©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Developing Financial statements 3 years monthly Develop complete chart of accounts Research cost for each account Project best case/worst/break-even case scenarios Conservative should be the rule when making assumptions © 2004 Ewing Marion Kauffman Foundation

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Forecasting: sales Forecast sales volume (avoid straight line estimating) Relate to production and inventory needed The cost of goods sold expense can be determined either by directly computing the variable cost of producing a unit times the number of units sold or by using an industry standard percentage of sales. Define minimum cash needs to cope with changes 21.2 © 2004 Ewing Marion Kauffman Foundation

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Forecasting: Operating and capital budget Make a list of potential start-up costs Recognize difference between ongoing expense (see figure 10.2) and one-time start-up cost. Acknowledge the need to change insurance, warehousing, trade shows related expenses. Weigh leasing equipment vs. purchase Consider inventory on consignment 21.2 © 2004 Ewing Marion Kauffman Foundation

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Start-Up Costs What type of signage will be required? Are there any applicable city codes? What types of supplies will be needed (such as cleaning, office, shipping)? What type of training is necessary before opening for business? What types of government business licenses will be required? 21.3 © 2004 Ewing Marion Kauffman Foundation

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Start-Up Costs Where will the business be located? What size will it be? What does the office or retail space look like? What type of walls and fixtures does it have? What type of equipment will be needed? Computers? Furniture? Carpet? Copy machine? Shelving? How much opening inventory will the business need? How will it be paid for? What types of deposits will be needed for telephone, utilities, rent (first and last month)? 21.4 © 2004 Ewing Marion Kauffman Foundation

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Pro Forma Cash Flow Different from profit –Profit is the result of subtracting expenses from sales, whereas cash flow results from the difference between actual cash receipts and cash payments. –Only cash in- out-lays and only when actual payments are received or made –Two methods: Indirect: change the profit equation Direct: from scratch

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Pro Forma Balance Sheet Assets Liabilities Owner equity

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Pro Forma Sources and applications of funds Sources: personal funds, loans, investor monies, operations Add depreciation Applications of funds: assets, retire long- term liabilities, reduce owner or stockholders’ equity, and pay dividends. Sources – Applications = working capital

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Software