.
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Sources of Funding
• Yourself – Personal Savings
• Loans – Family, Friends, Partners.Loans are re-payable plus interest.
Perhaps Banks, but with personal guarantees & collateral
• Investments – from Partners, Investors – Family & FriendsInvestors own part of business & expect share of profits.
But they risk total loss if business fails.
Partnership & Investors Agreements are essential.Get Professional Advice.
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Sources of Funding
Some Sources of Personal Funding•Home Equity Loan.•Insurance Policies.•Pension & 401(k) – take care – get CPA’s advice.•Savings & CD’s.•Stocks & Bonds.•Sale of Personal Assets.
Use Credit Cards for your convenience,and only if balance is paid, in full, each month.
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Alternative Funding Solutions
•Second Income – From a Spouse, Pension. Trust fund.
•Start Part-time – Work Evenings & Week-ends for yourself.
•Share Low cost Premises – Home Office, Friend’s Workshop.
•Minimum Inventory – Live & Work Frugally.
•OPM – Use Other People’s Money.- Suppliers Credit, Early Payments from Customers.
•Practical Support from Family & Friends.
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Entrepreneur Works
A non-profit 501(c)(3) microenterprise development organization focused on growing businesses and jobs in our local communities. Our mission is to cultivate and promote successful entrepreneurs in underserved areas of the Greater Philadelphia region – entrepreneurs who then become economic engines in their own neighborhoods.
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To Get a LoanYou will Need
• 2 Business and Personal References • 3 Months of Personal Bank Statements • Proof of address for individual(s) and business (if applicable). • Personal Tax Returns: Last 3 years for all owners• Business Tax Returns • Completed Business Plan• Personal Resume • Business Financial Statements• Cash Flow Projections
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SBA
SBA Guaranteed LoansGo to – www.SBA.gov – for more information
.SBA does not make GRANTS or LOANS
•SBA guarantees Banks for “higher risk” loans.•Apply to your Bank for a SBA Guaranteed Loan.•SBA loans likely to be more expensive.•Banks & SBA require Business Plan &
Collateral.
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Funding the Business
Good Luck !
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You Bank SBA
Bank denies
loan request
Bank provides
Commercial Loan
Bank unsure about making
loan
Bank asks SBA to “insure’ loan against default
SBA agrees to guarantee Bank
against lossif loan goes bad
Bank provides SBA
Guaranteed Loan
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Funding the Business
Raising Loansfrom
Commercial Banks
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Funding the Business
Get to know your BankersGet the Company “clean”
Write a Business Plan.Cash Flow Projections are important.
They show how you will repay the loan
Call SCORE for practical adviceGet professional advice from CPA
Before Applying for a Loan
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Funding the Business
What the Bank wants to know.“Will we get our money back ?”
•How much are you investing ?•What’s your equity in the business ?•What collateral secures this loan ?•Your management experience ?•Your technical expertise ?•Your commitment to the business ?•Does Business Plan make sense ?