Who is SCORE ?

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Who is SCORE ?

Welcome to this Seminar

An Introduction to Starting & Growing a Small Business

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Fundingthe

Business

Financial Management

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How Much Will You Need?

“How MuchWill You Need To Start & Runa Business ?”

A Basic Question…..

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How Much Will You Need?

There is no Easy AnswerDepends on

type of business.

You will have to work that out

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How Much Will You Need?

Low cost – Easy entry•

• Technical Services – Writer. Bookkeeper. Graphic Artist.• Home Services - House Cleaning. Landscaping.• Construction Trades - Plumber. Painter. Electrician.

Higher cost – Tougher entry (Start Small & Grow)•

• Retail Store – Hardware. Clothing. • Food Industry - Grocery. Catering Service. Restaurant.• Manufacturing – Machine Parts. Toys

Compare Start-up & Running Costs

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How Much Will You Need?Make a Plan

Do the Math ! Calculate the following :

•Start-up Costs – legal, leases, inventory, equipment, training etc.• Monthly Operating Expenses – rent, utilities, travel, inventory,• Expected Sales Income – assume a slow start• Cash Flow – balance sales income & operating expenses.

.

Is this a profitable, long-term business ?Does it provide an adequate income for owners ?

Make your plan with help from SCORE.

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How Much Will You Need?

DON'T FORGET WORKING CAPITAL

That's the money you will need to get started and to live with until income starts to flow

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Profit and Loss Statement

Jan Feb Mar Dec Full Year Next Year

Sales RevenueProduct/Service 1Product/Service 2Total Sales Revenue [J] 0 0 0 0 0 0Cost of SalesProduct/Service 1Product/Service 2Total Cost of Sales [K] 0 0 0 0 0 0

Gross Profit [L=J-K] 0 0 0 0 0 0General and AdminstrativeWages and salariesSuppliesRentTelephoneUtilitiesOther expenses (specify)Total General and Adminstrative Expenses [O] 0 0 0 0 0 0

Total Operating Expenses [P=M+N+O] 0 0 0 0 0 0

Income from Operations [Q=L-P] 0 0 0 0 0 0

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What will this tell you

Do you have a viable business

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ExampleClient wants to open a bakery o Sell pies for $4.00 each o Costs $2.00 to make o Net Profit is $2.00 per pie

Income goal: $500 per week

Must make and sell 250 pies per week

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What does this tell us

1. Can you sell 250 pies per week

2. Can you make 250 pies per week

It prepares you for what is to come and helps set realistic expectation

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Financial Management

Can a Profitable Business

be In Financial Trouble?

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Can a Profitable Business be in Trouble?

Yes !When there is No Cash at Bank

to pay the bills

Why & When ?• Too much inventory

• Giving too much credit.• Late payers - Non-payers.

• Late delivery of a large contract.• Excessive withdrawals by owners.

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Cash & Cash Flow

For your very survivalCash at Bank

& Managing Your Cash Flow

Are VERY, VERY Important

“No Cash – No Business”“CASH is KING”

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Cash Flow Example30 Day Collection Cycle

Pre-Startup EST

Jan-05 Feb-05 Mar-05 Apr-05

Cash on Hand (beginning of month)

200 200 0 300 600

CASH RECEIPTS

Credit Sales 500 500 500 500

Collections fm CR accounts 0 500 500 500

Cost of Goods Sold 200 200 200 200

Total Cash Available (before cash out)

200 0 300 600 900

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Cash Flow 2Poor Collection Process

Delayed Collection Cycle

Pre-Startup EST

Jan-05 Feb-05 Mar-05 Apr-05

Cash on Hand (beginning of month)

200 200 0 -200 100

CASH RECEIPTS

Credit Sales 500 500 500 500

Collections fm CR accounts 0 0 500 500

Cost of Goods Sold 200 200 200 200

Total Cash Available (before cash out)

200 0 -200 100 400

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What is Cash Flow – keeping the bucket full

$

INCOMESales. Interest. Etc.

CASH at BANKCash Flow is:- Maintaining

Sufficient Cash at Bank to Pay Due Bills

Loans & Investments.

Owners Drawings

FIXED COSTSRent. Insurances ,Vehicle Payments.

VARIABLE COSTSInventory. Salaries. Utilities, Repairs.

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Funding the Business

FindingThe MoneyYou Need

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Sources of Funding

Banks are usually very reluctantto make loans to any business

without a 2 or 3 year track record.

Small local banks may be more helpful

Personal & Private Fundingare most likely options for a start-up.

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Sources of Funding

• Yourself – Personal Savings

• Loans – Family, Friends, Partners.Loans are re-payable plus interest.

Perhaps Banks, but with personal guarantees & collateral

• Investments – from Partners, Investors – Family & FriendsInvestors own part of business & expect share of profits.

But they risk total loss if business fails.

Partnership & Investors Agreements are essential.Get Professional Advice.

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Sources of Funding

Some Sources of Personal Funding•Home Equity Loan.•Insurance Policies.•Pension & 401(k) – take care – get CPA’s advice.•Savings & CD’s.•Stocks & Bonds.•Sale of Personal Assets.

Use Credit Cards for your convenience,and only if balance is paid, in full, each month.

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Alternative Funding Solutions

•Second Income – From a Spouse, Pension. Trust fund.

•Start Part-time – Work Evenings & Week-ends for yourself.

•Share Low cost Premises – Home Office, Friend’s Workshop.

•Minimum Inventory – Live & Work Frugally.

•OPM – Use Other People’s Money.- Suppliers Credit, Early Payments from Customers.

•Practical Support from Family & Friends.

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Entrepreneur Works 

A non-profit 501(c)(3) microenterprise development organization focused on growing businesses and jobs in our local communities. Our mission is to cultivate and promote successful entrepreneurs in underserved areas of the Greater Philadelphia region – entrepreneurs who then become economic engines in their own neighborhoods.

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To Get a LoanYou will Need

• 2 Business and Personal References • 3 Months of Personal Bank Statements • Proof of address for individual(s) and business (if applicable). • Personal Tax Returns: Last 3 years for all owners• Business Tax Returns • Completed Business Plan• Personal Resume • Business Financial Statements• Cash Flow Projections

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SBA

SBA Guaranteed LoansGo to – www.SBA.gov – for more information

.SBA does not make GRANTS or LOANS

•SBA guarantees Banks for “higher risk” loans.•Apply to your Bank for a SBA Guaranteed Loan.•SBA loans likely to be more expensive.•Banks & SBA require Business Plan &

Collateral.

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Funding the Business

Good Luck !

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You Bank SBA

Bank denies

loan request

Bank provides

Commercial Loan

Bank unsure about making

loan

Bank asks SBA to “insure’ loan against default

SBA agrees to guarantee Bank

against lossif loan goes bad

Bank provides SBA

Guaranteed Loan

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Funding the Business

Raising Loansfrom

Commercial Banks

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Funding the Business

Get to know your BankersGet the Company “clean”

Write a Business Plan.Cash Flow Projections are important.

They show how you will repay the loan

Call SCORE for practical adviceGet professional advice from CPA

Before Applying for a Loan

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Funding the Business

What the Bank wants to know.“Will we get our money back ?”

•How much are you investing ?•What’s your equity in the business ?•What collateral secures this loan ?•Your management experience ?•Your technical expertise ?•Your commitment to the business ?•Does Business Plan make sense ?