1. EP2150 - Entrepreneurship Financials
Sources of Financing for a small business
Distinguish between Debt and Equity Financing
Describe the importance of financial statements for small business
Explain the differences between financial statements for big business and small business
Explain how the balance sheet, income statement and cash flow statement are constructed
Create a balance sheet, income statement, and statement of cash flow for a small business
Construct a projected income statement for a small business

2. How will you finance your business?
Sources of Financing
How will you finance your business?
Personal savings
Credit from
suppliers
Loans and mortgages
from banks, credit
unions and others
Government
assistance programs
Love
money
Equity capital
from private
sources
Leasing
Friends and
neighbours
Local professionals
and angel
investors
Prepare loan or grant
request package
Employees
Venture
capitalists

3. Debt vs. Equity Financing
Advantages of Debt Financing
Useful for meeting a short-term deficit in cash flow
Do not have to give up or share control of your business
The term of the debt is generally limited
May be acquired from a variety of lenders
Information needed to obtain a loan is generally straightforward and part of your business plan
The interest paid is tax-deductible

4. Debt vs. Equity Financing (Continued)
Disadvantages of Debt Financing
Can be difficult to obtain for a risky project
Taking on too much debt can be a burden on your cash flows
If the funds aren’t used properly, it may be difficult for the business to repay the loan
If it is a “demand” loan, it can be called by the lender at any time
The lender may require you to provide a personal guarantee for the loan
Lenders will often insist on certain restrictions being put into place

5. Debt vs. Equity Financing (Continued)
Advantages of Equity Financing
An appropriate investor can contribute expertise, contacts, and new business as well as money
Equity may be the only option to finance high-risk ventures
Equity can be used to fund larger projects with longer time frames

6. Debt vs. Equity Finacing (Continued)
Disadvantages of Equity Financing
You may have to give up some ownership and control of the business
There is always the danger of incompatibility and disagreement among the investors
It is much more difficult to terminate the relationship in disagreements occur

7. Major Sources of Funds Personal Funds “Love Money”
Banks and Similar Institutions
Operating Loans (Line of Credit)
Term Loans
Federal Government
Canada Small Business Financing Program (CSBFA)
Industrial Research Assistance Program (IRAP)
Community Futures Development Corporations (CFDC)
Women’s Enterprise Initiative Loan Program
Aboriginal Business Canada – Youth Entrepreneurship
Business Development Bank of Canada (BDC)
Continued

8. Major Sources of Funds cont…
Provincial Government Programs
Venture Capital and “Angel” Investors
Other Sources of Financing (Bootstrapping)
Personal Credit Cards
Canadian Youth Business Foundation
Suppliers’ Trade Credit and Inventory Buying Plans
Leasing vs. Buying
Negotiated Leasehold Improvements
Advance Payment from Customers

9. Dealing with banks Don’t “tell” your banker, “show” her
Know what your banker is looking for
Don’t “tell” your banker, “show” her
Interview your banker
Passion makes perfect
Ask for more money than you need
Get your banker involved in your business
Increase your credit when you don’t need it

10. Estimating Operating Results
Conduct Research
Estimate one-time start-up expenditures
Estimate expected monthly operating expenses
Develop short-term financial projections
Determine your breakeven point
Forecast your
cash flow
Pro forma
income statement
balance sheet

11. Sample Pro Forma Income Statement
TOUGH GUYS SPORTING GOODS
PRO FORMA INCOME STATEMENT
For the year ending [date]
Net sales $833,333 (A)
Less: Cost of goods sold:
Beginning inventory $220,000
Plus: Net purchases 555,647
Goods available for sale $775,647
Less: Ending inventory ,481
Cost of goods sold ,166 (B)
Gross margin $289,167 (C)
Operating expenses ,167 (D)
Net Profit (Loss) Before Income Tax $ 15,000 (E)

12. Completed Pro Forma Income Statement
TOUGH GUYS SPORTING GOODS
PRO FORMA INCOME STATEMENT
For the Year (date)
1. Gross Sales $833,333
2. Less: Cash Discounts
A. NET SALES 833,333
Cost of Goods Sold:
3. Beginning Inventory $220,000
4. Plus: Net Purchases 555,647
5. Total Available for Sale $775,647
6. Less: Ending Inventory 231,481
B. COST OF GOODS SOLD $544,166
C. GROSS MARGIN $289,167
Less: Variable Expenses
7. Owner’s Salary 40,000
8. Employees’ Wages and Salaries 85,133
9. Supplies and Postage 0
10. Advertising and Promotion 18,330
11. Delivery Expense 1,670
12. Bad Debt Expense 0
13. Travel 0
14. Legal and Accounting Fees 10,830
15. Vehicle Expense 0
16. Miscellaneous Expenses ,833
Continued

