Outline: Chapter 1 - PowerPoint Presentation

437 views
Uploaded On 2017-01-11

Outline: Chapter 1 - PPT Presentation

Introduction Importance of knowing the numbers Measuring success What is entrepreneurial financial management What Makes Entrepreneurial Finance Similar to Traditional Finance What Makes Entrepreneurial Finance Different from Traditional Finance ID: 508605

hartman amp cornwall vang amp hartman vang cornwall 2013 copyright financial 000 forecasting revenue total cash goals business plan cost costs expense

Link:

Copy

Embed:

<iframe width="560" height="315" src="https://www.docslides.com/embed/508605" frameborder="0" allowfullscreen></iframe>

Download Presentation from below link

Download Presentation The PPT/PDF document "Outline: Chapter 1" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.

Presentation Transcript

Slide1

Outline: Chapter 1Introduction

Importance of knowing the numbers Measuring successWhat is entrepreneurial financial management?What Makes Entrepreneurial Finance Similar to Traditional Finance?What Makes Entrepreneurial Finance Different from Traditional Finance? Ethics and entrepreneurial finance

2013

Cornwall,

Vang

& HartmanSlide2

Financial Management:The “Language” of Business

Used to set clear financial goalsUsed to make decisionsUsed to forecastUsed to manage cash flowUsed to seek financingUsed to determine an exit process for the businessCopyright 2013 Cornwall, Vang & HartmanSlide3

Measuring “Success”Income for entrepreneurWealth for entrepreneur

Differences between Traditional and Entrepreneurial FinanceLack of historical data to measure risk

Perspective of InvestorsPrefer less riskDiversified investors concerned with systematic risk

Non-diversified investors concerned with total riskPrefer more returnPrefer quick returnPrefer liquidityInvestors face many different opportunitiesNo investors are immune from these expectationsCopyright 2013 Cornwall, Vang & HartmanSlide6

Finance RelationshipsTotal Risk = Diversifiable Risk + Nondiversifiable RiskRequired Rate of Return = Rf + Beta(Rm - Rf)

Rf = Risk-Free Rate of ReturnRm = Return on Market Index like SP500Rm-Rf =Market Risk PremiumBeta is a measure of Nondiversifiable RiskBeta < 1 means asset is less volatile than market (safe asset)Beta = 1 means asset is just as volatile as market (average asset)Beta > 1 means asset is more volatile than market (risky asset)Copyright 2013 Cornwall, Vang & HartmanSlide7

Figure 1.1

Setting Financial Goals

Revenue Forecasting

Monitoring Performance

Expense

ForecastingSlide8

Table

1.1Example of Stakeholder Analysis

Stakeholder

Ethical Principle

Application

Family

Create balance between work demands and family time.

Establish a more moderate financial growth goal to allow for time with family.

Investors

Deal with all investors openly and honestly.

Develop a financial reporting system that provides full and accurate historical information as well as realistic forecasts.

Employees

Share financial success with those that helped create it.

Profit sharing, stock option plans, phantom stock, ESOP, etc. while still meeting goals of entrepreneur.

Slide9

Table 1.1

Example of Stakeholder Analysis (continued)Stakeholder

Ethical Principle

Application

Customers

Fair pricing

Establish revenue forecasts that are realistic given this pricing principle.

Suppliers

Prompt payment for money owed.

Establish cash forecasts that are based on an assumption of prompt payment of all invoices submitted by suppliers/vendors.

Banker

Honest disclosure of information

Assure timely and accurate financial reporting and reasonable financial forecasting.

Community

Reliable employment for the community.

Manage cash flow to allow for stable employment even during times of temporary slowdowns

Slide10

Outline: Chapter 2 Setting Financial Goals

Figure 2.1

Model for Entrepreneurial Financial Management

Setting Financial Goals

Revenue Forecasting

Monitoring Performance

Expense

Forecasting

Cornwall,

Vang

& HartmanSlide12

Life Cycle of a Business VentureFigure 2.2

Pre-Launch

Start-up

Growth

MaturitySlide13

“Quick and Dirty” ValuationEBITDA

Integrating Non-Financial GoalsEthics and valuesPersonal definition of “success” in business

Business Plan OutlineExecutive SummaryThe Business Concept

Importance of Self-AssessmentKeeps your goals front and centerFinancial goals change

Outline: Chapter 3 Understanding Financial Statements

Basic Financial Statements

Income StatementExhibit 3.1

The CompanyMonth ended April 30, 2012Sales $35,000 100.0%Cost of Goods Sold 10,000 28.6%Gross Profit 25,000 71.4% Operating Expenses Rent Expense 10,000 28.6% Utilities Expense 2,000 5.7% Wages Expense 5,000 14.3% Depreciation Expense 1,000

2.8%

Total Operating Expenses 18,000 51.4%

Earnings before interest and taxes (EBIT) 7,000 20.0%

Interest Expense

100

.3%

Earnings before taxes $ 6,900 19.7%

Cornwall,

Vang

& HartmanSlide20

Balance SheetExhibit 3.2

The CompanyApril 30, 2012ASSETSCurrent Assets Cash $ 58,900 Accounts Receivable 25,000 Inventory 30,000 Total Current Assets 113,900

Fixed Assets

Equipment 36,000

Less: Accumulated Depreciation

(1,000)

