Post on 11-Feb-2018
transcript
P R E B U S I N E S S P L A N P R E P A R A T I O N
Business Start-Up Basics II
Presented by:
SBDC Business Advisors
Lisa Hutson Ana Badillo Susan Patton
Agenda
1. Determine financing needs a. Discuss Start up Costs b. Loan Requirements & Grants c. 5 C’s of Credit
2. Transition to Financial Plan a. Forecast Unit Sales b. Preliminary Pricing
a. Cost Driven b. Market Driven
c. Costs – COGS + O/H
3. Prepare Projections a. Start-up Costs b. Breakeven Analysis c. 1-3 Years
Look at Your Business Idea
Can this idea be turned into a business?
Is there a ‘real’ need for the product or service?
Who will buy? How much? How often? How much will they pay?
Is there competition? How much? Who/Where is it?
How much growth potential exists? Market share? Product/Service line expansion?
Can I afford to do this business now or ever?
What am I putting at risk?
If I decide not to do the deal, have I failed? Will I regret it later?
Quick Review of BBI
1. Are you an Entrepreneur? 2. Types of Business Structures 3. Business Plan Components 4. Market Research
Possible Start-Up Costs
Register with the State ($125) Starting Inventory Leasehold Improvements Professional Fees Equipment Computer, Printer, Software
Website Networking Trade Shows, Chamber
Salary
Do You Need Financing?
Private Funding (Family/Friends)
Private Investors
Stockholders
Venture Capitalists
Banks
Grants
Alternative Lending
Micro Lenders
Specialty
Brokers
How much money will you need and where will you get it?
Grants
- http://www.sba.gov/category/navigation-structure/loans-grants/grants
SBA does not provide grants for starting and expanding a business. Government grants are funded by
tax dollars and require very stringent compliance and reporting
measures.
Loan Requirements
Sufficient Credit Score
Business Plan (complete)
Collateral
Personal Finance Statement
Owner Injection of Funds
Cash Flow
Experience
5 C’s of Credit
Character
Capacity
Collateral
Capital
Conditions
Character
Previous Credit
Employment History
Time at Residence
Education Background
Capacity
Ability or capacity to repay
Based on personal cash flow
Income vs. expenses
Debt to income ratios
Collateral
Loan protected by collateral is safer to lender than one that is not
Unsecured vs. secured
Better the collateral, the better the lender likes the loan
Loan structure to match collateral/need
Capital
Personal net worth
Other assets to help you pay debt if you default
More assets at stake
Net worth = financial astute
Conditions
Terms of loan – interest rate, principle, etc.
Economic environment
Credit
Credit Bureaus – Experian,
Transunion & Equifax
What is included? Previous and current credit
Average and current balances
Late payments
Over the limit charges
Previous and current addresses & employers
Credit
Credit cards
3-5 credit cards is average per cardholder
$14,743 is average household credit card debt
14.83% is average APR
Credit
FICO Scores Range from 300-850
720 + is excellent
Under 680 is difficult to get financing
Things that impact your score: Payment history…30, 60, 90 days late (35%)
Average balance compared to credit limit (30%)
Length of credit history (15%)
Variety of debt sources (10%)
Recent activity (10%)
Credit
What is your credit score?
www.annualcreditreport.com
www.creditkarma.com
Credit
Lender must send a letter informing you why on a personal loan
Lender may not disclose “real” reasons on a business loan
Try alternatives
Try improving credit and apply later
Credit
Credit Repair Correct outdated & incorrect data
Dispute errors
Consistently make on time payments
Reduce your total debt
Variety of debt – not just credit cards
Be careful of closing old accounts
Maintain debt to credit ratio and length of credit
Pricing Parameters
Pricing your product or service correctly is one of the most important business decisions
Setting a price too high or too low could limit your business growth
Cover both variable and fixed expenses (Cost Basis)
Research what the competition charges (Market Basis)
Set prices that reflect the value you provide
Pricing Parameters
Cost Basis – takes costs and adds amount to make profit
Cost of Goods Sold • Material • Direct Labor • Delivery
Overhead • Rent/Utilities • Insurance • Office
• Current Shelf Price • Alternative Price (higher, lower,
sale…why?)
Market Basis – also known as competition based pricing
Breakeven Analysis
To determine the number of units sold to cover overhead and make profit
BE = fixed costs/(unit selling price – variable costs)
1. Determine companies fixed costs (won’t fluctuate with volume. i.e. rent &
utilities)
2. Determine variable costs (fluctuate with volume. i.e. COGS)
3. Determine price you will sell product or service
4. Calculate your companies Breakeven Point
Breakeven Example
• You sell a gourmet pizza for $20 • It costs you $6 in variable costs per pizza • Your companies fixed costs are $2200 per month (rent,
utilities, wages) BE = $2200/ ($20 - $6) BE = $2200/$14 BE = 157 You will need to sell 157 pizzas per month to break even
Financial Forms Breakeven Worksheet (by SCORE)
Breakeven AnalysisEnter your company name here
Cost Description Fixed Costs ($) Variable Expenses (%)
Inventory or Materials -$ 0.0
Direct labor (includes payroll taxes) - 0.0
Other expenses - 0.0
Other expenses - 0.0
Salaries (includes payroll taxes) - 0.0
Supplies - 0.0
Repairs & maintenance - 0.0
Advertising - 0.0
Car, delivery and travel - 0.0
Accounting and legal - 0.0
Rent - 0.0
Telephone - 0.0
Utilities - 0.0
Insurance - 0.0
Taxes (Real estate, etc.) - 0.0
Interest - 0.0
Depreciation - 0.0
Other (specify) - 0.0
Other (specify) - 0.0
Miscellaneous expenses - 0.0
Principal portion of debt payment - 0.0
Owner's draw - 0.0
Total Fixed Expenses $ -
Total Variable Expenses 0.0
Breakeven Sales level = 0
Projections –Revenue and Cost of Goods
[Your Company Name]
Projections For the Year Ended [Mmmm Dd, 200X] Jan. Feb. Mar. Apr.
