Entrepreneurship Week 13 Financing your business

Assignment Dates December 7 – Business Plan – part 2 rewrite due – NO late rewrites December 9 – Business Plan -- part 3 December 14 & 16 – Group Presentations December 21, 23, 28, 30 – Business Plan presentations

Cost categories Start up – An initial purchase for your business – usually equipment, or marketing materials Continual – payments you are usually committed to making every month (“fixed costs”) By sale – costs that only occur if you sell a product - food for your restaurant, clothing for your store (“marginal costs’)

Start up costs A new business does not just have fixed costs (rent and salaries), it also has start up costs (equipment, decorations, initial advertising). Start up costs need to be paid – usually over several months or a year.

Cash Flow – dress shop cash flow goes positive in 6 months 1 2 – store opens 3 4 5 6 Labor costs 500 Store costs 315 Equipment purchase 400   Inventory purchase 1000 C.O.G.S.  1000 1500 Total costs 1715 1815 2315 Revenue  2000 2000 3000 Profit/(loss) (1715) 185 685 Yearly profit/(loss) (1530) (1345) (1160) (475) 210

Flower shop cash flow goes positive after 8 months 1 2 3 – store opens 4 5 6 7 8 Labor costs 200 Store costs 300 Equipment purchase 600   Decorating 100 C.O.G.S. 400 Total costs 1000 500 700 800 900 Revenue 1200 1600 Profit/(loss) (1000) (500) Yearly profit/(loss) (1500) (1400) (1300) (1200) (800) (400)

Initial Finance How much money do you need to cover startup costs – and – the period where you are cash flow negative?

Initial financing – dress shop start up costs – 1400 store costs - 315 Month 1 2 – store opens 3 4 5 6 Labor costs 500 Store costs 315 Equipment purchase 400   Inventory purchase 1000 C.O.G.S.  1000 1500 Total costs 1715 1815 2315 Revenue  2000 2000 3000 Profit/(loss) (1715) 185 685 Yearly profit/(loss) (1530) (1345) (1160) (475) 210

Initial financing – dress shop Projected sales are 100 dresses per month What if sales are lower? 2 – store opens 3 4 5 6 Labor costs 500 Store costs 315 Equipment purchase 400   Inventory purchase 1000 C.O.G.S.  1000 1500 Total costs 1715 1815 2315 Revenue  2000 2000 3000 Profit/(loss) (1715) 185 685 Yearly profit/(loss) (1530) (1345) (1160) (475) 210

Initial financing – dress shop If sales are just 10 dresses per month, what financing do you need? 2 – store opens 3 4 5 6 Labor costs 500 Store costs 315 Equipment purchase 400   Inventory purchase 1000 C.O.G.S.  100 100 Total costs 1715 915 Revenue  200 200 Profit/(loss) (1715) (715) Yearly profit/(loss) (2430) (3145) (3860) (4575) (5290)

Initial financing – dress shop Hope for the best – prepare for the worst Assume sales may be very bad at first. So, find at least 5000 OMR to start Month 1 2 – store opens 3 4 5 6 Labor costs 500 Store costs 315 Equipment purchase 400   Inventory purchase 1000 C.O.G.S.  100 100 Total costs 1715 915 Revenue  200 200 Profit/(loss) (1715) (715) Yearly profit/(loss) (2430) (3145) (3860) (4575) (5290)

Ice cream shop - financing example IF you meet sales projects, you go cash flow positive after 3 months, so you need 1000 OMR Month 1 2 – store opens 3 – 4 5 6 7 8 9 Labor costs 150 Store costs 200 Equipment purchase 600   Decorating 100 C.O.G.S. Total costs 900 450 500 550 Revenue  400 400 800 Profit/(loss) (900) (50) 250 Yearly profit/(loss) (950) (1000) (800) (550) (300)

Ice cream shop - financing example what if you sell just 100 cups per month? Buy 100 cups (250 bz) – sell 100 cups (500 bz) Month 1 2 – store opens 3 – 4 5 6 7 8 9 Labor costs 150 Store costs 200 Equipment purchase 600   Decorating 100 C.O.G.S. 25 Total costs 900 375 Revenue  50 50 Profit/(loss) (900) (325) Yearly profit/(loss) (1225) (1550) (1875) (2200) (2525) (2850) (3175) (3500)

Business Plan Part 3 Finance section Calculate how much money you would need if your business had no revenue for 6 months. That is your need for financing. State the amount and explain it. Explain where you will get the money.

Business Plan Part 3 Finance section Sources of money: Your savings Your family A bank loan A grant Investors

Business Plan Part 3 Finance section Sources of money: Investors – Partners (join you in running the business) Angel investors (take a portion of the company) Venture capitalists (take a portion of the company) Bear’s Den or Shark Tank – you “pitch” your business