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Achieve Your Business Dream
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Expectations for this Course
• This week, you will learn …
Week 1 – Business Foundations
• Should You be an Entrepreneur?
• Your Business Vision & Self Assessment
• Business Plan Overview
• Developing a Support Network
• Creating a Legal Entity
• Mission, Vision & Value Statements
Week 3 – Product & Marketing
• The Four P’s of Marketing
• Generating Product Concepts
• Selecting a Pricing Method
• Product Distribution Channels
• Product Promotion & Social Media
Week 2 – Accounting & Finances
• Accounting Basics
• Understanding Financial Statements
• Determining Financing Needs
• Industry, Competitor & Market Analysis
• Selecting a Name for Your Business
Week 4 – Funding & Business Plans
• Sources of Funding
• Writing Your Business Plan
• Financial Projections
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Homework Assignment #4 #3
• List one to three attributes that should describe your
company.
1. ________________________
2. ________________________
3. ________________________
• Come up with three possible names.
– Fanciful: A fanciful trademark is made-up for the sole purpose of
functioning as a trademark.
________________________
– Suggestive: A name that suggests a specific quality or characteristic.
________________________
– Descriptive: A descriptive trademark merely describes some portion of
the goods or services to be sold.
________________________
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Section 1
Three Year
Financial Projections
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What is a Financial Forecast?
A financial forecast is a projection of future revenues,
expenses, profit and cash flow.
• Using a financial projection template allows you to input your
assumptions about funding levels, revenue, startup costs and
monthly fixed and variable expenses.
• The output results will include pro forma cash flow, income and
balance sheet statements.
• Use these statements to determine …
‒ if your assumptions will result in a profitable business.
‒ if your assumptions are realistic.
‒ what is your breakeven volume.
‒ how much external funding you will need.
‒ how much you will be able to pay yourself as the owner.
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The Financial Projections Template
There is a free forecast template at the SCORE website.
1. Go to the SCORE Jacksonville website https://jacksonville.score.org/
2. In the blue bar at the top, click on the “Browse the Library” tab.
3. Scroll to and click on “Business Planning & Financial Statements Template
Gallery”.
4. Under “Finance Templates”, you will see a series of templates listed.
5. Click on the first one listed, “SCORE Financial Projections Template”
6. Click on “Download Template” and
download the file to your PC.
7. A dialogue box will open. Click the
radio button “Open with”, then
click “OK”.
8. An Excel spreadsheet will open.
At the top, click “Enable Editing”
box.
9. Save the spreadsheet to your PC.
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1. Income statement:
Did I make a profit or loss?
What expenses did I spend money on?
2. Cash flow statement:
Do I have enough sources of funds to
operate, sustain & grow the business?
How many months to reach positive cash
flow (more money coming in than going out)?
3. Balance sheet:
What are my assets & liabilities?
What is the book value (equity) of the
business?
You need 36 monthly projections for three financial
statements.
The Three Financial Statements
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Major Revenue & Expense Categories
1. Fixed Asset Purchases: Initial cash outlays for
assets expected to last multiple years.
2. Startup Operating Capital: One time cash
outlays needed to get the doors open.
3. Variable Costs of Production: Mainly labor and
materials expenses that vary with the amount of
production.
4. Fixed (Overhead) Costs: Costs incurred
monthly regardless of sales or production.
5. Revenue: Average sale price per unit times
the number units expected to be sold by product
type. This is usually the most difficult to
estimate.
Almost all revenue and expenses can be broadly
categorized into the following:
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Estimating Revenue (Dollars Sales)
• Unit Sales
◦ Are sales the same each month or seasonal?
◦ If seasonal, estimate different sales for each month.
◦ What will your return/refund rate be?
• Selling Days
◦ Are you open on Sundays, holidays, etc.?
◦ Account for differences in days open each month.
• Selling Price
◦ Use expected average price, not retail price.
◦ Account for volume discounts, coupons, etc.
Revenue = 60 units/day X 22 days X $20.00 = $26,400/mo.
Sales Dollars = Units/day x Selling Days x Selling Price
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Estimating Revenue – Industry Averages
Estimating Restaurant Sales:
Estimating Gymnasium Sales:
Estimating Kitchen Remodel:
•
: “Average sales for sit down restaurants
(if all things work well), average $3,100 per night”.
