Financing A Venture

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Financing A Venture
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Every Venture Needs Money!

• No matter it is a not-for-profit cooperative or a
  profit making corporation, a new start-up or a
  well-established corporation, every venture needs
  money!
• All ventures must at least aim to BREAK-EVEN
  (total revenues of all money flowing into a
  venture must equal the total costs of providing
  goods and services).
• Total REVENUE for a venture is determined by
  multiplying the number of units sold
• Adding together all fixed and variable costs
  determines total COSTS.

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Profit

• Profit is the major goal of the entrepreneur!
• Profit is like a scorecard for measuring success.
• Profit formula
• Profit (price of each unit X quantity) costs
• Total profit total revenue - total costs
• The amount of profit is determined on the demand
  for the product or service, the number of
  customers who are willing and able to pay the
  price for it, and competition.

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Pricing

• The price a venture receives for its goods or
  services is used to pay for production and
  distribution costs.
• Theoretically, a business owner can charge any
  price he/she wants for goods and services.
• However, strategic pricing takes many factors
  into account

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Strategic Pricing

• How the competition prices the goods and services
• Expectations about sales and expenses
• How much money the owner wants or needs to make
• What the market will tolerate
• Inventory costs and whether the supplier has
  pricing terms that must be followed

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Planning a Financial Strategy

• Developing a sound financial strategy requires a
  detailed plan. Venture Plans include
• Cash- Flow Projections
• Income Statement
• Balance Sheet

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Cash Flow Projections

• Cash flow projections or forecast reveals the
  amounts of money expected in revenues and
  expenses and their timing (usually monthly)
• The difference between the two (cash receipts
  minus cash disbursements) reveals whether the
  business generates a positive or negative balance
  (profit or loss) in any given month.

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Sample Cash Flow Projections
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Estimating Expenses

• Expenses are reasonably easy to accurately
  estimate by
• obtaining quotes from suppliers
• Knowing when rent is to be paid and how much
• Wages (e.g., paid every second Friday)

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Estimating Revenues

• Estimating revenues presents a much greater
  challenge and are more difficult to determine
• Magnitude (how many sales)?
• Timing (when)?
• Realistic estimates can be forecast with market
  research
• Buying habits of target market
• Sales patterns of competitors
• Exploring market tolerance for various pricing
  levels

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The Balance Sheet

• A balance sheet is a snapshot of what a business
  owns (assets), what it owes (liabilities) and the
  difference between the two (assets liabilities
  net worth)
• Assets- classified as current assets and fixed
  assets

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• CURRENT ASSETS are liquid meaning actual cash
  or assets to be converted to cash within one
  year. Most common non-cash assets are accounts
  receivable (money owed to the business by its
  customers) and inventory (product ready or almost
  ready to be sold).
• FIXED ASSETS Long- term or capital assets not
  expected to be converted into cash within one
  year. Common fixed assets are land, buildings,
  vehicles, plant or office equipment, furniture,
  etc.

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The Income Statement

• The income statement reveals sales, expenses and
  profits (or losses) for a period of time (usually
  monthly or yearly)
• While cash flow projections look forward and
  predict the future, income statements reflect the
  past.
• Often an accountant or bookkeeper prepare this
  statement.

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Income Statement