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Bell Ringer (1/24) Edit your answer and place 1 of the 6

categories we discussed last week next to each of your 10 costs

Look in your notes if you need to remember those 6 categories

Start-up/Management Costs

Ways to classify costs:› By Categories

Cost of sales:  Product inventory, raw materials,

manufacturing equipment, shipping, packaging, shipping insurance, warehousing

Cost Categories

Professional fees:  Setting up a legal structure for your

business (e.g. LLC, corporation), trademarks, copyrights, patents, drafting partnership and non-disclosure agreements, attorney fees for ongoing consultation, retaining an accountant

Cost Categories

Technology costs:  Computer hardware, computer software,

printers, cell phones, PDAs, website development and maintenance, high-speed internet access, servers, security measures, IT consulting

Cost Categories

Administrative costs: Various types of business insurance,

office supplies, licenses and permits, express shipping and postage, product packaging, parking, rent, utilities, phones, copier, fax machine, desks, chairs, filing cabinets – anything else you need to have on a daily basis to operate a business 

Cost Categories

Sales and marketing costs: Printing of stationery, marketing

materials, advertising, public relations, event or trade show attendance or sponsorship, trade association or chamber of commerce membership fees, travel and entertainment for client meetings, mailing or lead lists 

Cost Categories

Wages and benefits:  Employee salaries, payroll taxes,

benefits, workers compensation 

Start-up/Management Costs Other ways to classify costs:

› Fixed vs. Variable› One-time Fee vs. Ongoing Cost

Seed Money

Reasons for planning expenses…

Revenue- Amount of money that a business earns from selling their product or service.

Costs - Something spent or required to be spent.

Making Money Profit - The amount a business makes

when total revenue exceeds total expenses.

Revenue > Costs Loss - The amount a business loses when

the total revenue is less than the total expenses.

Costs > Revenue Debt - Money that is owed. Can

accumulate when costs are higher than revenue for a business.

Financial Analysis

If you want a profit, you have to plan! That is why a business plan includes a

financial analysis

Types of Financing

Please get in the following groups:Group 1: Sara, Bryce, Ashley, EmilyGroup 2: Tala, Emma, KyleGroup 3: Austin, Rocco, Samantha

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

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

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

Advantages to Debt Financing

1. Lender has no say in the decisions of the business

2. You don’t give up ownership3. You keep all the profits4. Payments are always the same

Disadvantage of Debt Financing

1. You have a monthly payment, that includes interest

2. 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)

Equity Financing

The entrepreneur trades a percentage of ownership for money› The investor will receive a percentage of

future profits

Types of Equity Financing

Friends and family contributions Venture Capitalists Sale of stock

Advantages of Equity Financing

1. A venture capitalist cannot force you into bankruptcy if you can’t pay

2. You only pay them if your business makes money

Disadvantages of Equity Financing

1. You have to give up some ownership of your company

-You have to give them some of your profit

2. They have a say in how your business is run

3. You may end up paying them much more than they gave you

-Anita Roddick Story

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

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

Exit Slip

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Reasons banks or venture capitalists may turn you down…

1. The business is a startup2. Lack of a solid business plan3. Lack of adequate experience4. Lack of confidence in the borrower5. Inadequate personal investment in the

business

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

Income Statement

This statement can help you do the following:

1. Examine how sales, expenses, and income are changing over time

2. Forecast how well your business can expect to perform in the future

3. Analyze your costs to determine where you may need to cut back (or where you can increase spending)

Items… Look at the example on the back of your Bell

Ringer

1. Revenue – money made from the sale of goods or services

2. Cost of Goods Sold – Cost of the inventory or the materials to make the item

3. Gross Profit = Revenue – Cost of Goods sold4. Operating Expenses – costs necessary to run

a business (fixed costs such as rent, utilities, advertising, etc)

5. Net income before taxes – the amount remaining after COGS and operating expenses are subtracted from revenue

6. Taxes –the amount of taxes you have to pay

7. Net income/Loss after taxes – After taxes are subtracted, the Net Income (Profit) or Loss for the period