1. Financial Strategy and Financial Objectives
“Running by the Numbers”

2. Financial Strategy Used to “capitalize” the venture A = L + OE
How much Owners Equity?
How much Debt?

3. Financial Strategy
A sound financial strategy will answer these questions
How much will it cost to startup?
How much will it cost to run the venture?
Short term cash needs when revenue low
Revenue and Expenses- operations
Capital (for fixed assets and business expansion), how much and when.
Sources of capital
Investors – equity
Loans - debt

4. Financial Strategy - Components
Sales forecasts
Selling costs
Gross profit
Admin. Costs
Pre-tax profit
Balance sheet
Working Capital
Return on Investment
Repayment proposal
Collateral

5. Financial Objectives
All companies need money, therefore, financial objectives must be established and reached.
Examples of financial objectives:
Canadian Cancer Society
Raise $5 for every Canadian
Breakeven
Joe’s Pizza
To increase market share to 10%

6. Startup Costs vs. Operating Expenses
All costs associated with getting the venture up and running
Fixed and variable, capital and expense
Often funded with equity or debt
Often included in the valuation of a business
Operating costs
All costs needed to keep the business going after startup (i.e. support of revenue generation)
Fixed or variable , expenses.
Should be “funded” from revenues

7. BREAKEVEN POINT BREAKEVEN POINT
The point at which total revenues equal the total costs.
Variable Costs
Directly dependent on the quantity of goods produced
Fixed Costs
Constant, independent of sales or other variables
Gross Profit
The selling price minus the variable costs
This profit is used to pay the fixed costs, then to make money for itself

8. Calculating the Break-even Point
Break-even Point = Fixed costs / gross profit
Example
Company sells teddy bears for $18. Variable costs are $3 per bear and fixed costs are $150,000
Calculate Gross Profit
Calculate BEP = FC / GP

9. Market Share
The percentage of one company’s sales in relation to the total sales of the industry.
Example-If the ACME company had a $225,000 of sales in a $1,500,000 industry, what is Acme’s market share in a percentage?
SOLUTION
= $225,000 / $1,500,000 x 100
= 15%

10. Profit Margin
The percent of the final selling price that represents the profit
Profit margin =Selling price-Cost price * 100
Selling price
Example-The Acme Corporation has a selling price of $30 and a cost of $20.
What is the profit margin?
SOLUTION
x = 33% 30

11. Return on Investment
The amount of profit earned in return for the amount of capital invested.
 Return on = Net Income * 100
Investment Amount Invested
Example-
What is the return on investment for the Acme Corporation if it had $ in sales and $ in expenses on its business investment of $ ?
SOLUTION
= 150, ,000 = 30,000 = = = 6.7%
450, ,