1. What Is It and What Does It Mean?
Business Finance
What Is It and What Does It Mean?
Ask the students
Objectives:
Understand the broad concept of business finance
How businesses communicate
Financial statement concepts
Where the money comes from
Basic cost concepts
ROI
© Career Partners, Inc

2. Is It About Money?

3. Is It About Numbers?

4. Is It About Communication?

5. Business Finance Activities
Allocation of resources
Management
Accounting
Investing
Debt management
Glossary -
Study the Glossary

6. Equity – Funds you saved
Where’s The Money?
Equity – Funds you saved
Debt – Funds you borrowed
Earnings – Profits that turn into equity
Crowd funding
Venture Capitalists
Business Incubators
Family and friends

7. Costs and expenses Sales volume Purchase quantities
Numbers? What Numbers??
Sales volume
Purchase quantities
Costs and expenses
Number of transaction types
Online hits
Inventory counts
ACCOUNTING SYSTEM!
Checkbook
QuickBooks
Excel Spreadsheet

8. How Businesses Communicate!
Financial Statements
Byproduct of an accounting system
Types of Financial Statements
Balance sheet
Profit and loss statement
Cash flow statement

9. Income Statement Sales revenue $1,000 Less cost of sales (800)
Equals gross profit $ 200
Less operating expenses (75)
Equals net profit $ 125

10. Income Statement Ratio
Gross Profit Percentage = 20 (Gross Profit/Sales Revenue)
How much gross profit would we make if sales revenue was $50,000?

11. Direct/Overhead Costs
Fixed/Variable Costs
Direct/Overhead Costs

12. Fixed/Variable Costs
Fixed costs are those that remain the same in total regardless of the amount of production or activity
Variable costs are those that vary (increase or decrease) depending upon production volume or activity
Fixed – rent, advertising, insurance
Variable

13. Direct Costs
Direct costs are those associated with making a product or providing a service that tend to be variable in nature.
Examples:
Cost of materials
Production labor
Equipment costs

14. Overhead Costs
Overhead costs are those associated with operating a business no matter the amount of product sales or services provided and tend to be fixed in nature.
Examples:
Management salaries
Utilities
Insurance
Legal and accounting

15. Characteristics of Venture Capital
What is Venture Capital?
Characteristics of Venture Capital
Private equity capital
Early stage
High growth potential
Potentially high “Return On Investment”
-- ROI --
So what does it all mean for E-Squared? When you have a business and want to expand or you want to start a new business you will need money – i.e. capital. You can try banks, you can try other places or you can try to get a venture capitalist to partner with you on this adventure. For purposes of E Squared, venture capital is your only resource.
Venture Capitalists are typically business people who are willing to invest (i.e. give you money) for a portion of your company. They can help you with their connections and business experience. But in order for you to attract an investor of any kind, you have to prove the ability of your company to make a profit. They are not going to invest unless they are going to make money on their money.
VC investments
Cash in exchange for company
shares

16. “Annual Profit / Investment”
Return on Investment
Return on Investment
(ROI)
“Annual Profit / Investment”
This is an Annual Concept
The annual profit made on an investment is called Return on Investment.
For investors to be convinced of investing in your company they will want to know when the company can be expected to make a profit and how much. This stream of profit is used to determine their return on investment on paper. For an investor to realize the actual return on the investment, he or she must receive dividends or sell some or all of their shares of the company’s stock.

17. Suppose you invest $10,000 in the stock of a startup company.
ROI
Suppose you invest $10,000 in the stock of a startup company.
What is your ROI if you receive dividends of $1,500 per year?
What is your approximate ROI if you sell your stock for $16,000 after 3 years?
This is to make sure that the class understands that ROI is ANNUAL return (not total return).
Ask the class for answers to each of the 2 questions. Have them explain the answer before showing the correct answers.
The 2nd example is simplified to get the concept across. The true ROI after the 3-year period is something less than 20%.

18. Questions?