Sources of Financing Cost and Feasibility Assessment

1
Sources of FinancingCost and Feasibility
Assessment
2
Issues in Raising Capital

• Only one source individuals, so personal
  relationships with financial sources are
  important
• Raising money takes time
• Expect to be turned down
• No amount of money will do if you dont know how
  to use it

3
Where Do Start-ups get financing?

• Banks 51
• Credit cards 44
• Personal savings 39
• Suppliers 38
• Government 15
• Friends/relatives 12
• None 9

4
Capital StructureKey Questions to Address

• How much capital is needed
• What will the money be used for
• When is the money needed
• How will the money be paid back and when

5
Financial ProjectionsWhy are They Important?

• permits evaluation of businesss feasibility
• brings together the implications of remainder of
  business plan
• requires an investigation into the financial
  aspects of the business

6
What is included?

• A forecast opening balance sheet
• Three years forecast income statements
• Three years forecast balance sheets
• First year monthly cash flow statement
• Two more years of quarterly cash flows or to the
  point of positive cash flows

7
Forecast Opening Balance Sheet - Assets

• Estimate all pre-startup expenditures
• land, building and improvements
• equipment and vehicles
• equipment installation
• starting inventory and supplies
• pre-startup advertising and promotion
• licenses, permits, taxes

8
Forecast Opening Balance Sheet (ctd)

• Determine sources of financing
• Personal resources
• banks (term loans)
• development agencies, eg, ACOA
• youth venture funds
• term lenders (BDC, mortgage companies)
• angels
• venture capitalists
• Develop a capital structure for your enterprise

9
Forecast Annual Income Statement

• If possible, use a model statement from a text or
  other source as a guide
• Determine sales revenues from your market
  assessment and market share
• Estimate expenses through contact with suppliers
• Complete a forecast income statement
• Consider break-even approach

10
Forecast Monthly Cash Flow Statement

• Begin with Forecast annual income statement
• Assign each revenue and expense to specific
  months
• Consider credit terms to customers and from
  suppliers
• Determine when each monthly revenue/expense will
  be collected/paid
• Complete the statement

11
Benefits of Monthly Cash flow Statement

• Arguably the most important of the forecast
  statements
• Forces entrepreneur to consider timing of
  revenues and expenses
• Identifies periods of temporary cash shortages
• Enables entrepreneur to plan working capital
  borrowing

12
Forecast Annual Balance Sheet

• Begin with either forecast opening balance sheet
  or previous years forecast
• Update each item using the forecast income
  statements and cash flow statements
• Add new items, such as accounts receivable or
  payable
• Complete forecast balance sheet

13
Sequence of Completion

• Begin with the forecast opening balance sheet
• Next complete the forecast income statement for
  year 1
• Complete the forecast cash flow statement for
  year 1
• Complete the forecast balance sheet for year 1
• Repeat the latter three steps for years 2 and 3