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Financial Considerations for Your Small Business

Financial Considerations for Your Small Business. Front door to the land-grant system Research-based education 107 county offices 6 4-H Education Centers 4 ARECs Four Program Areas: ANR, FCS, 4-H, CV Inventing the Future http://www.ext.vt.edu. Financial Plan: By the numbers.

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Financial Considerations for Your Small Business

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  1. Financial Considerations for Your Small Business

  2. Front door to the land-grant system Research-based education 107 county offices 6 4-HEducation Centers 4 ARECs Four Program Areas: ANR, FCS, 4-H, CV Inventing the Future http://www.ext.vt.edu

  3. Financial Plan: By the numbers • Elements of a Business Plan • Executive Summary • Business Description • Marketing Strategies • Competitive Analysis • Design and Development Plan • Operations and Management Plans • Financial Plan • Test assumptions • Develop funding strategies • Communicate risk

  4. Be Prepared: Financial Questions . . . • How much money do you need? • When will you need it? • Have you identified least-cost alternatives? • How much do you expect to make? • What are your profit goals? • How much can you charge for it? How much is customer willing to pay for it? • How many customers will you need in order to cover expenses?

  5. Your Capital Portfolio • Start-up Capital • Working Capital • Cash Reserve • Look for ways to conserve capital needs

  6. Be Prepared: Think Numbers . . . Start-up / Ongoing Expenses • Licenses • Accounting & legal • Advertising • Equipment (leasing / purchasing), technology, infrastructure • Office expenses • Loan interest Raw product Labor Facility costs / rent Utilities Transportation Insurance (property loss, liability loss, product liability, business interruption, disability, loss of key employees)

  7. Where Do Business Funds Come From? Your $$ (Savings, Friends and Family, Credit Cards, Assets, etc.) Equity Financing (investors who provide cash in exchange for ownership stake) Debt Financing (repayable loans – such as from commercial lenders, special category loans/government loans, etc.) 7

  8. Your Resources / Sources of Capital Commercial lenders SBA-guaranteed loans Private loans Vendor credit Other Government Friends and Family Leasing Credit Cards Angel Investors Venture Capital Savings Other

  9. Loans • Types • Real estate & Equipment • Working capital • Business expansion & acquisition • Cash flow management (long-term financing) • Receivables financing • Lines of credit (emergency funds) • Bank Department • Personal • Business

  10. The Bank Wants to Know… How much money do you need? How will you use the money? Describe the benefit to your business. How & when will you pay it back? Are you credit worthy? What is your experience, training, and business management skill? What is your collateral? What is your back up (contingency) plan?

  11. Questions for your banker… SCORE, 1997. How to choose the best bank for your business, Inc. Magazine. Bank’s policy on small-business lending? Restrictions or covenants? Terms and interest rate options? Flexibility/tailor loan to needs? Exit strategies? Loan officer? Specialty areas? Names of existing customers?

  12. Financial Stewardship • Be able to diagnose what is happening with your business and respond appropriately. • Exercise your creativity by constantly • Conserve capital • Add value • Increase revenue “Human creativity is the ultimate economic resource.” -Richard Florida

  13. Track your Bottom-line • Build a basic knowledge of business finance • Measure it – then manage it • Develop Effective Record-keeping, Accounting, and Financial Management systems • Look for patterns over time • Use software • www.quickbooks.com • www.peachtree.com

  14. Bottom-line . . .Trends Current cash position Cash disbursements New sales Accounts receivable (beginning balances, outstanding credit, cash receivables) Accounts-payable payments Order backlog Productivity (sales per employee, etc.)

  15. Be Creative and Adaptable …but stay true to your vision and mission View setbacks as learning opportunities Are risks acceptable?

  16. The Economy: Trends are Mixed • Tougher to get credit but banks have money • Loans to start-ups declining • Retail and building materials sales are mixed • Housing market is declining slower • Unemployment is high but stabilizing • Stock market is doing better • ARRA monies are available • http://www.stimulus.virginia.gov/

  17. Selected Financial Resources

  18. Financial Resources . . . • U.S. Small Business Administration Richmond District Office The Federal Building 400 North 8th Street, Suite 1150 Richmond, VA 23219-4829 (804) 771-2400 Fax 771-2764 E-mail:  richmond.va@sba.gov Ronald E. Bew, District Director  • http://www.sba.gov/financing

  19. Financial Resources . . . • SBA • Basic 7(a) Loan Program • Lenders participate with SBA in 7(a) program. • Up to $2 million with 90% guaranty. • Business applies to a lender for financing. • Repayment ability from cash flow of business is primary consideration in loan decision process but good character, management capability, collateral, and owner's equity contribution are also important.

  20. Financial Resources . . . • SBA • Micro-Loans • Small loans to start-up, newly established, or growing small business concerns. • Maximum of $35,000 ($13,000 average). • Maximum term is 6 years. • Interest rates range between 8 to 13%. • Apply through Microlending Intermediaries

  21. Financial Resources . . . • SBA Startup Guide http://www.sba.gov/smallbusinessplanner/plan/getready/serv_sbplanner_stguide.html • How to Write a Loan Proposal

  22. Financial Resources . . . • SCOREhttp://www.score.org • Business Funding Directoryhttp://www.businessfinance.com • Venture Capital Information Guide http://www.capital-connection.com • Virginia Department of Business Assistance Virginia Small Business Financing Authorityhttp://www.dba.virginia.gov/financing 1-866-248-8814

  23. Financial Resources . . . • National Federation of Independent Business, Business Toolboxhttp://www.nfib.com/page/toolsHome • Virginia Business Information Centerhttp://www.dba.virginia.gov/virginia/default.asp 804-371-0438, toll-free at 1-866-248-8814

  24. Financial Resources . . . • Active Capital(angel investor network) http://www.activecapital.com • Business statisticshttp://www.bizstats.com • Entrepreneur.com, Money and Financing http://www.entrepreneur.com/money/finance/index.html • Fintel Scorecard Industry Benchmarkinghttp://www.fintel.us/cms/DesktopDefault.aspx

  25. Financial Resources . . . • Energy-related business • USDA Rural Development • Renewable Energy and Energy Efficiency Grand and Guaranteed Loan (Section 9006) Programwww.rurdev.usda.gov/rbs/farmbill • Application: www.rurdev.usda.gov.rbs.farmbill/tools.html • http://www.meeteetsecd-wy.gov/page22.html • Contact: Ms. Laurette Tucker, USDA Rural Development, Culpeper Building, Suite 238, 1606 Santa Rosa Road, Richmond, VA 23229, (804) 287–1594.

  26. Financial Resources . . . • Southside Virginia • Southside Region Tobacco Capital Access Program (TCAP) • A business located in the Southside Tobacco Region makes application to a bank in Virginia participating in the Southside Region Tobacco Capital Access Program.http://www.dba.state.va.us/financing/programs/TCAP.asp

  27. Financial Resources . . . • Virginia Tobacco Revitalization & Indemnification Commission • http://www.vatobaccocommission.org/SmallBusFinancing.htm • Food-based business • VCE publication • Starting a Food Processing Business in Virginiahttp://www.ext.vt.edu/pubs/foods/348-963/348-963.html

  28. Jonah Fogel, Ph.D.Community Viability SpecialistVirginia Cooperative Extension 804-527-4234 jfogel@vt.edu

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