Plan and Track Your Finances Finance Your Business Pro Forma Financial Statements Record Keeping for Businesses
Finance Your Business Goals • Estimate your startup costs and personal net worth. • Identify sources of equity capital for your business. • Identify sources of debt capital for your business.
Terms • net worth • debt-to-equity ratio • equity capital • venture capitalists • debt capital • collateral
With a partner, make an itemized list of start-up costs. Assess Your Financial Needs • Itemize startup costs. • Determine the amount of capital required to start your business.
Personal Financial Statement • net worth = assets ─ liabilities • personal financial statement = personal assets ─ personal liabilities
Why is the net worth of an entrepreneur important to potential investors in the business?
Equity Capital • debt-to-equity ratio • the relation between the dollars you have borrowed and the dollars you have invested in your business • The higher percentage of your own money that you have invested, the easier it will be for you to get others to invest.
equity capital • the money invested in a business in return for a share in the profits of the business • Sources of equity include: • Personal Contributions • Friends and Relatives • Venture Capitalists • individuals or companies that make a living investing in startup companies
Debt Capital • debt capital • money loaned to a business with the understanding that the money will be repaid • usually with interest • Friends and Relatives • determine how the loan will affect your relationship • prepare a formal agreement regarding repayment terms
Commercial Bank Loans • secured loans • loans that are backed by collateral • collateral • property that the borrower forfeits if he or she defaults on the loan
Types of secured loans include the following: • line of credit • long-term loan • accounts receivable financing • inventory financing
unsecured loans • loans that are not guaranteed with collateral • only made to creditworthy customers
Reasons a bank may not lend money include: • The business is a startup. • A lack of: • a solid business plan • adequate experience • confidence in the borrower • personal investment
Other sources of loans include: • Small Business Administration • Small Business Investment Companies • Minority Enterprise Small Business Investment Companies • Department of Housing and Urban Development • The Economic Development Administration • State Governments • Local and Municipal Governments
Your Task In an email to Mr. Farrar, answer the following questions. Make sure to use complete sentences. Where can entrepreneurs look for debt financing? What are some of the challenges you might encounter if you get equity financing from friends and/or family? Why is a secured loan easier to get then an unsecured loan? Why would a bank be more willing to grant an SBA-guaranteed loan to a new business owner?