13. TOUGH GUYS SPORTING GOODS PRO FORMA INCOME STATEMENT
For the Year (date) - Continued
D. TOTAL VARIABLE EXPENSES $201,796
Less: Fixed Expenses
17. Rent 38,333
18. Repairs and Maintenance 5,000
19. Utilities (Heat, Light, Power) 8,170
20. Telephone 1,000
21. Taxes and Licences 0
22. Depreciation 10,000
23. Interest 6,667
24. Insurance 5,000
25. Other Fixed Expenses
E. TOTAL FIXED EXPENSES $ 74,170
F. TOTAL OPERATING EXPENSES $274,167 *
G. NET OPERATING PROFIT (LOSS) $ 15,000
* Numbers may not match operating expense percentages exactly due to rounding.

14. Determining Your Cash Flow
Cash Flow from Operating Activities
(+) Cash received from customers
(+) Any other operating cash receipts
(=) Total Cash Receipts from Operations (A)
(-) Cash paid to suppliers
(-) Cash paid to employees
(-) Interest paid
(-) Taxes paid
(-) Other cash payments for expenses
(=) Total Cash Payments from Operations (B)
Total Net Cash Provided from Operations = (A) – (B)
Continued

15. 2. Cash Flow from Investment Activities
(+) Cash proceeds from the sale of assets
(-) Cash disbursements for the purchase of property or equipment
(=) Total Net Cash Provided from Investment Activities
Continued

16. 3. Cash Flow from Financing Activities
(+) Cash received from bank and other loans
(+) Capital contributions by owners
(+) Proceeds from issuing stock
(=) Total Cash Received from Financing (A)
(-) Repayment of principal on loans
(-) Dividends paid to shareholders
(-) Cash withdrawals by owners
(-) Other funds removed from the business
(=) Total Cash Payments for Financing (B)
Total Net Cash Provided by Financing = (A) – (B)
Continued

17. TOTAL NET CASH FORECAST
Total Net Cash Provided by Operations
Plus Total Net Cash Provided by Investment
Plus Total Net Cash Provided by Financing

18. Sample Cash Flow Forecast
Pro Forma Cash Flow Forecast for Tough Guys Sporting Goods
12-Month Cash Flow Projections
Minimum Cash
Balance Required =
Year 1
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total
Cash Flow from Operations
(during month)
1. Cash Sales 17,136 25,500 33,500 43,500 48,500 56,000 62,500 55,500 43,500 39,500 36,500 43, ,136
2. Payments for Credit Sales 0 17,000 22,333 29,000 32,333 37,333 41,667 37,000 29,000 26,333 24,333 29, ,333
3. Investment Income
4. Other Cash Income
A. TOTAL CASH ON HAND $17,136 $42,500 $55,833 $72,500 $80,833 $93,333 $104,167 $92,500 $72,500 $65,833 $60,833 $72,500 $833,333
Less Expenses Paid
(during month)1
5. Inventory or New Material -31, , , , , , , , , , , , ,739
6. Owner’s Salary -3,325 -3,325 -3,325 -3,325 -3,325 -3,325 -3,325 -3,325 -3,325 -3,325 -3,325 -3, ,900
7. Employees’ Wages
and Salaries -5,155 -7,223 -9, , , , , , ,545 -9,639 -9,890 -6, ,501
8. Supplies and Postage
9. Advertising and Promotion ,375 -1,668 -1,888 -2,149 -2, ,536 -1,404 -1, ,270
10. Delivery Expense ,661
11. Travel
12. Legal and Accounting Fees -3, ,700
13. Vehicle Expense
14. Maintenance Expense 0 -1, , , ,000
15. Rent -3,200 -3,200 -3,200 -3,200 -3,200 -3,200 -3,200 -3,200 -3,200 -3,200 -3,200 -3, ,400
16. Utilities ,960
17. Telephone ,200
18. Taxes and Licences
19. Interest Payments ,512
20. Insurance -1, , , ,000
21. Other Cash Expenses -1,877 -2,631 -3,437 -4,171 -4,721 -5,372 -5,472 -4,647 -3,841 -3,511 -3,602 -2, ,696
B. TOTAL EXPENDITURES (50,626) (60,209) (71,630) (80,155) (92,006) (93,967) (87,210) (72,040) (66,005) (64,328) (62,434) (45,658) (840,419)
5,000
Continued
1. Expenses and other payments should be entered as negative (-) numbers.

