UWE Biz Idea Competition 2006/07 – Funding your Idea Dr David Bence University of the West of England

Sources of Finance – Grants and Gifts Assume you will win the competition – a £5,000 gift! Consider other grant awarding bodies such as local charities and government organisations Decide how much you can invest – put your money where your mouth is! Offer shares to family and friends – use your networks! Banks will lend if there is a good business case and/or assets backing the loan

Financial Forecasts You are required to submit a three year financial forecast with your plan A spreadsheet with a pro-forma is available on the website A financial plan is required for social enterprise ideas as you need to prove that you will not go bust

Forecast Accounts Cash flow statement – nets cash in and cash out to give the forecast closing cash balance Profit and loss account – matches costs against revenues to give profit Balance sheet – shows what is owned and owed at the end of the period

The difference between cash and profit Some cash needs to be paid back, such as borrowing from the bank and cash from shares. These sources of finance are not sales and are therefore not shown in the profit and loss account Some costs are not cash e.g. depreciation Therefore profit is not the same as cash

Fixed Assets Fixed assets are items that last for more than one year Examples are cars, computers and machines Fixed assets are depreciated and shown net of depreciation in the balance sheet

Depreciation Depreciation spreads the cost of an asset over its useful life Computer bought for £900 and is expected to last for 3 years. Depreciation charge per year = £300

The Financial Plan You need to make estimates for the volume of sales and price You need to estimate costs You need to estimate cash from providers of finance and payments to acquire fixed assets

A Sensible Financial Plan You need to work on your forecast so that it makes sense e.g. you can’t predict huge overdrafts, massive increases in sales, no wage costs and so on Most business do not make profits in the early years Most businesses go bust because of a lack of cash

Accounting for Risk Flex your forecasts to produce a worst case scenario and a best case scenario Calculate the break-even point when income covers fixed costs Sales are the most difficult thing to forecast and have the biggest effect on your projection – try to collect evidence to support your forecasts

How Much is your business worth? Most venture capitalists will want an exit strategy included with the business plan Investors will look for a doubling of their money over three years Small businesses are typically sold for 5-7 times profit after tax