Entrepreneurship

1. Entrepreneurship Overview of Cash flow

2. Agenda • Business Plan Presentation • Financials • Cash Flow • Notes on Forecasting (REVENUE) and Developing a Profit and Loss Statement

3. [Company Name] Business Plan Adapted from Microsoft Power Point Template

4. Mission Statement • Business Concept • Summarize key technology, concept or strategy on which your business is based • A clear statement of your company’s long-term mission. • Try to use words that will help direct the growth of your company, but be as concise as possible.

5. List CEO and key management by name Include previous accomplishments to show these are people with a record of success Summarize number of years of experience in this field The Team

6. Market Summary • Market: past, present, & future: • Review those changes in market share, leadership, players, market shifts, costs, pricing, or competition that provide the opportunity for your company’s success. • Problems and opportunities: • State consumer problems, and define nature of product/service opportunities created by those problems. • Competition • Summarize competition • Outline your company’s competitive advantage

7. Goals & Objectives • Five-year goals • State specific measurable objectives • State market share objectives • State revenue/profitability objectives

8. Financial Plan • High-level financial plan that defines financial model, pricing assumptions, and reviews yearly expected sales and profits for the next 3 - 5 years.

9. Resource Requirements • Technology requirements • Personnel requirements • Resource requirements • Financial, distribution, promotion, etc. • External requirements • Products/services/technology required to be purchased outside company

10. Risks Summarize risks of proposed project Addressing risk Summarize how risks will be addressed Rewards Estimate expected pay-off, particularly if seeking funding funding, state specifics Key Issues Near term Isolate key decisions and issues that need immediate or near-term resolution Long term Isolate issues needing long-term resolution State consequences of decision postponement If you are seeking Risks & Rewards

11. Cash Flow

12. What you will learn in this module: • What you should learn: • The basics of how cash flows in an organization • The difference between cash inflows and cash outflows • What revenue is • What expenses are • Introduction to advanced cash flow concepts

13. Frame of Reference: A Family • For this module, lets look at a typical families monthly cash flow. • There are two primary components: • The amount of money coming in • Salary, Interest, Other Income • The amount of money spent • Mortgages, food, loan repayment, utilities, etc.

14. Each Month: MONEY COMES IN MONEY GOES OUT You receive 4,400 euros in salary/month. You receive 1,167 euros/month in rent for an apartment you own Your spouse earns 2,433 euros per month in salary You spend Let’s put this in a business context:

15. Salary, Interest Earned, Other Income, and Rental Income are cash inflows. Control Inflow Your Family Outflow BANK Salary Interest Earned Other Income Rental Income 4,400 1,167 2,433 Cash In Flows are also called REVENUE

16. Example: On February 1st, our Bank Balance showed 1000 Euros. Also on February 1, we were received 8000 euros in cash in salaries, and in rental income for January. 1000 Euros in Bank + 8000 Euros in Cash = 9000 Euros Cash The 9000 Euros is the cash we can spend in the month of February We also consider how much money is in the ‘bank’.

17. Quick Review • Revenue – the money we take in during a certain period of time (e.g. 1 month), in exchange for the delivery of services or products. These are also called ‘Cash In Flows’

18. Expenses are money that U pay to other companies and people. In return, they provide you with a product or service of value to you. Facilities Buildings Warehouses Factories Utilities Telecommunications Energy Water Outsource Payments Food Travel Loan payments What are Expenses?

19. First, we look at inflows… Money we make or acquire (REVENUE) And then at out flows… Money we spend (EXPENSES) Lets now put it altogether. Control Inflow Family Outflow BANK U may have money to putin the bank each month!

20. Quick Review • Revenue – the money we take in during a certain period of time (e.g. 1 month), in exchange for the delivery of services or products. These are also called ‘Cash In Flows’ • Expenses – the money we spend during a certain period of time (e.g. 1 month) for certain products or services we use. These are also called ‘Cash Out Flows’

21. Your total cash inflow (REVENUE) in January is 7,700 Euros In this example, we have no cash from the prior month. But we have received a Salary (4,400 Euros); Other Income (2,000 Euros); and Rental Income (1,300 Euros). The first month of cash inflow might look like this: Control Inflow Family Outflow BANK

22. The family's cash outflows are money spent on: Food Clothing Shelter/Housing Paying back loans Utilities Travel Assistance services Insurance Etc. (Miscellaneous) The family also has cash outflows in January as follows: Control Inflow Family Outflow BANK

23. To figure out how much money gets put into the bank, we subtract The Families sum of all EXPENSES from The Families sum of all REVENUES. The Families TOTAL EXPENSES = 6,700 Euros The Families TOTAL REVENUE = 7,700 Euros Our NET CHANGE in CASH is 1,000 Euros. U Inc. also puts money in the bank in January (JAN): 7,700 -6,700 1,000

24. In February (FEB) – we have 1000 euros in cash from the prior month to start with. The 1000 Euros comes from subtracting all of your cash outflows (EXPENSES) from your cash inflows (REVENUES) You SUBTRACT because you spend money to buy products or services from the money you have taken in. The money in the Bank helps February (FEB) get off to a positive start. 7,700 -6,700 1,000

25. QUICK QUIZ • Review the table from the previous slide. • QUESTION: How much money will you have to start March with (money in the ‘Bank’)? • ANSWER: 3,400 Euros!

26. The entire year might look like this:

27. Cash Inflows are called: Revenue Loss Expenses None of the above Cash Outflows are called: Revenue Loss Expenses None of the above A. Revenue C. Expenses Quick Quiz Part I

28. How much working capital is in the bank at the end of July? What is the total Revenue for the year? How much money is in the bank at the end of the year? How much money was spent on mortgage payments during the year? - 1,700 Euros 97,000 Euros 2,800 Euros 19,200 Euros Quick Quiz – Part II Review the annual cash flow statement and then answer the following questions:

29. Advanced concept 1: Types of cash flows • You can receive cash inflows from: • Operational activities • Selling products • Accounts receivable • Depreciation • Deferred taxes or wages • Investments • Other investments (such in companies, loans, other interest generating notes) • Purchasing equipment used in producing goods or services • Financing • Bank or shareholder loans • Dividends, repayment of loans, stock related transactions

30. Advanced concept 2: Free Cash Flow • Free Cash Flow is defined as the amount of cash left over after all expenses associated with investments have been subtracted from operating expenses. • Free Cash Flow is essentially the amount of cash available at a specific point in time that can be returned to the capital providers (investors, banks, etc.)