Part A: Design

Session 4: Incorporate

Objectives:

Identify one way in which new companies can raise cash to pay start-up expenses

Incorporate new friendship bracelet companies

Vocabulary

Business plan Capital Deposit Entrepreneur Finance Founder

Incorporate Negotiate Pitch Stock Venture Capitalist (VC)

Memo 4 (S9)

Complete Memo 4 in the Student Packet.

Memo 4 Message:Three new businesses were incorporated in town last month. In the firstmonth of business Steve’s Candy, LLC generated $3,317 in revenue;

Abby’s Clam Shack, Inc. brought in $1,288; and Sarah’s Sports Shop received $5,512. Steve’s Candy, LLC had $1,727 in total expenses for the month, Abby’s Clam Shack, Inc. had $973 in expenses and Sarah’s Sports Shop paid $3,275 in total expenses last month.

Which company was the most successful in its first month of business?Why? (Fill in the below chart to help you determine the answer.)

Business Revenue Expenses Profit

Steve’s Candy

Adam’s Clam Shack

Sarah’s Sports Shop

Memo 4 Message:Three new businesses were incorporated in town last month. In the firstmonth of business Steve’s Candy, LLC generated $3,317 in revenue;

Abby’s Clam Shack, Inc. brought in $1,288; and Sarah’s Sports Shop received $5,512. Steve’s Candy, LLC had $1,727 in total expenses for the month, Abby’s Clam Shack, Inc. had $973 in expenses and Sarah’s Sports Shop paid $3,275 in total expenses last month.

Which company was the most successful in its first month of business?Why? (Fill in the below chart to help you determine the answer.)

Business Revenue Expenses Profit

Steve’s Candy $3,317 $1,727 $1,590

Adam’s Clam Shack $1,288 $937 $315

Sarah’s Sports Shop $5,512 $3,275 $2,237

Sarah’s Sports Shop was the most successful in its first month of business because it generated the most profit.

Finalizing Company Name

Team members agree on company name.

Incorporate

Give $1 BB to the VP of Finance. – This represents each employee's contribution as a founder,

or one who establishes a business.– Distribute $1 BB for each Parent/Guardian Letter returned

signed.– The cash received is capital and will be recorded as a

deposit on the Company Ledger (S31)– The VP of Finance will keep the master copy of the ledger,

but all employees should complete individual copies. This helps VP of Finance to keep accurate records.

Place a sticky note on your Company Ledger.

Finance is the management of expenses, cash, revenue, and profit.

This cash represents the personal investment that each individual, as an entrepreneur, is making in the company.

Entrepreneur – a person who organizes, operates, and takes on the risk of a business venture

The cost of incorporation is $1 BB, and in exchange, each team will receive 10 shares of stock.

Incorporating

Incorporating means that the state is recognizing the company as an independent organization.

Done in order to protect personal money and possessions.

Done so that the company can attract investors in exchange for partial ownership (stock).

Stock is a share of a company that represents ownership in that company.

Stock Pie Chart (TR6)

Stock Pie Chart

A share represents partial ownership in a company, and can be thought of as “owning a piece of the pie”.

Whole Pie = $100 BizBucks

Presidents will need to provide the company name in order to incorporate with the state.

Presidents visit the State Government (represent by the teacher) to incorporate and receive stock.

Introduction to Raising Capital

What are some of the costs you think you will need to start your friendship bracelet company?

How do new companies pay for these costs?

Each company will need to raise capital (cash) in order to cover the costs of starting their business.

One way and entrepreneur can raise capital is to sell shares of stock in the company to a venture capitalist (VC).

Venture Capitalist

A person who invests cash in new and innovative businesses

Investing in a new business carries a level of risk.

Responsibility of each company to convince the VC that investing in their new company will pay off in the future.

How can the VC benefit from investing in companies?

1. The company goes public, which means the company becomes publicly owned by making its shares of stock available on the open market. In this case, venture capitalists hope to sell their shares in the company for a higher price than they paid.

2. The company is purchased by another company. In this case, the VC will be paid based upon their percentage of ownership in the company.

Each company will pitch to the VC. The pitch is a presentation made to convince

the VC to invest in the company. The VC will buy shares based on the quality

of the pitch. A better pitch will result in a higher price per

share.

Companies are encouraged to negotiate offers

Negotiate: to discuss with others for the purpose of coming to terms or reaching an agreement

Each company needs to raise a total of $15–20 BB for Part A of BizWorld.

Discussion

What qualities might a VC look for in a pitch?– Confidence, eye contact, product knowledge

What might a VC want to know before vesting in a new company?

– That produces will sell at a good price, team works well together

How many shares of stock (or percentage of your company) are you willing to sell? Each company currently owns all ten shares. (100%)

What percentage of your company would you own if you sold two shares?

What if you sold four shares?

Writing a Business Plan

Business Plan: – formal statement of a set of business goals – reasons why they are believed to be attainable– plan for reaching those goals

Business Plan Worksheet (S10) in the Student Packet

Discuss your business plan in your team Do not share any part with anyone until you

are ready to present to the VC

Discussion

Why do states encourage and support the formation of companies?

– Create jobs, increase tax revenue What is the stock market?

– A place where stocks of public companies are bought and sold

What are some examples of stock markets?– NYSE (New York Stock Exchange) – NASDAQ (National Association of Securities Dealers

Automated Quotations)

Start Up Cost

Complete Start Up Cost (S11) in the Student Packet

1. Michael is starting a real estate company and needs to rent office space. The first office he looks at costs $11,995.20 per year to rent. Another office costs $9,712.80 per year and a third space costs $10,244.40 per year. Michael has decided to rent the office space with the lowest yearly cost, how much will he save over the highest priced space?

Answer: $2,282.40

$11,995.20 - $9,712.80 = $2,282.40

2. Michael received an $18,500.50 investment from a venture capitalist and also borrowed $4,480.50 from the bank. How much money will Michael have remaining after he budgets for his annual rent and spends $3,214.50 on new office equipment?

Answer: $10,053.70

$18,500.50 + $4,480.50 - $9,712.80 - $3,214.50 = $10,053.70

3. When Michael picks up the keys to his new office, he will have to give the landlord a security deposit, which is equal to one month’s rent. How much will Michael have remaining after he pays the security deposit?

Answer: $9,244.30

$9,712.80 ÷ 12 months per year = $809.40$10,053.70 - $809.40 = $9,244.30