Flashcards
Entrep. Chapter 5 Financing
Cards in this deck (25)
- 1FinancingMoney raised to start or expand a business
- 2Startup InvestmentAmount of money needed to start a business -- consists of
Startup Costs & Cash Reserves - 3StartUp CostsMoney needed to purchase equipment, land/space and other items.
- 4Cash Reserves Consists of Two Things1- Emergency Fund - Money kept on hand for emergencies - Need equal to half of startup investment during startup.
2- Fixed Costs- monthly costs that do not change -- Need three months worth for life of the business. - 5Net incomeProjection of how much money your business will earn after expenses each month.
- 6Payback (Number of Months)Startup investment divided by net income per month.
- 7Return On Investment - ROIPercentage that expresses profitability
Equation:
Year end money
minus original investment amount
Divided by starting money
then multiply by 100. - 8Four Ways to Finance a Business1- Bootstrapping
2- Personal Savings
3- Credits Cards (not a good idea)
4- Other People's Money - OPM
consists of Debt & Equity Financing - 9Five Bootstrapping Strategies1- Few & Temporary Employees
2- Lease Equipment
3- Credit Extensions
4- Work from home/borrowed office space
5- Put profits back into the business - 10Two Kinds of OPM1- Debt Financing: borrowing money
2- Equity Financing - trading percentage of ownership for money - 11Bank Loans - Six Things Needed1- Credit Score
2- Track Record of past success
3- Solid Business Plan
4- Debt Ratio
5- Collateral (sercures the loan)
6- Cosigner (guarantees the loan) - 12Credit Score Three Things1- Number between 300 and 850.
2- 700 or Higher is Good.
3- The higher the number, the more likely borrower will use credit responsibly. - 13Debt Ratio PercentageMonthly Debts
Divided by Monthly Income
multiplied by 100.
Good is about 40% or less - 14Can Borrow From. . .Banks, Credit Unions, Friends/Relatives, Microloans (non-profits)
SBA & Kiva.org for Microloans - 15BankruptcyLegal procedure that involves the selling off of property of a business that can't pay its debts.
- 16Advantages & Disadvantages of Debt Financing1- Lender has no say in Business.
2- Payments are Predictable.
But . . .
1- Default can lead to Bankruptcy.
2- If not incorporated, you can be personally liable. - 17Equity Financing Four Things1- Investor assumes greater risk.
2- Cannot force owner into bankruptcy.
3- Money does not have to be paid back unless business is successful.
4- Entrepreneur can lose control of the business. - 18Kinds of Equity Investors Four of them.1- Other Business Owners
2- Friends/Relatives
3- Angel Investors
4- Venture Capitalists - 19Angel InvestorsPrefer Manufacturing, Energy, Tech, some Services, but no Retail.
May accept lower return than other investors. - 20Venture Capitalists Three Things1- Seeks High Return
Expects to Earn 6X's Back over Five Years.
2- Seeks final word in decisions.
3- Will take High Risk for High Return. - 21Advantages & Disadvantages of Equity Financing1- Investor may not get paid.
2- Investor has reason to give good advice.
But. . . . .
1- Owner can lose control of the business.
2- Investor may insist on giving advice and making decisions. - 22Other Financing Sources Six of Them1- Small Biz Invest. Co. SBIC
2- MInority Enterprise Small Biz Invest. Co. MESBIC
3- Customer Financing
4- Barter Financing
5- Crowdfunding (Kickstarter)
6- Business Incubators - 23Business Plan Consists of Five Things1- Explains the business idea.
2- Marketing Plan
3- Plan for Operations.
4- Sales forecasts & projected financials
5- Must be detailed. - 24Lean Startup Four Things1- A Business started with min. of capital and planning.
2- Has flexibility to respond to feedback.
3- Relies on customer feedback.
4- Constructs Business Plan after launch. - 25Minimum Viable Product - MVPSmallest amount of product needed to begin selling to potential customers.
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- Business/Economics Flashcards on Entrep. Chapter 5 Financing, created by Joanna Munley on 24/02/2018.
- Created by
- Joanna Munley · Feb 2018
- Updated
- Feb 24, 2018
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