Revenue:
Gross Sales (Note 1) $0.00 $0.00 $0.00 $0.00
Less: Sales Returns and Allowances $0.00 $0.00 $0.00 $0.00
Net Sales $0.00 $0.00 $0.00 $0.00
Cost of Goods Sold:
Beginning Inventory $0.00 $0.00 $0.00 $0.00
Add: Purchases (Note 2) $0.00 $0.00 $0.00 $0.00
Less: Ending Inventory $0.00 $0.00 $0.00 $0.00
Cost of Goods Sold $0.00 $0.00 $0.00 $0.00
Gross Profit (Loss) $0.00 $0.00 $0.00 $0.00
Projections -Expenses
Expenses:(Note 3)
Advertising $0.00 $0.00 $0.00 $0.00
Amortization (Note 4) $0.00 $0.00 $0.00 $0.00
Bad Debts $0.00 $0.00 $0.00 $0.00
Bank Charges $0.00 $0.00 $0.00 $0.00
Charitable Contributions $0.00 $0.00 $0.00 $0.00
Commissions $0.00 $0.00 $0.00 $0.00
Contract Labor (Note 5) $0.00 $0.00 $0.00 $0.00
Credit Card Fees $0.00 $0.00 $0.00 $0.00
Delivery Expenses $0.00 $0.00 $0.00 $0.00
Depreciation (Note 6) $0.00 $0.00 $0.00 $0.00
Dues and Subscriptions $0.00 $0.00 $0.00 $0.00
Insurance $0.00 $0.00 $0.00 $0.00
Interest (Include in loan payments) $0.00 $0.00 $0.00 $0.00
Maintenance $0.00 $0.00 $0.00 $0.00
Miscellaneous $0.00 $0.00 $0.00 $0.00
Office Expenses $0.00 $0.00 $0.00 $0.00
Operating Supplies $0.00 $0.00 $0.00 $0.00
Payroll Taxes $0.00 $0.00 $0.00 $0.00
Permits and Licenses $0.00 $0.00 $0.00 $0.00
Postage $0.00 $0.00 $0.00 $0.00
Professional Fees (Note 7) $0.00 $0.00 $0.00 $0.00
Property Taxes $0.00 $0.00 $0.00 $0.00
Rent $0.00 $0.00 $0.00 $0.00
Repairs $0.00 $0.00 $0.00 $0.00
Telephone $0.00 $0.00 $0.00 $0.00
Travel $0.00 $0.00 $0.00 $0.00
Utilities $0.00 $0.00 $0.00 $0.00
Vehicle Expenses $0.00 $0.00 $0.00 $0.00
Wages (Note 8) $0.00 $0.00 $0.00 $0.00
Total Expenses $0.00 $0.00 $0.00 $0.00
Projections –Loans and Other Income
Loans:
Mortgage Payments $0.00 $0.00 $0.00 $0.00
Term Note Payments $0.00 $0.00 $0.00 $0.00
Line of Credit Payments $0.00 $0.00 $0.00 $0.00
Total Loan Payments $0.00 $0.00 $0.00 $0.00
Other Income:
Gain (Loss) on Sale of Assets $0.00 $0.00 $0.00 $0.00
Interest Income $0.00 $0.00 $0.00 $0.00
Total Other Income $0.00 $0.00 $0.00 $0.00
Net Disposable Income (Loss) $0.00 $0.00 $0.00 $0.00
Projections Notes
All businesses, whether startup or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next three to five years. For the first year, you should supply monthly or quarterly projections. After that, you may be able to stretch it to quarterly and/or yearly projections for years two through five. Make sure that your projections match your funding requests; creditors will be on the lookout for inconsistencies. It's much better if you catch mistakes before they do. If you have made assumptions in your projections, be sure to summarize what you have assumed. This way, the reader will not be left guessing. Finally, include a short analysis of your financial information. Include a ratio and trend analysis for all of your financial statements (both historical and prospective). Since pictures speak louder than words, you may want to add graphs of your trend analysis (especially if they are positive).
Questions?
What’s next?
• BBI – Learn Steps of Starting Business and About Writing a Business Plan
• BBIII – Learn Basics of Balance Sheet, Profit & Loss Statement, Basic Chart of Accounts, etc.)
• How to request individual Business Counseling • www.lorainccc.edu/sdbc • 440-366-4370