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Born Entrepreneurs: Young Minds on Big Ideas and Online Shoe Sales

This case study explores the question of whether a person is born an entrepreneur, using the example of Zappos.com and its founders Tony Hsieh and Nick Swinmurn who started an online shoe sales business. The financial plan, operating and capital budgets, pro forma income statements, cash flow projections, and balance sheet are discussed, along with the concept of break-even analysis.

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Born Entrepreneurs: Young Minds on Big Ideas and Online Shoe Sales

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  1. Presented To: Sir Ghulam Abbas sb • Presented By: M.Sheraz Anjum 07-16 Bukhtyar Ali 07-18 Khurram Shahzad 07-32 Muhammad Arqum 06-24 BS(IT)7th

  2. Is a person a born Entrepreneur? THINK!!!

  3. Case Study BIG IDEA What’s the Businesses Started by Young Entrepreneurs The idea: Online shoe sales Tony Hsieh Nick Swinmurn From the minds of: The business: Zappos.com, 1999

  4. Mind Your Own BusinessStart it . . . Grow it . . . Own it!

  5. Khurram Shahzad

  6. Financial Plan Provides with complete picture of how much & when funds are coming into the Organization- Where funds are going- How much cash is available & projected financial position of the firm

  7. Helps new venture with most common problem- lack of cash • Explain to potential investor • Plans to meet financial obligations • How would he pay off debt or provide good ROI • 3 Years of projected financial data to satisfy any outside investors • First year should reflect Monthly data

  8. Operating and Capital Budgets (1 of 2) • Developed before the pro forma income statement. • Sales budget: estimate of the expected volume of sales by month. • Cost of sales can be determined from the sales forecasts. • In manufacturing ventures: • costs of internal production or subcontracting are compared. • Budgets reflects seasonal demand or Marketing programs than can increase demand & inventory • Ventures in which high level of inventory are necessary or where demand fluctuates significantly because of seasonality ----This Budget is valuable tool to asses cash needs

  9. Example of a Manufacturing Budget <<Insert Table 10.1>>

  10. Operating and Capital Budgets (2 of 2) • Operating costs: • List of fixed expenses gained regardless of sales volume. • Variable expenses which may change from month to month depending on sales volume, seasonality or opportunities for new businesses • Capital budgets provide a basis for evaluating expenditures that will impact the business for more than one year. Rent, Utilities, Salaries, Interest, depreciation, insurance Advertising & selling expense CB may project expenditure for new Equipment, vehicles, computers etc

  11. Example of an Operating Budget <<Insert Table 10.2>>

  12. Bukhtyar Ali

  13. Pro Forma Income Statements (1 of 2) • Pro forma income: projected net profit calculated from projected revenue minus projected costs and expenses. • Sales by month is calculated first. • Basis of the figures: marketing research, industry sales, and some trial experience. • Forecasting techniques may be used. • New ventures take time to build up sales. • Projections of all operating expenses for each of the months during the first year should be made.

  14. Pro Forma Income Statements (2 of 2) • Increasing selling expenses as sales increase should be taken into account. • Changes in expenses during the first year can require month-by-month illustration. • Projections should be made for years 2 and 3 as well.

  15. Example of a Pro Forma Income Statement • <<Insert Table 10.3>>

  16. Pro Forma Cash Flow (1 of 2) • Projected cash available calculated from projected cash accumulations minus projected cash disbursements. • Cash & profit are not the same(Difference between a Company’s total revenue & its total expense) • Cash is the money that is free & readily available to use in a business • Sales may not be regarded as cash. • Use of profit as a measure of success for a new venture may be deceiving.

  17. Pro Forma Cash Flow • If disbursements are greater than receipts in any time period the entrepreneur must either borrow funds or have cash in bank account to cover the higher disbursements • Cash flow statement is based on best estimates.

  18. Example of a Pro Forma Cash Flow • <<Insert Table 10.6>>

  19. Muhammad Sheraz Anjum

  20. Pro Forma Balance Sheet • Pro forma balance sheet: summarizes the projected assets, liabilities, and net worth of the new venture. • A picture of the business at a certain moment in time. • Does not cover a period of time. • Consists of: • Assets: items that are owned or available to be used in the venture operations. • Liabilities: money that is owed to creditors. • Owner’s equity: amount owners have invested and/or retained from the venture operations.

  21. Example of a Balance Sheet • <<Insert table 10.7>>

  22. Break-Even Analysis • Break-even: volume of sales where the venture neither makes a profit nor incurs a loss. • Break-even sales point indicates the volume of sales needed to cover total variable and fixed expenses. • The break-even formula: TFC B/E(Q) = SP – VC/Unit (Marginal Contribution) • Major weakness in calculating the breakeven lies in determining if a cost is a fixed or variable.

  23. Graphic Illustration of Breakeven • <<Insert Figure 10.1>>

  24. Questions Please…..

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