cash flow and financing v2
Post on 18-Jul-2015
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Cash Flow & Funding
Presented By:
SCORE-CHICAGO
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Your presenter
Mark LiebermanMark Liebermanmark.lieberman01@gmail.commark.lieberman01@gmail.com
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SCORE
► About SCORE► Educational programs► One-on-one
counseling► Mentoring► Consulting► We offer, you choose
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If You Have to Leave Now …
•
4 Links You Should Have4 Links You Should HaveMe:Mark.Lieberman01@gmail.comMe:Mark.Lieberman01@gmail.comMyLinkedin:linkedin.com/in/liebermanmarkMyLinkedin:linkedin.com/in/liebermanmarkSCORE Local: SCORE Local: www.scorechicago.orgwww.scorechicago.orgSCORE National: www.score.orgSCORE National: www.score.org
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Tonight’s Discussion
What Is CF? Why Should you Care?
How Do You Forecast CF?
Need Financing?
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Cash Flow …
►Don’t proceed any further with out this!►Project your revenues
Know your price and volume Revenue=Price x Volume
►Compile your start up and operating costs: this is your cash flow statement.►How full is your tank?
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How Else Can You Explain?
• What is total investment required?• How large of loan is needed?
• Can loan be repaid?• Is the business likely to succeed?• Are there future cash problems?• How to improve business results?
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If You Aren’t Thinking About Cash Flow…
You’re either very lucky …
or you’re whistling past the graveyard.
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Guess Who Isn’t Going to Help!
Unless you are very lucky,you aren’t likely to find an accountant who wants to help small business with cashflow.
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Service Oriented Sales Plan
Product Oriented Sales Plan
Balance Sheet
Funds Flow(Cash Flow)
Maybe Both
P&L
Where Do I Start?
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The Math is Simple
But You Have To Know Your Business
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Don’t Reinvent the Wheel
•Templates available at Score.org/resources•Business Plan for Start-Up Business• Finance Templates
• Excel Cash Flow, P&L, and Balance Sheet
•Sales Template
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Digging Deeper
• Forecast is only as good as the estimatesGIGO: Garbage In, Garbage Out
• Be reasonable – – Not too optimistic or pessimistic
• Research, not guesses
Where Do Estimates Originate?
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Cash Flow
Revenue EstimatesOperating expensesStart up estimatesNon Cash Items
What Are The Pieces?
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Start Up Estimates
Cash In
Operating Expenses EOMCash
Balance
Other Stuff
Special Info
BOM Cash Balance
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Estimating Revenues
• Difficult; that's life• Extremely important• Don’t try to estimate total sales• Split into major categories
– Major items / minor items– Products / services
– Retail / wholesale
– Storefront / On Line
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Price Cost Margin
A 1.00 .50 .50
B 2.00 1.25 .75
C 3.00 2.10 .90
D 4.00 3.00 1.00
Product Categories
Product Oriented Step 1
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Product Oriented Step 2
Unit Sales
1 2 3 4 5 6 Total
A 1 3 5 7 9 11 36
B 5 7 9 11 15 17 64
C 20 21 22 23 24 25 135
D 1 3 5 7 9 11 36
18
Number of Periods Varies
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Product Oriented Step 3
Sales Forecast
1 2 3 4 5 6 Total
A 1 3 5 7 9 11 36
B 10 14 18 22 30 34 128
C 60 63 66 69 72 75 405
D 4 12 20 28 36 44 144
Total 75 92 109 126 147 164 713
Units x Price
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Product Oriented Step 4
Gross Margin
1 2 3 4 5 6 Total
A 0.5 1.5 2.5 3.5 4.5 6.5 18
B 3.75 5.25 6.75 8.25 11.25 12.75 48
C 18 18.9 19.8 20.7 21.6 22.5 121.5
D 1 3 5 7 9 11 36
Total 23.5 28.65 34.05 39.45 46.35 51.75 223.5
Units x Margin
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Estimating Revenues
• Your market share– Total market area– Sales of top 3 competitors
• Research competition– Why will customers leave them and join you?– Competitive advantage
• Association data• Interview similar (non-competing) businesses
– Start up and 2nd year volumes– Sales/marketing strategies
• Sufficient staff and operational support?
