1. SMALL BUSINESS MANAGEMENT
Game Developer
Crowdfunding
SMALL BUSINESS MANAGEMENT
Mia Yogurt
Chapter 6
Financing the Small Business
Cottage cheese cake
Molly Maid
BrandMan

2. Small Business Financing
The entrepreneur often require financing not only to start the business but also to provide capital to fund ongoing operations
Copyright © 2014 McGraw-Hill Ryerson. All rights reserved.

3. Small Business Financing
The Importance of Capital and Planning
How much do you need ?
When will the funds be used ?
How long will the money last ?
Where can the money be raised and what type of financing (debit versus equity) will be used ?
Do you need funds immediately ?
Will I get anything else besides money ?
Copyright © 2014 McGraw-Hill Ryerson. All rights reserved.

4. Cottage Cheesecake Industry
What aspects of Brad Miller's background would be positive for him to obtain financing for his business? What aspects would be negative?
What are the advantages and disadvantages of equity financing for this business?
What other sources of financing might he have accessed?
Cottage cheese cake
Cottage cheese cake

5. Small Business Financing
Reasons For Financing of Ongoing Operations
New Products and Services
Acquisition / Joint Venture
Expansion
Capital expenditures
Working capital needs

6. Small Business Financing
Other management problems affecting financing
underestimating financial requirements
lack of knowledge of sources of equity and debt capital
lack of skills in presenting a proposal for financing
failure to plan in advance for needs
poor financial control of operations
Underestimating financial requirements
Leads to under capitalization –shortage of cash
Lack of knowledge of sources of debt & Equity
Lack of skills in preparing & presenting a proposal for financing
Failure to plan for future needs
Leads to last minute scrambling for funds that you may not get or be very expensive
Poor control of operations
Leading to not making your debt obligations

7. Determining the Amount of Funds Needed
Start-up Costs
Ongoing Operating Costs
The Owner’s Net Worth
Capital requirements = start-up costs + operating requirements – owner assets available for investment

8. Determining the Amount of Funds Needed
Start-up Costs
Initial inventory, hiring costs, physical space
First few months rent, payroll, advertising
Prepaid items --utility & rent deposits, insurance
Licenses & permits
Ongoing Operating Costs
Prepare cash flow statement (chapter 10)
The Owner’s Net Worth
hiring professionals— the cost of a lawyer, accountant, and perhaps other professional help
getting insurance— the cost of protecting your business and personal assets
planning your advertising and marketing— the cost of getting your product or service known in the marketplace
hiring employees— the cost of hiring people to perform necessary tasks for businesses that require it
planning the physical space— the cost of setting up your office, store, or other location
special considerations for retail businesses— some of the special cost considerations of opening a storefront business, if that's your avenue
miscellaneous costs— a look at those costs that any business will incur but that are often ignored or forgotten
raising money— the cost of obtaining startup money, as well as some suggestions for potential sources of financing

9. new business is a retail establishment
promotion, you plan to give buyers 90 days to pay
Buy replacement inventory
Buy initial inventory +
Make drawing of this
Assume your new business is a retail establishment that is selling high end men's clothes and, as a promotion, you plan to give buyers 90 days to pay. Your working capital needs could be huge. First, you have to buy your inventory, then, after it sells, pay for the replacement inventory. This could mean that you will not receive one dollar to pay bills for at least 90 days after you open the doors. If you do not plan for this working capital need in advance, you probably won't even stay in business for 90 days.
plan for this working capital need in advance, If not,you probably won't even stay in business for 90 days.

10. Determining Types of Financing
Equity (Ownership) Financing
Private Investors
Self, bootstrapping, friends, family, private, employees, sale of shares
Corporate Investors
Venture capitalist (vulture capitalists)
Government
Business Development bank of Canada (BDC)
Canada Development Corporation (CDC)
Provincial Programs
Molly Maid
Surviving High Tech

11. Advantages of Equity Financing
no obligations for dividends or interest
investor expertise
equity expands borrowing power
equity spreads risk of failure

12. Disadvantages of Equity Financing
dilutes ownership and independence
Disagreements
Compromises
legal costs

13. Determining Types of Financing
Equity Financing
Personal Funds
Family and Friends
Crowd-Funding
Informal Risk
(Angels)
Corporate Investors
Government
Mia Yogurt
Crowdfunding
Copyright © 2014 McGraw-Hill Ryerson. All rights reserved.

14. Debt Financing Advantages Obtain higher ROI by using leverage debt
Interest costs are tax deductible; dividends from equity are not
No loss of ownership control and greater flexibility with debt financing
Easier to obtain than equity capital

15. Disadvantages Debt Financing Interest must be paid on borrowed money
Increased paperwork requirements and lender monitoring
Total risk on part of the owner

16. Sources of Debt Financing
Private lenders
shareholder loans
Corporate lenders
regular private lending institutions
trust companies, credit unions, finance companies
chartered banks
Government Lenders
May finance high debt , low equity firms
May be flexible, lower rates, counseling
More paper work, time to process is longer, more monitoring & control
Game Developer

17. Determining Terms of Financing
Types
Short term (demand), medium term, long term
Sources
banks, private sources, factors, confirming houses; term lenders, leasing companies, foreign banks; trust companies

18. Preparing A Proposal to Obtain Financing
Criteria Used in the Loan Decision
1. The Applicant’s Management Ability
How much the applicant knows about the business
How much care was taken in preparing the proposal
Lending proposal document (fig 7-10)
cash flow & income statement & Balance sheet ( chapters 3 & 10 )
Owners Salary & contingencies
credit history of the borrower
cash flow history and projections for the business
collateral that is available to secure the loan
character of the borrower
loan documentation that includes business and personal financial statements, income tax returns, and frequently a business plan, and that essentially sums up and provides evidence for the first four items listed

19. Preparing A Proposal to Obtain Financing
Criteria Used in the Loan Decision 2.The Proposal
level of working capital
Current assets – current liabilities
current ratio 2:1
quick ratio 1:1
debt-to-equity ratio
Collateral

20. Preparing A Proposal to Obtain Financing
Criteria Used in the Loan Decision
3. Applicant’s background and creditworthiness
personal information
present debt and past lending history
amount of equity the applicant has invested
will the applicant bank with the lender
Lender Relations

21. Clarks Sporting Goods
Q 1. Estimate how much money Dave will need from outside sources to start his business.
Q 2. Assuming Dave receives start‑up financing from a bank, as calculated in question 1, will he require an operating line of credit during the first four months of operation? If so how much?
Q 3. Should Dave pursue debt or equity sources of funds to get started?

22. Provincial Equity Capital Programs
Appendices
Provincial Equity Capital Programs
Federal Government Assistance Programs for Small Business
Provincial Government Financial Assistance Programs and Agencies for Small Business
Venture Capital Firms in Canada