Net Fixed Assets

35,000

TOTAL ASSETS

$148,900

LIABILITIES

Current Liabilities

Notes Payable $ 15,000

Accounts Payable 22,000

Wages Payable

5,000

Total Current Liabilities

42,000

STOCKHOLDERS’ EQUITY

Common Stock 100,000

Retained Earnings

6,900

Total Stockholders’ Equity

Limitations of Financial Statements Not all assets of a company are included (e.g. employees or brand names)Intellectual property not reflected as an asset

Assets are reflected at historical costEstimates must be used for depreciation, the collectibility of accounts receivable, the salability of inventory, and the amount of warranty liability outstandingFinancial statements affected by the choice of accounting methods (e.g. FIFO, LIFO or average cost)Copyright 2013 Cornwall, Vang & HartmanSlide22

Outline: Chapter 4Revenue Forecasting

Common Forecasting Mistakes The Link Between the Marketing Plan and Revenue ForecastsCreating ScenariosThe Link Between the Revenue Forecast and the Cash Flow ForecastThe Impact of Business Type on RevenuesQuantitative Forecasting TechniquesImportance of Revenue ForecastingCopyright 2013 Cornwall, Vang & HartmanSlide23

Figure

4.1Model for Entrepreneurial Financial Management

Setting Financial Goals

Revenue Forecasting

Monitoring Performance

Expense

Forecasting

Cornwall,

Vang

& HartmanSlide24

Common Forecasting MistakesThe linear forecast mistake

Marketing Plan and Forecasting

Marketing Plan

Revenue Forecasts

Backbone

Cornwall,

Vang

& HartmanSlide26

Marketing Plan and Revenue Forecasting

Sample

Competitive Grid Figure 4.3

Cleanliness of Facilities

Hours of Operation

Selection

Price

Joe’s Inc.

Generally clean in public areas, but back rooms usually messy

8:00 – 6:00

Most commonly purchased products available

$5 - $20

Jane’s Inc.

Consistently clean and orderly throughout all facilities

8:00 – 8:00

All commonly purchased available and some specialty items in stock

$12 - $30

Sally & Jim’s Shop

Public areas somewhat messy and disorganized and back areas very messy

9:00 – 4:00

Many common items not in stock – usually have to special order

$3 - $15

Dr. C’s Place (New Business)

Plan to be spotless throughout

7:00 – 9:00

All common items plus

specialty items not

found at

competitors’ stores

$5 - $35

Cornwall,

Vang

& HartmanSlide28

Basic Guidelines for Revenue Forecasts

Market research to assure the quality of the assumptions behind the revenue forecasts Validate assumptions with more than one source of data Plan based on more conservative assumptions Copyright 2013 Cornwall, Vang & HartmanSlide29

Creating scenariosMake Three Forecasts

Revenue Forecast and the Cash Flow Forecast

Determine if credit is to be extended to customers Estimate the percentage of the sales that will be on credit Determine how long it will take to collect credit sales Copyright 2013 Cornwall, Vang & HartmanSlide31

Importance of Revenue Forecasting Bank financing

Outline: Chapter 5Expense Forecasting

Figure

5.1Model for Entrepreneurial Financial Management

Setting Financial Goals

Revenue Forecasting

Monitoring Performance

Expense

Forecasting

Cornwall,

Vang

& HartmanSlide34

Cost behaviorVariable Costs

Type of Expense

Activity BaseSales commissions SalesMaterials cost Units producedHealth insurance Number of employeesWages expense Number of hours workedPayroll tax expense Dollars of wages paidTable 5.1

Variable

Costs

Cornwall,

Vang

& HartmanSlide36

Figure 5.1

Variable Cost Behavior

Total Variable Cost Line

Total Units Produced

Cornwall,

Vang

& HartmanSlide37

Fixed CostsCommitted fixed costs

Figure 5.2

Fixed Cost Behavior

Total Fixed Costs

Total Units Produced

Cornwall,

Vang

& HartmanSlide39

Example – Merchandising CompanyExhibit 5.1

Assumptions used

Sales

$100,000

100.0%

COGS

65,000

65.0

65% of sales

Gross profit

35,000

35.0

35% of sales

Sales salaries

15,000

15.0

# of salespeople x monthly base

Sales commissions

1,500

1.5

1.5% of sales

Store rent

3,500

3.5

monthly rent

Total selling expenses

20,000

20.0

Office rent

2,500

2.5

monthly rent

Office salaries

12,000

12.0

# people x monthly pay

Depreciation

500

cost of equip./mos. of life

Total gen. & admin.

15,000

15.0

EBIT

500

.5Slide40

Breakeven Analysis

Breakeven Quantity=Fixed Costs____________________________________

Price per unit

Variable cost

per unit

Cornwall,

Vang

& HartmanSlide41

Outline: Chapter 6Integrated Financial Model

The entrepreneur’s aspirations reconsideredContribution format income statementEarnings before interest and taxesInventory of assumptionsSocial ventures Determining the funds neededTime out of cashAssessment of risk/sensitivityIntegrating into business plan/funding document

Cornwall,

Vang

& HartmanSlide42

Figure 6.1

Setting Financial Goals

Revenue Forecasting

Monitoring Performance

Expense

ForecastingSlide43

Time Out of Cash