Reality Checks
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Estimating Expenses
• Sources– Library (RMA & Subscription Data Bases)– Realtors
– Sales agents
– Government agencies
– “Competitors”– Stores– Advertisements– Internet
– Trade associations
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Estimate Start Up Expenses
Telephone Expense Computers Collateral Material
Web Site Advertising Licenses
Build Outs Accountants Equipment
Wages Deposits Part Time Help
Vehicles Fees Travel
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Estimating Non Cash Items
It’s a little more complicated•Depreciation
•Loan Amortization
•Payroll and Income Taxes
•Inventory Buys
•Other Accruals
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• Compare actual results with plan • Focus on major variances and causal factors• Identify problems and opportunities• Define actions to improve results• Modify future Cash Flow forecast if appropriate.• Assess impact of changes
Timely information is essential
Monthly Cash Flow Review
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What If You Need Financing?
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Don’t Count on It
“For the current [2013-2014) season, the show’s producers received 35,000 applications. Of those, 157 — that’s 0.4 percent — were selected.”Abba Bhattaral, The Washington Post, 1/19/2014
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Show me the money!
► How much capital do you need? From your cash flow analysis, what
you need From your personal financial
statement, what you have Calculate the difference
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Where the Money Comes From
Earnings 32%
Credit Cards 30%
Large Bank 19%
Community Bank
19%
Friends or Family
17%
Vendor Credit 15%
Leasing 6%
SBA 4%
Debt -PP 2%
Credit Union 2%
Factor AR 2%
Stock - PP 2%
Non Bank Loan 1%
State/Regional Programs
1%
Crowd Funding 1%
Source:Mullins, How to Start a Business with Very Little Money, WSJ,1/26/2015, R1.
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It’s all about money
• Do you know how much money you want?
• Do you know why you want? – Can you justify?– Is it reasonable?– Do you have adequate collateral?
• Do you know how you would pay it back?
• Do you know when you would pay it back?
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You want a loan?
• You may have to guarantee personally
• You need a personal financial statement
• Do you have one?
• Do you know how to prepare one?
• What does it say?
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Select banks
• Get referrals • Line up more than one bank• They know your industry• They are in your community • Room for growth
• Banks are eager to do business too!
• Do your home work
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Meet the banker
• Make contact• Proper business etiquette• Have all relevant
documents• Build a rapport• Keep them informed• No surprises• Ask questions• Go with an “attitude”
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What bankers may not like…
• Getting outside your area of expertise
• Absentee management/ownership
• Going through divorce proceedings
• Burnout; no enthusiasm!
• Growing beyond your capacity
• Relocation
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Questions banker may ask you…
• Your product/service• Your experience• Down payment, 25%-
30%• Collateral• Your personal debt• Your credit history:
– They will check it anyway!• Your selling plans• Your business plan
• About your competition• Your team
– Your banker– Accountant– Attorney– SCORE?
• Your tax returns• Bankruptcy
• Most importantly:– How and when
would you pay back the loans?
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• Lying• Not forthcoming• Surprises• Omission of key info• Exaggeration• Ever changing story• Arguing • Excessive secrecy• Asking to sign Non-
disclosure agreement• Inability to answer direct
questions with direct answers
• Coming late for meetings• Investing on unnecessary
items• Fail to attract top talent• Not disclosing personal
liabilities
How to irritate an investor
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4 Links You Should Have4 Links You Should HaveMe:Mark.Lieberman01@gmail.comMe:Mark.Lieberman01@gmail.comMyLinkedin:linkedin.com/in/liebermanmarkMyLinkedin:linkedin.com/in/liebermanmarkSCORE Local: SCORE Local: www.scorechicago.orgwww.scorechicago.orgSCORE National: www.score.orgSCORE National: www.score.org
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Q&AQ&A
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