2010 IDEA Boot Camp IIDeveloping Your Financial Plan

Updates Round Three Applications are due March 31st. Final Oral Presentation:

You will have exactly 20 minutes for your presentation and exactly 10 minutes will be allotted for questions.

Remember what you are pitching! You will be required to submit your presentation

prior. You should bring all necessary electronic files as back up on a flash drive.

There will be new judges who have not had any exposure to your project. Make No Assumptions!

Use a different font or color to distinguish new material that you have added to your written plan.

IDEA Finalists Checklist Income Tax Issues

Publicity Release Form IDEA Banquet and Exhibitions:

Booths are complimentary but space is limited

Understanding Your Financial Position

Successful Small Business Owners understand their financial picture at ALL times. They can read and understand what their financial statements

are telling them. They use that financial information to create budgets and

track performance They use financial information in their planning processes. They use outside experts like bookkeepers, accountants, and

consultants to assist them. They do not turn over responsibility for their finances to them!

They have a structured approach to their bookkeeping such as QuickBooks, Peachtree, Excel, or a bookkeeper

Understanding your financial picture begins with understanding the three basic financial statements. Together, the three financial statements give a clear picture of

a company’s financial health. Balance Sheet, Income Statement (P&L), Cash Flow Statement T-Accounts (Debits and Credits)

BALANCE SHEET The Balance Sheet lists out a company’s Assets, Liabilities,

and Equity. It is based on the basic accounting formula:

A=L+OE It is called a balance sheet because it must always

balance. (Examples) http://www.accountingcoach.com/online-accounting-course/05Xpg04.html

Typical Assets: Cash, A/R, Land, Building, Equipment, Intangibles.

Typical Liabilities: Long Term Loans, Short Term Notes, A/P, Contingent

Liabilities Typical Equity:

Personal Investment, Equity Investment, Net Income Sometimes Called Net Worth

The Balance Sheet is created at a SINGLE Point in time. (Limitations)

INCOME STATEMENT

The Income Statement shows a company’s profit or loss over a specific period of time.

http://www.cabrillo.edu/~dambrosini/188Web/images/incomesams.gif

The Income Statement is based on the following accounting formula:

SALES-COGS

GROSS PROFIT-EXPENSES

NET INCOME

The Income Statement (Accrual Basis) differs from actual cash flow in the following ways:

Non Cash Expenses (Depreciation and Amortization) A/R vs. Cash Sales COGS vs. A/P

Line Items as percentages of sales. Can a profitable business fail?

CASH FLOW STATEMENT The Cash Flow Statement shows the actual cash

received and spent in a business over a specific period of time.

http://www.businessplans.org/cashflow.html Cash Flow is crucial to all businesses because cash

is KING. A business spends cash NOT profit. Negative Cash Flow is the most common reason

why a business finally goes out of business. Cash Flow should be analyzed at least monthly Cash-to-Cash Cycle (Cash Conversion Cycle) Avg

A/R+Avg Inv-Avg A/P ..\..\..\My Pictures\Cash Conversion Cycle.png A company with positive cash flow can be non-

profitable. This can create long term issues. “Living on Depreciation”

Business Start-Up Financial Plan

A typical Business Start-Up financial plan has two components

1. Sources and Uses Statement (Project Costs)

2. Financial Projections – (3 years) All financial assumptions should be spelled

out clearly All financial information should be a clear

outcome of the written part of the business plan

Consistency in all components! Be Conservative! Both documents can serve as a basis for

budgeting

Sources and Uses(Project Costs)

Uses of Funds (Capital Budget) This is a list of everything that you need to get

your business started. This list should include everything you need to

purchase prior to you making a single sale. Don’t forget labor, interest, fees, deposits and

binders. Bootstrapping

Separate “wants” from ”needs” Be conservative and realistic WORKING CAPITAL

Sources of Funds A break-out of how the Uses will be

financed. Debt and Equity break-out

The IDEA Cash-Need Form

All IDEA forms have been simplified to make them as easy to complete as possible.

Both forms should be viewed as starting points for those who will seek additional funding.

It should be made clear to the judges how the $10,000 IDEA award will be used as a “SOURCE” of funding.

IDEA Cash Need Form: IDEA Cash Need Form.xls Differences between a Sources and Uses and the IDEA

form: Sources of Funds are not included. I would include this information if possible. Three Months of Operating Expenses versus Working

Capital Best to adjust if you expect it to be greater than

three months and document in your assumptions.

Cash Flow ProjectionsBasics

At their core, projections show your expected sales revenue and accompanying expenses on a monthly basis. Cash Flow Projections can then used to project all three financial statements.

Include loan payments and wages to owners. Be Realistic and Conservative Never create positive cash flow by upping sales. Projections should be for 3 years. The first 12

months being shown month-to-month. All 3 major financial statements should be

included. Cash Flow, Income Statement, and Balance Sheet.

Develop two sets of projections. One set should be based on your sales forecast that results from the outcomes of your business plan. The second should represent break-even.

Cash Flow ProjectionsTips and Advice

Hockey Sticks and the 1/12th Trap Clearly and realistically answer these questions:

How much and how will I be paid? How will I receive return on my initial investment?

Be complete and thorough in your expense line items. More is better than less.

Research your key costs and make sure that they fit within industry averages. If, not be able to explain why.

Incorporate ramifications of your legal status into your projections. (Self-employment taxes, etc.)

Special Areas to Consider: Pricing COGS Labor Gross Margin

The IDEA Cash Flow Form IDEA Cash Flow is laid out in a very basic manner:

IDEA Cash Flow Template.xls Excel Spreadsheet Three profit centers Purchases are handled through Inventory Purchases Owners Salary is handled through Owners Draw

Cash Flow Assumptions: Bottom-Up versus Top-Down Fixed vs. Variable Costs Assumptions should be clearly articulated in Section X of the IDEA

plan. (Include on Spreadsheet) Differences between the IDEA Cash Flow Form and a

typical set of projections: Only Cash Flow is being projected Projected Income Statement is not included Projected Balance Sheet is not included Projections are for only one year.

SBDC Forms: Project Costs:

..\..\..\So you want to go into Business Class\Sample of Summary of Project Costs .xls

Cash Flow Projections:..\..\..\So you want to go into Business Class\Projection Examples.xls

Understanding Business Financing

Equity

Where do I get the money to start a business?

Guarantee to pay back an obligation at a certain rate (or variable rate), usually over a time period or at some point in time

No guarantee of repayment, often man-agement control, share in profits, and expected residual value when sold or closed.

Debt

Bank

Family&

Friends

Suppliersor

Trade Credit

Non-bankLenders Private

Investors

Common Sources of Debt

Equity

Savings

Sale Of

AssetsPersonal

CreditResources

Family&

Friends

InvestorsOr

Partners

Common Sources of Equity

How do I get money from a lender?

Commitment

Collateral Character

Capacity Conditions

5 C’sof

Credit

What does a lender want from me?

FinancialProjections

PersonalFinancials

ProposedCollateral

Legal Documents

Funding Request

Business Plan

Other Financing Topics

Contractsfor

Deed

Leases GrantsIRAs SBA

Wrap-Up

NWSBDC Consultants are ready to meet with you if you wish.

Be Conservative and Realistic Ask for help in advance. Do not wait to

the last minute. Plan for Success and Remember Your

Audience! Network and use others to bounce your

ideas. Research, research, and more research.

Thank you!

Jorge S Prince, Director

Northwest Regional SBDCBemidji State University, #32

1500 Birchmont DriveBemidji, MN 56601

218-755-4255Location: 3801 Bemidji Avenue North