Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, © DEBT AND OTHER FORMS OF FINANCING CHAPTER 11

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, © Levels of Funding Levels of funding and firm maturity

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, © Getting Access to Funds Start with Internal Sources Credit Cards Home Equity Line

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, © Funding Needs  How much money does the business need?  Cash flow forecasts assists with timing of need for cash  Timing and maturity help determine the type of funding to procure

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, © The Cash Conversion Cycle Inventory Cycle Accounts Receivable Cycle Accounts Payable Cycle Cash Conversion Cycle

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, © Working Capital Management Net working capital Net liquid assets Liquid assets Callable liabilities Working capital requirements Current operating assets Current operating liabilities

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, © Liquidity Not all working capital is liquid so other sources of funds may be needed Payments made to suppliers before customers pay = lower liquidity

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, © More Payables & Less Receivables Source of short-term cash Seasonal business credit terms Trade credit Short-term bank loans New terms with suppliers Tightening accounts receivable collections

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, © Short-Term Financing Options SBA loans Loans from inventory Loans from accounts receivable Customer repayments

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, © Planning Cash Flow and Profits  Profit—measures overall performance of company  Some cash flow transactions don’t factor into the calculation of profit  Some profit transactions don’t directly affect cash flows  Free cash flow = cash flow from operations − capital expenditures  Pretax undedicated cash flow

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley, © Recap  Working capital doesn’t equal liquidity  Most of working capital is tied up in operations  Cash flow forecasts help to determine financing needs  Manage customer and supplier payments  Debt options when actual cash doesn’t meet needs: banks, private placement, leases, suppliers, government agencies, customers