1. Financing

2. Definitions ASSETS- things that are owned and have monetary value. ASSETS- things that are owned and have monetary value. CURRENT ASSETS – things that are owned and tend to be impermanent in value or form. Examples are cash, inventory, and prepaid expenses. CURRENT ASSETS – things that are owned and tend to be impermanent in value or form. Examples are cash, inventory, and prepaid expenses. FIXED ASSETS – things that are owned and that tend to keep their value or form for long periods of time. Examples are buildings, machinery and equipment. FIXED ASSETS – things that are owned and that tend to keep their value or form for long periods of time. Examples are buildings, machinery and equipment. BALANCE SHEET – statement of the financial position of a business at a particular point in time. BALANCE SHEET – statement of the financial position of a business at a particular point in time.

3. Definitions EXPENSES – all the money a company pays out (other than the cost of goods sold) in order to stay in business. EXPENSES – all the money a company pays out (other than the cost of goods sold) in order to stay in business. FIXED EXPENSES – expenses of a business that tend to remain constant regardless of the sales level. Examples are rent, utilities and permanent salaries. FIXED EXPENSES – expenses of a business that tend to remain constant regardless of the sales level. Examples are rent, utilities and permanent salaries. VARIABLE EXPENSES - expenses of a business that tend to fluctuate with sales. Examples include supplies, packaging, and delivery expenses. VARIABLE EXPENSES - expenses of a business that tend to fluctuate with sales. Examples include supplies, packaging, and delivery expenses. PREPAID EXPENSES – expenses of a business that must be paid in advance such as insurance and legal retainers. The value of the prepaid expense shows as an asset on the balance sheet and the value will go down as the value of the expense is used up. PREPAID EXPENSES – expenses of a business that must be paid in advance such as insurance and legal retainers. The value of the prepaid expense shows as an asset on the balance sheet and the value will go down as the value of the expense is used up.

4. Definitions BANKRUPTCY – when a business does not have sufficient assets or earning power to repay its debts and legal action is taken to dissolve the company and compensate the creditors as much as is possible. BANKRUPTCY – when a business does not have sufficient assets or earning power to repay its debts and legal action is taken to dissolve the company and compensate the creditors as much as is possible. CREDITORS – those to whom a business owes money CREDITORS – those to whom a business owes money REVENUE – the income of a business from sales REVENUE – the income of a business from sales

5. 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

6. Debt vs. Equity Debt Financing – when someone raises money for a business by borrowing money from another individual or another investor. The person must promise to pay back the debt’s principal with interest. Debt Financing – when someone raises money for a business by borrowing money from another individual or another investor. The person must promise to pay back the debt’s principal with interest. Equity Financing – when someone raises money for a business by selling common or preferred stock to individuals or other investors. The shareholders receive ownership interests in the corporation. Equity Financing – when someone raises money for a business by selling common or preferred stock to individuals or other investors. The shareholders receive ownership interests in the corporation.

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

8. Debt vs. Equity 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

9. Debt vs. Equity cont’d… 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

10. Debt vs. Equity cont’d… 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

11. Major Sources of Funds Personal Funds Personal Funds “Love Money” “Love Money” Banks and Similar Institutions Banks and Similar Institutions Operating Loans Operating Loans Term Loans Term Loans Continued

12. Major Sources of Funds Federal Government Federal Government Canada Small Business Financing Program Canada Small Business Financing Program Industrial Research Assistance Program (IRAP) Industrial Research Assistance Program (IRAP) Program for Export Market Development (PEMD) Program for Export Market Development (PEMD) Community Futures Development Corporations (CFDC) Community Futures Development Corporations (CFDC) Women’s Enterprise Initiative Loan Program Women’s Enterprise Initiative Loan Program Aboriginal Business Canada – Youth Entrepreneurship Aboriginal Business Canada – Youth Entrepreneurship Business Development Bank of Canada (BDC) Business Development Bank of Canada (BDC) Continued

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

14. Exit Strategies for Private Investors Acquisition of the business by a third party Sale of the investor’s interest to a third- party investor Buy-back agreement Management or employee buyout (ESOP) Debt repayment An initial public offering (IPO)

15. Getting the Best From Your Banker Know what your banker is looking for Don’t “tell” your banker, “show” him 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 Make professional introductions If all else fails, keep looking…