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Financing

Financing. Lesson 5. Objectives. Compute business start-up costs and ongoing costs Compare the different funding options for starting a business Complete a personal financial report, including net worth based on assets and liabilities

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Financing

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  1. Financing Lesson 5

  2. Objectives • Compute business start-up costs and ongoing costs • Compare the different funding options for starting a business • Complete a personal financial report, including net worth based on assets and liabilities • Determine loan payments based on principal, interest, and other terms • Determine the pros and cons of using trade credit

  3. Financing • Estimating Start-up Costs: • The costs associated with opening and operating a new business for a period of time, usually one year • Examples: Renting a building for a store, purchasing inventory for a store, signage, employee wages, electricity, telephone and internet installation, and insurance • Start-up costs worksheets on the US Small Business Administration’s website, www.sba.gov

  4. Where to Get Money: • Your own money • Can come from savings account, sale of stock, or other sources • Sweat equity: Unpaid work that a business owner puts into a business • Loans from family and friends • Represent the largest source of funding for a new business • A loan that you must repay

  5. A loan from a bank or other lending agency • Loan officer examines your business plan and other financial documents to determine if you qualify for the loan • Money from a venture capitalist company • Typically invest in businesses they feel have large growth potential and invest cash in exchange for equity in the company

  6. Borrowing Money: • Personal Financial Report: • A statement of your personal financial status • Lists and compares your assets and liabilities • Asset: • Any tangible item of value you own • Savings account or land • Liability: • Any debt you have • Car loan or money owed on credit cards • Net Worth: • The difference between total assets and total liabilities

  7. Forecasting Revenue and Expenses: • Income Statement: • A report that outlines projected business revenue and projected business expenses for a period of time • Balance Sheet: • A report that summarizes the business’s assets and liabilities, and the owner’s equity • Cash Flow Statement: • A report that provides information about when cash comes into the business and when that cash will be spent

  8. How Much to Borrow: • The result of the analysis of this information by the lender will determine how much money they will allow you to borrow • Principal: • The amount of the loan • Interest: • The amount of money you pay to the lender for use of the money you borrow • Loan Agreement: • A contract between you and the lending agency that specifies the amount of the loan, the interest rate, the amount of the monthly payment, when the payments are due, and the length of the loan

  9. Key Math Concepts • Compute Your Monthly Start-Up Cost: • Add together each monthly expense • Compute Your Yearly Start-Up Cost: • Multiply the monthly start-up cost by 12 • Compute Net Worth: • Net Worth = Assets – Liabilities • Compute Simple Interest: • Simple Interest = Principal X Annual Interest Rate X Length of Time of Loan

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