Chapter 7 Powerpoint 97

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Chapter 7 Powerpoint 97

  1. 1. Chapter 7 Obtaining Financing
  2. 2. O BJECTIVES <ul><ul><li>estimate start-up costs for a new enterprise </li></ul></ul><ul><ul><li>identify sources of funds </li></ul></ul><ul><ul><li>describe differences between short-term and long-term needs </li></ul></ul><ul><ul><li>identify needs for additional capital </li></ul></ul><ul><ul><li>suggest tips for requesting loans </li></ul></ul>
  3. 3. Entrepreneur: Antonio Sanchez <ul><li>hard worker </li></ul><ul><li>positive attitude </li></ul><ul><li>perseverance </li></ul><ul><li>integrity </li></ul>
  4. 4. Estimating Start-up Costs <ul><li>Make a conservative sales estimate. </li></ul><ul><ul><li>(better too low than too high) </li></ul></ul><ul><li>Make a conservative expense estimate. </li></ul><ul><ul><li>(better too high than too low) </li></ul></ul>
  5. 5. One-Time Costs <ul><ul><ul><li>Equipment </li></ul></ul></ul><ul><ul><ul><li>Installations </li></ul></ul></ul><ul><ul><ul><li>decorating and remodeling </li></ul></ul></ul><ul><ul><ul><li>initial inventory </li></ul></ul></ul><ul><ul><ul><li>deposits for utilities </li></ul></ul></ul><ul><ul><ul><li>fees for accountants and lawyers </li></ul></ul></ul><ul><ul><ul><li>licenses & permits </li></ul></ul></ul><ul><ul><ul><li>advertising for “grand opening” </li></ul></ul></ul>
  6. 6. Continuing Costs <ul><ul><ul><li>Salaries </li></ul></ul></ul><ul><ul><ul><li>Advertising </li></ul></ul></ul><ul><ul><ul><li>Utilities </li></ul></ul></ul><ul><ul><ul><li>Repairs and maintenance </li></ul></ul></ul><ul><ul><ul><li>Fees for accountants and lawyers </li></ul></ul></ul><ul><li>Rent </li></ul><ul><li>Supplies </li></ul><ul><li>Insurance </li></ul><ul><li>Interest on Debt </li></ul><ul><li>Taxes </li></ul><ul><li>Employee Training Costs </li></ul>
  7. 7. Types of Funds: Equity and Debt <ul><li>Equity </li></ul><ul><ul><ul><li>money or capital contributed by the owners </li></ul></ul></ul><ul><ul><ul><li>no interest payments to make </li></ul></ul></ul><ul><ul><ul><li>controls business </li></ul></ul></ul><ul><ul><ul><li>more can be raised by selling stock </li></ul></ul></ul><ul><ul><ul><li>availability depends on success of enterprise </li></ul></ul></ul><ul><ul><ul><li>long-term </li></ul></ul></ul>
  8. 8. Types of Funds: Equity and Debt <ul><li>Debt </li></ul><ul><ul><ul><li>money or capital that is borrowed </li></ul></ul></ul><ul><ul><ul><li>interest payments must be made </li></ul></ul></ul><ul><ul><ul><li>failure to make loan payments can bankrupt a company </li></ul></ul></ul><ul><ul><ul><li>lenders are not usually actively involved in running the company – little control </li></ul></ul></ul><ul><ul><ul><li>availability depends on economy, enterprise </li></ul></ul></ul><ul><ul><ul><li>short-term </li></ul></ul></ul>
  9. 9. Current Assets <ul><li>Cash </li></ul><ul><li>Inventory </li></ul><ul><li>Accounts receivable </li></ul>
  10. 10. Fixed Assets <ul><li>Building </li></ul><ul><li>Land </li></ul><ul><li>Vehicles </li></ul>
  11. 11. Key to successful business financing: <ul><li>Obtain current assets with short-term loans </li></ul><ul><li>Obtain fixed assets with long-term loans </li></ul>
  12. 12. Short Term Loans <ul><ul><ul><li>Vendors – trade credit </li></ul></ul></ul><ul><ul><ul><li>Commercial banks </li></ul></ul></ul><ul><ul><ul><li>Commercial loans – “collateral” </li></ul></ul></ul><ul><ul><ul><li>Accounts receivable loans </li></ul></ul></ul><ul><ul><ul><li>Revolving lines of credit </li></ul></ul></ul><ul><ul><ul><li>Inventory financing </li></ul></ul></ul><ul><ul><ul><li>Commercial finance companies </li></ul></ul></ul><ul><ul><ul><li>Factors – selling accounts receivable </li></ul></ul></ul>
  13. 13. Long Term Loans <ul><ul><li>Commercial Banks </li></ul></ul><ul><ul><li>term loans with personal guarantees </li></ul></ul><ul><ul><li>equipment loans </li></ul></ul><ul><ul><li>real estate loans </li></ul></ul><ul><ul><li>Commercial Finance Companies </li></ul></ul><ul><ul><li>Equipment Manufacturers and Distributors </li></ul></ul>
  14. 14. Why would a business need additional capital? <ul><li>sales growth </li></ul><ul><li>expansion </li></ul><ul><li>opportunities to reduce costs </li></ul><ul><li>seasonal factors </li></ul><ul><li>economic conditions </li></ul>
  15. 15. Tips for requesting loans <ul><li>Select the bank carefully. </li></ul><ul><li>Prepare financial statements. </li></ul><ul><li>Make an appointment. </li></ul><ul><li>Dress like bankers dress. </li></ul><ul><li>Prepare to answer typical questions. </li></ul><ul><li>Prepare to guarantee the loan. </li></ul>
  16. 16. Typical Questions: <ul><li>How do you plan to spend the money? </li></ul><ul><li>How much money do you need? </li></ul><ul><li>When do you need the money? </li></ul><ul><li>When will the loan be repaid? </li></ul><ul><li>What is the source of money for repaying the loan? </li></ul>

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