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Entrepreneurship 110

Learn about the financial section of a business plan, including break-even point, cash flow forecast, start-up costs, and sources of funding.

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Entrepreneurship 110

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  1. Entrepreneurship 110 Business Plan – Financial Section “It’s All About Money Making Money”

  2. Financial Section – Components • Break-even Point • Cash Flow Forecast/Cash Flow Notes • Start-Up Costs/ Sources of Funding • Financial Goal

  3. Break-Even Point: Total monthly revenue = Total monthly costs • Revenue = money that comes into the business from sales • Costs = all the money paid out by the business (i.e. wages, loan payments, etc.)

  4. Break-even point = Total Fixed Costs (in units) Selling Price - Variable Per Unit Cost Per Unit • Variable costs are costs that vary directly with the number of units being made or sold. (materials or ingredients, shipping, labour etc.) • Fixed costs are costs that are relatively constant no matter how many units are made or sold. (Rent, salaries, insurance, phone & taxes) • Complete the exercise on Break-Even Point

  5. Jennifer buys roses for $1 each and sells them for $2 each. Each summer her fixed costs are about $500.00 • What is her break-even point? (How many roses must she sell to cover her costs?) • In 2010, she sold 4,000 roses. How much profit did she make?

  6. The Buzz Buzz Razor Manufacturing Company is considering launching a new electric shaver. • It would retail for $120.00. One shaver would require $20 in parts, $2, in packaging and $.05 in shipping. • New fixed costs to launch the shaver would be $500,000 for advertising and $200,000 for administration • What is the company’s break-even point?

  7. Margin and Markup Using the T-shirt example Margin • Selling Price is $15 • Cost of the t-shirt $ 9 • Margin is $ 6 “Margin” is expressed as a percentage of the selling price (margin of selling price) Margin = $6 Selling Price $15 = 40%

  8. Markup • “Markup” is expressed as a percentage of the cost of the item (Markup on cost of the item) Markup = $6 Cost of the item $9 = 67%

  9. Cash Flow Forecast • This is a projection of ALL money coming into and going out of a business. • YOU ALWAYS START THE CASHFLOW A MONTH BEFORE THE BUSINESS OPENS. • For a summer business operating for two months, show June, July and August . • For a year round business, show all 12 months of operation.

  10. Components of a Cashflow Forecast Cash Receipts • This is the money being received by the business monthly. • This may include: loans, investments, sales, etc.

  11. Cash Disbursements: • This is the money going out of the business on a monthly basis. • This may include: rent, utilities, insurance, wages (what you pay your employees), owners drawings (what you pay yourself), business registration ( $120), materials, advertising, loan repayment, etc.

  12. Totals • You should always calculate totals for each category AND each month; you should always add down and across. • There are totals columns on the right hand side of the Cash Flow and at the bottom of the Cash Receipts and Cash Disbursements sections.

  13. Net Cash • This section is where you calculate monthly totals. • Your monthly totals will either show a surplus (profit) or deficit (debt).

  14. Assignment – Cash Flow Forecast • Read the business profile you have been given titled “Surreal Sweaters.” • Using the financial information found in the handout, create a Cash Flow Forecast for the company.

  15. Cash Flow Notes • Cash flow Notes accompany the Cash flow forecast in your Business Plan. • Cash flow Notes offer an explanation of how numbers/amounts found in the Cash Receipts and Cash Disbursements sections of the Cash flow Forecast were arrived at. • For example, if in the Cash Disbursements section you had Wages being $1200 for the month of September, in your Cash flow Notes section you would explain or show how this number was arrived at.

  16. Start Up Costs • List all of the purchases that you will need to make in order to start the business and their associated costs. • Remember, most of these costs will be incurred during the month BEFORE the business opens. • This list includes, but is not limited to: • Equipment • Inventory • Office Supplies • Furniture • Promotion • Wages • Rent

  17. Sample Start-Up Costs

  18. Sources of Funding • Here, you explain where the money will come from to cover your start-up costs. • Ideally, some of this money should come from the Entrepreneur (savings, bank account, investors, etc.) • Sources of Funding also typically include government or other loans. For this course, you may reference one of the following loans: • ACOA Loan - $20,000 (full year and other business) • TED Seed Loan - $3,000 (summer business only)

  19. Sample – Sources of Funding The cost for start-up for this business is: - $365.00 The sources of funding to cover these costs are: - Personal Savings Account $250 - Personal Loan $300

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