quick start session 5_funding sources presentation

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QuickSTART Series: Funding Sources

Feasibility Plan

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Session 5

Funding Sources & Next Steps

SCORE QuickSTART Series Workshop

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Process Roadmap

““GO OR NO GO” DECISION & GO OR NO GO” DECISION & NEXT STEPSNEXT STEPS

PERSONAL MENTORINGPERSONAL MENTORING

Session 3:Marketing

Plan

Session 2:Business Concept

Session 4:Financial

Projections

Session 1:Start-up Basics

Session 5:Funding Sources

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• How did it go?

• Did you finish your financial forecasts?

• Did you work with your SCORE mentor?

• Any outstanding questions?

Homework

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Agenda• Financial statement analysis• Accounting & bookkeeping

systems• The “six C’s of credit”• Banking relations• Sources of capital (traditional and

non-traditional)• Go or No Go decision• Next steps

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Financial Statement Analysis

• Monthly preparation and review of financial statements (within 10 days after the close of the month)

• Ratio analysis• A/R and A/P analysis• Comparative benchmark analysis

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Accounting and Record Keeping Systems

• Manual vs. computerized

• Choosing the system

• Hiring a bookkeeper vs. DIY

• Training and educating yourself in accounting and understanding of financial statements

• Working with your accountant

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• Preparation is essential

• Lenders want facts, research and accurate projections

• Whether you seek funding now or in the future, your records should be in order

Record Keeping and Financing

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• Business plan• Financial information• Loan application• Financing sources• Face-to-face meeting

The Financing Process

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The Loan ApplicationLenders and banks look for:

• Good credit

• Management expertise and commitment

• Feasible business plan

• Adequate owner equity

• Sufficient collateral

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• Character• Capacity• Collateral• Capital• Conditions• Cash Flow

Six C’s of Credit

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Character• Trustworthiness • Personal and business credit

history • Integrity• Quality of references • Experience in the business• Impression you make on the

lender or investor

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Capacity• Is your company able to repay the

amount borrowed?

• How soon can you generate positive cash flow?

• When will you show a profit?

• How large will the profit be?

• Can the profit be sustained?

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• The money you have personally invested

• Your ability to save money and accumulate growth in owner’s equity

• Debt v. Equity – 25% to 30% of total funding required

• You cannot be financed on 100% debt because this is all risk for the lender.

Capital

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CollateralAdditional Forms of Security:• Secondary source of

repayment• Third party guarantee• Tangible assets• Property• Equipment• Accounts receivable• Inventory

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Conditions• Terms of loan:

– Intended purpose of loan– How much are you requesting– Length of the loan

• Local economic climate of industry• Local economic climate of

business

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Cash Flow• Where is the money coming

from to repay the debt obligation?

• Where will all the money go?

• What kind of cash do you need to keeping running the business? What’s the source?

• Free cash flow should = 1.3x debt principal + interest

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Credit Reports

• A FICO score of 700 or greater is desirable

• Your personal credit report available for free from:www.annualcreditreport.com

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• Collateral (both business and personal)

• Personal tax returns (3 years)

• Personal financial statements

• Resume

Loan ApplicationWhat You Need:• Cover letter-introduction• Summary of financial

needs• Business financial

statements (3 yrs)• Business tax returns (3

years)• Projected cash flow

statement (12 months)

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Loan ApplicationAdditional Questions:• Any legal claims, liens or judgments?• Are any assets pledged?• Tax returns and payment

up-to-date?• Life insurance (face value, cash

value)?• Monthly household income?• Monthly household expenses?

