How much money should I have?

1. How much money should I have?

2. Start-Up Expenses • Expenses entrepreneurs have when starting their business • Usually they are expenses that occur one time • Examples of start-up costs: • Equipment, beginning inventory, deposits for rent and utilities, business licenses and permits, advertising

3. Activity • Break off into groups of 4 • Develop a list of all start-up expenses that the business owner would probably have. • A small ice cream shop • A video rental store • A resume writing service • A video arcade

4. Start-Up Expenses are grouped into the following categories: • Real estate: • If you purchase a building or land for your business you will have to pay down payments and closing costs • If you rent – you do not have real estate expenses • Equipment, fixtures, and furniture • Building renovations

5. Prepaid items and deposits • Rental deposit – if you are renting • Utilities/telephone deposits • Business licenses and fees • Beginning inventory and supplies • Must have some inventory to get started – but don’t buy too much!

6. Other start-up expenses • Advertising for grand opening • Cost of training new personnel • Legal/accounting fees

7. Operating Expenses

8. What are operating expenses? • All the expenses that occur after the business has opened • Examples: • Rent or mortgage payments, insurance, utilities, payroll, repairs, inventory purchases, taxes, advertising

9. Entrepreneurs opening a new business must: • Plan for personal expsnses • Expenses necessary for entrepreneurs to live day-to-day • New entrepreneurs must plan for everyday expenses for at least the first three months • Examples: rent/mortgage for home, food, transportation, clothing, medical bills, entertainment

10. Assessment Activity • Your class want to open a new business – a portable cart that can be taken to parades, school activities, and sporting events. From this cart the class will sell hot dogs, chips, and soft drinks. • List all of the items needed as start-up costs AND all items that would be operating costs

11. Where can I get money to start my business?

12. Questions #1 • What happens if you do not have enough money to start your business? Should you give up your plans?

14. Question #2 • Why do many lenders require entrepreneurs to put a lot of their own money into an entrepreneurial venture?

15. Terms to know: • Capital: money needed to start a business and keep it operating • You may need different amounts of money at different periods of time • Short-term borrowing: usually requires repayment within 90 days • Usually used for purchasing inventory or lower-priced equipment

16. Intermediate-term borrowing: usually for 1-5 years • Equipment, fixtures, or commercial vehicles are often purchased using this type of borrowing • Long-term borrowing: for longer than 5 years • Used when purchasing real estate

17. Activity • Identify sources of capital to start a new business.

18. Sources of Capital • Venture capitalists: usually provide loan money to high-risk entrepreneurs. Want a high return on investment! • Trade credit: form of credit provided by suppliers to their customers. • Inventory and equipment are purchased through credit extended by their suppliers.

19. Small Business Administration (SBA): A federal agency whose mission is to help small businesses get started • Assist entrepreneurs in obtaining “bank guaranteed loan”

20. Choosing… • Good and bad must be looked at carefully for each funding source • Usually a combination of several sources is used to obtain all the necessary capital • Sources of money (capital can be classified into 2 categories • Debt and equity

21. Debt Financing Borrowing money to get the business started or keep it going Usually must make periodic interest payments to lenders Equity Financing: Consists of money that the owner or others invest in the business Usually requires the entrepreneur putting personal savings into business

22. When do I start making a profit?

23. Question • At what point does a business start making a profit?

24. Break-Even Point • Point where the revenue (money taken in) of a business equals its expenses • Must estimate revenue and expenses

25. Fixed Expenses: Do not change Examples: mortgage/rent payment, insurance Variable expenses: Change month-to-month Examples: cost of inventory is based on how much is sold Two Types of Expenses

26. Calculating Profit/Loss • Profit/loss = total revenue – total expenses • If total revenue exceeds total expenses, the business is earning a profit • If total expenses exceed total revenue, the business is operating at a loss

27. Calculating Break-Even Point • Break-Even Point = Fixed Expenses 1-(variable expenses/sales revenue)