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Please…. Please log into Moodle and complete today’s Bell Ringer When you finish, please… UPLOAD the “Financial Analysis Notes #1” that we finished yesterday Download the “Financial Analysis Notes #2” that we are going to complete today. Debt Financing.

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  1. Please… • Please log into Moodle and complete today’s Bell Ringer • When you finish, please… • UPLOAD the “Financial Analysis Notes #1” that we finished yesterday • Download the “Financial Analysis Notes #2” that we are going to complete today

  2. Debt Financing • The entrepreneur borrows money from a person or an institution • They sign a promissory note, which commits them to making regular payments, which includes interest

  3. Types of Debt financing • Secured Loans • Loans that are backed up by personal property • If you cannot repay your loan, you give up your personal property • Examples: • Line of Credit • Long-term Loan

  4. Types of Debt financing • Unsecured Loans • Loans that are not backed up by personal property • Loans that are made to a banks most creditworthy customers • Examples: • Short-term loans that have to be repaid within a year

  5. Advantages to Debt Financing • Lender has no say in the decisions of the business • You don’t give up ownership • You keep all the profits • Payments are always the same

  6. Disadvantage of Debt Financing • You have a monthly payment, that includes interest • If loan payments are not made, the lender can force the business into bankruptcy -Close the business and sell assets (if you are not incorporated, you have to sell personal assets)

  7. Equity Financing • The entrepreneur trades a percentage of ownership for money • The investor will receive a percentage of future profits

  8. Types of Equity Financing • Friends and family contributions • Venture Capitalists • Sale of stock

  9. Advantages of Equity Financing • A venture capitalist cannot force you into bankruptcy if you can’t pay • You only pay them if your business makes money

  10. Disadvantages of Equity Financing • You have to give up some ownership of your company -You have to give them some of your profit • They have a say in how your business is run • You may end up paying them much more than they gave you -Anita Roddick Story

  11. Bootstrap Financing • “Pulling yourself up by the bootstraps” • Goal is to keep start-ups costs low and finance with your profits as you go • Suggestions • Hire as few employees as possible • Borrow or rent equipment instead of buy • Use personal savings • Arrange small loans from friends or relatives

  12. Advantages/Disadvantages • Advantages • You don’t go into major debt • You don’t give away any of your company • Disadvantages • You have to start very small and inexpensive • It may take a while to save up enough

  13. Why would it be hard to get financing? • Please log into Moodle and click on the link “Bank Rejection Worksheet” • Take a few minutes to read the information and answer the questions at the bottom • When you finish… • UPLOAD this worksheet to Moodle • Complete today’s Exit Slip on Moodle

  14. Reasons banks or venture capitalists may turn you down… • The business is a startup • Lack of a solid business plan • Lack of adequate experience • Lack of confidence in the borrower • Inadequate personal investment in the business

  15. Income Statement • Show’s the business’s revenues and expenses over a period in time • Shows if you received a profit or a loss • Sometimes called the Profit/Loss Statement

  16. Income Statement • This statement can help you do the following: • Examine how sales, expenses, and income are changing over time • Forecast how well your business can expect to perform in the future • Analyze your costs to determine where you may need to cut back (or where you can increase spending)

  17. Items… Look at the example on the back of your Bell Ringer Revenue – money made from the sale of goods or services Cost of Goods Sold – Cost of the inventory or the materials to make the item Gross Profit = Revenue – Cost of Goods sold Operating Expenses – costs necessary to run a business (fixed costs such as rent, utilities, advertising, etc)

  18. Net income before taxes – the amount remaining after COGS and operating expenses are subtracted from revenue Taxes –the amount of taxes you have to pay Net income/Loss after taxes – After taxes are subtracted, the Net Income (Profit) or Loss for the period

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