19. Sample Cash Flow Forecast (Continued)
Slide 7.4B Building a Dream
Sample Cash Flow Forecast (Continued)
Pro Forma Cash Flow Forecast for Tough Guys Sporting Goods
12-Month Cash Flow Projections (Continued)
Year 1
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total
Capital
Purchase of Fixed Assets
Sale of Fixed Assets
C. CHANGE IN CASH FROM
PURCHASE OR SALE
OF ASSETS $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Financing
Payment of Principal of Loan , ,500 -6,500 -1, , ,700
Inflow of Cash from Bank Loan 30,000 13,500 16,000 7,500 11,000 1, , ,500
Issuance of Equity Positions
Repurchase of Outstanding
Equity
D. CHANGE IN CASH FROM
FINANCING $30,000 $13,500 $16,000 $7,500 $11,000 $1,000($17,000) ($20,500) ($6,500) ($1,500) $1,500 (-$31,200) $3,800
E. INCREASE (DECREASE)
IN CASH ($626) ($4,209) $203 ($155) ($172) $357 ($44) ($41) ($5) $5 ($101) $1,502 ($3,286)
F. CASH AT BEGINNING OF $10,000 $9,374 $5,165 $5,367 $5,212 $5,040 $5,397 $5,354 $5,313 $5,308 $5,313 $5,212 $10,000 2
PERIOD
G. CASH AT END OF PERIOD $9,374 $5,165 $5,367 $5,212 $5,040 $5,397 $5,354 $5,313 $5,308 $5,313 $5,212 $6,714 $6,714
MEET MINIMUM CASH
BALANCE Accept. Accept. Accept. Accept. Accept. Accept. Accept. Accept. Accept. Accept. Accept. Accept. Accept.
Minimum Cash
Balance Required =
5,000
2. This entry should be the same amount as for the beginning of the year. All other rows will be the total for the entire year.
Copyright © 2000, McGraw-Hill Ryerson Limited

20. Sample Pro Forma Balance Sheet
ASSETS
Current Assets:
1. Cash 6,700
2. Accounts Receivable 29,000
3. Inventory 231,000
4. Other Current Assets 30,000 ________
A. Total Current Assets $296,700
Fixed Assets:
5. Land and Buildings 0
less depreciation 0
6. Furniture and Fixtures 46,000
less depreciation 2,300 43,700
7. Equipment 0
8. Trucks and Automobiles 0
9. Other Fixed Assets 34,000
less depreciation 3,000 31,000 _______
B. Total Fixed Assets $ 74,700
C. Total Assets (C = A + B) $371,400
TOUGH GUYS SPORTING GOODS BALANCE SHEET
End of Year 1
Continued

21. TOUGH GUYS SPORTING GOODS BALANCE SHEET End of Year 1 (Continued)
LIABILITIES
Current Liabilities (due within 12 months)
10. Accounts Payable 150,000
11. Bank Loans/Other Loans 30,000
12. Taxes Owed _______
D. Total Current Liabilities $180,000
Long-Term Liabilities
13. Notes Payable (due after one year) 140,000
14. Other Long-Term Liabilities 35,400 _______
E. Total Long-Term Liabilities $175,400
F. Total Liabilities (F = D + E) $355,400
NET WORTH (CAPITAL)
SHARE CAPITAL
Common Shares 1,000
Preferred Shares 0
RETAINED EARNINGS ,000
G. Total Net Worth (G = C - F) $ 16,000
H. Total Liabilities and Net Worth (H = F + G) $371,400

22. Determining Your Break-Even Point
Profit Area
900
Sales
Total Costs
800
700
Breakeven Point
600
500
Expenses (thousands of dollars)
400
Loss Area
300
Fixed Expenses
200
100
100
200
300
400
500
600
700
800
900
Sales Revenue (thousands of dollars)