$3,100 x 6 nights = $18,600/week
x 52 weeks
$967,200 Sales
: “AFS Report: Average Fitness Studio
Revenue Was Less Than $300,000 in 2014.”.
http://www.clubindustry.com/profits/afs-
report-average-fitness-studio-revenue-
was-less-300000-2014
: The average cost of a major kitchen
remodel in Jacksonville in 2016 was $55,649.
$55,649 x 1 remodel per month
x 12 months
$667,788 Sales
https://member.afsfitness.com/store
www.costvsvalue.com
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Financial Forecasting
Case Study:
Karla’s Kupcakes
Section 3
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Data Tabs in Forecast Template
1. Directions – Read the instructions in this tab. No data is entered here.
2. 1-Starting Point – Use this tab to enter expenses and funding obtained prior to opening.
3. 2a-PayrollYear1 – Enter expected hours worked and wage rates. If you only enter data in
the 12 orange cells, the same amounts will appear every month. If you expect substantial
growth during year one, you may want to enter monthly figures directly.
4. 2b-PayrollYr1-3 – Input the percent increase in wage expense expected in years 2 and 3.
5. 3a-SalesForecastYear1 – Enter products, price and COGS in upper cells B9-E14. Then
enter expected unit sales by month.
6. 3a-SalesForecastYrs1-3 – While this tab is supposed to autofill, we suggest you enter
expected unit sales in rows 12, 18, 24, etc.
7. 4-AdditionalInputs – If you expect additional fixed assets purchases after opening or A/R
or A/P to have terms beyond 30 days, use this tab.
8. 5a-OpExYear1 – Enter your operating (day-to-day) expenses.
9. 5a-OpExYrs1-3 – State the expected growth rates in expenses or enter amounts in
columns E and G.
10. Cash Flow tabs 6a & 6b – Enter data here to account for loan payments and owner
withdrawals.
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Karla’s Kupkakes – Start-up Assumptions
Fixed Asset Purchases Assumption
Leasehold improvements $2,000
Baking equipment $5,000
Furniture and fixtures $3,000
Delivery vehicle $20,000
Operating Capital Assumption
Pre-Opening Salaries & Wages $1,000
Prepaid Insurance Premiums $500
Inventory $750
Legal and Accounting Fees $200
Lease Deposit $2,000
Utility Deposits $300
Supplies $240
Advertising and Promotions $1,000
Licenses $100
Other Initial Start-Up Costs $200
Working Capital (Cash On
Hand)
$1,000
Sources of Funding Assumption
Owner’s Equity $50,000
Loans from family $10,000
Unknown --
TOTAL $60,000
Employees Yr 1 Count Hourly
Pay
Hours
per
Week
Owner(Karla) 1 $0.00 60
Full Time Employees 1 $12.25 40
Part Time Employees 3 $8.50 20
Employee Expense
Growth
Growth
Yr 1 to 2
Growth
Yr 2 to 3
Owner(s) 50% 50%
Full-Time Employees 30% 20%
Part-Time Employees 25% 15%
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Enter Opening Assumptions
Tab: 1-Starting Point
Prepared By: Company Name:
Craig Linsky Karla's KupKakes LLC
Fixed Assets Amount Depreciation (years)
Real Estate-Land Not Depreciated
Real Estate-Buildings 20
Leasehold Improvements 2,000 7
Equipment 5,000 7
Furniture and Fixtures 3,000 5
Vehicles 20,000 5
Other 5
Total Fixed Assets 30,000
$
Operating Capital Amount
Pre-Opening Salariesand W ages 1,000
Prepaid Insurance Premiums 500
Inventory 750
Legal and Accounting Fees 200
Rent Deposits 2,000
Utility Deposits 300
Supplies 240
Advertising and Promotions 1,000
Licenses 100
Other Initial Start-Up Costs 200
W orking Capital (Cash On Hand) 1,000
Total Operating Capital 7,290
$
Total Required Funds 37,290
$
Sourcesof Funding Percentage Totals Loan Rate Term in Months Monthly Payments Notes
Owner'sEquity 134.08% 50,000
Outside Investors 26.82% 10,000
Additional Loansor Debt
Commercial Loan 0.00% 9.00% 84 -
Commercial Mortgage 0.00% 9.00% 240 -
Credit Card Debt 0.00% 7.00% 60 -
Vehicle Loans 0.00% 6.00% 48 -
Other Bank Debt 0.00% 5.00% 36 -
Total Sourcesof Funding 160.90% 60,000
$ -
$
Total Funding Needed (22,710)
$
Notes
Notes
Your funding exceedsyour needs(Not Balanced)
Cell D 42 must equal cell C31
Enter your fixed
asset expenses here.