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Sources of Capital

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• Bank or credit union financing

• Credit cards• Partners • Sale of capital stock• Grants

Sources of Capital:Traditional

• Owner’s equity investment• Savings, investments,

insurance cash surrender value

• 3 F’s: friends, family & fools

• Home equity loan

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Sources of Capital:Special and Non-traditional

• SBA guaranteed loans through banks • Department of Community and Economic

Development• Department of Agriculture & Rural Development

Service• Angels and venture capitalists• Peer to Peer Loans – i.e. www.prosper.com or

http://www.lendingclub.com/

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Sources of Capital: Web Sites• SBA guaranteed loans:

www.sba.gov • Federal Government Grants: www.grants.gov • Ben Franklin Technology Partners http://benfranklin.org/• Catalog of Federal Domestic Assistance https://www.cfda.gov/• Matchlend Equipment Financing

http://www.matchlend.com/• Multifundinghttp://multifunding.com/

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• Leases• Inventory• Equipment• Chattel Mortgages• Accounts Receivable• Plant Improvement Loans• Conditional Sales Contract

Financing from the Balance Sheet

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Face-to-Face MeetingGetting Your Foot in the Door

• Know your financial SWOT– Strengths– Weaknesses– Opportunities– Threats

• Use your “strengths” for your:– elevator speech– abbreviated presentation

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Get in the Shark Tank• What deadly sin do you appeal

to?• Where’s the real money?• What are your unit economics?• What are the explanatory

events?• Why can’t you grow faster?• What are your accelerating

effects?• What’s your secret sauce?• How do you win?

Source: http://techcrunch.com/2009/11/18/good-question-the-eight-best-questions-we-got-while-raising-venture-capital/

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Workshop Review

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Feasibility Plan- QuickSTART Session 2

• Business Concept Development:idea, personal background, industry profile, business description, target markets, competition, suppliers, potential vs. risk

• Market Data Collection:Critical information data sources, demographics, psychographics, customer data, competitors data

Workshop Review

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• Product/service offering and description• Pricing strategy• Competition• Target markets• Distribution channels• Marketing strategies for target markets (marketing

message, communication tools, costs, etc.)• Business structure

Workshop ReviewFeasibility Plan-QuickSTART Session 3

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Feasibility Plan-QuickSTART Session 4• Nature of financial reports, how to interpret the info. and

use it to manage your business:– Income Statement– Cash Flow Statement– Balance Sheet– Financial Diagnostics– Year End Summary– Break-Even & Ratios

• Benchmarking resources: RMA data, BizStats.com

Workshop Review

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Feasibility Plan-QuickSTART Session 4

• How to prepare pro-forma financial forecasts using SCORE template

• Required funds• Sources of capital• Monthly budget• Gross margins• Sales forecast• Cash receipts & disbursements

Workshop Review

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Feasibility Plan-QuickSTART Session 5 •The C’s of credit•Funding sources•Bank financing

Workshop Review

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What Does a “Vetted Idea” Look Like?

Ann’s Nursery:• Skills to fit the business• Unique features• Specific target markets with clear market reach strategies• Realistic but aggressive top line -$710,000/year third year• Breakeven of $380,000 second year• Profitable in third year with good return• Cash flow with need for line of credit of $47,000 which can be

covered• From RMA and NAISC realistic fixed assets, accounts

receivable and inventory

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Go or No Go Decisionand Next Steps

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Review• Financial statement analysis• Accounting & bookkeeping

systems• The “six C’s of credit”• Banking relations• Sources of capital (traditional and

non-traditional)• Go or No Go decision• Next steps

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Start-up Basics

Business Concept

Marketing Plan

Financial Projections

Funding Sources & Next Steps

QuickSTART SeriesTesting Your Business Idea

Session 2

Session 3

Session 4Session 5

Session 1

Congratulations! You have completed the QuickSTART Series!

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We Can Help YouWe can help you: Further research your idea Complete your feasibility plan Finalize your financial forecast Develop your business plan Prepare your loan package Launch your business Grow your business

ContactSCORE

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Thank You!

Best wishes to you in your business endeavors!

Set up a meeting with your SCORE mentor. Help us to help others by completing an evaluation.Download all the handouts here:www.score.org/quickstart.html

ContactSCORE

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1. On a scale of 0 - 10, how likely is it that you would recommend this workshop to your friends and colleagues?

2. What is the primary reason for the answer you just gave us?

3. What is the most important improvement that would make you rate us closer to a 10?

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