Enter your operating
capital expenses here.
Enter your sources of
funding here. The cash
flow statement will tell
you if you have enough.
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Enter Salary Assumptions
Tab: 2-Starting Point
Prepared By: Company Name:
CraigLinsky Karla's KupKakes LLC
Employee Types
Number of Owners
/Employees
Average Hourly
Pay (to 2 decimal
places, ex.
$15.23)
Estimated
Hrs./W eek
(per person)
Estimated
Pay/Month (Total) J
anuary February March
Owner(s) 1 0.00 60 -
$ - - -
Full-Time Employees 1 12.25 40 2,123
$ 2,123 2,123 2,123
Part-Time Employees 3 8.50 20 2,210
$ 2,210 2,210 2,210
Independent Contractors 0 0.00 -
$ - - -
Total Salariesand W ages 5 20.75
$ 120 4,333
$ 4,333
$ 4,333
$ 4,333
$
Payroll Taxesand Benefits W age Base Limit
Percentage of
Salary/W age
Estimated Taxes&
Benefits/Month
(Total) J
anuary February March
S
ocial S
ecurity 117,000
$ 6.20% 269
$ 269 269 269
Medicare -- 1.45% 63
$ 63 63 63
Federal Unemployment Tax (FUTA) 7,000
$ 0.60% 18
$ 18 18 18
S
tate Unemployment Tax (S
UTA) 7,000
$ 3.45% 101
$ 101 101 101
Employee Pension Programs -- 0.00% -
$ - - -
Worker's Compensation -- 0.00% -
$ - - -
Employee Health Insurance -- 0.00% -
$ - - -
Other Employee Benefit Programs -- 0.00% -
$ - - -
Total Payroll Taxesand Benefits 11.70% 450
$ 450
$ 450
$ 450
$
Total Salariesand Related Expenses 4,783
$ 4,783
$ 4,783
$ 4,783
$
Enter number of
employees, pay rates
and hours worked here.
Payroll taxes and benefits are
calculated automatically.
If you expect a lot of
variability by month, you can
manually add expense here.
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Estimating Sales Price – Check Competitors
“Mystery Shop” your competitors to find pricing.
• Google search: “gourmet cupcakes Jacksonville Florida”
• First Result: “The 15 Best Places for Cupcakes in Jacksonville”
‒ Created by Foursquare Lists; Published On: February 4, 2018
1. Sweet by Holly 9.1 ($3.00)
2. CamiCakes 8.1 ($3.25)
3. 4 Rivers Smokehouse 8.9
4. Sivada's Cupcakery 7.5 ($3.75)
5. Cupcake Girls Dessert Co. 7.4 ($3.00)
6. Sweet Theory Baking Com. 8.9
7. Publix 8.1
8. Dairy Queen 8.2
9. Three Layers Coffeehouse 8.0
10. Cold Stone Creamery 9.1
• Visit direct competitors to get pricing – plus
other products offered, décor, service level, etc.
www.jacks
onville.sco
11. Starbucks 7.1
12. Simply Sara’s 8.6
13. Jacksonville NAS Commissary 8.5
14. The Melting Pot 8.5
15. The Garage 7.9
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Variable Costs & Gross Profit Margin
The major costs of production (variable expenses) are labor
and materials, but there can be others.
• Direct or Variable Costs
• (Cost of Goods Sold)
 Raw Materials
 Labor to make the product
 Packaging materials
 Production supplies
 Sales commissions (not salary)
 Delivery costs (incl. shipping insurance)
 Other expenses directly tied to
production.
Gross Profit Margin:
Average selling price $5.00
Sugar, flour, chocolate, etc. $0.70
Baker’s labor $0.27
Cupcake baking cups $0.03
Sales commission $0.00
Cost of Goods Sold $1.00
Gross Profit Margin - Dollars $4.00
Gross Profit Margin - Percent 80%
Total COGS for January – Year 1
(600 x $1.00) + (100 x $6.50) = $1,250.00
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Karla’s Kupcakes – Sales Assumptions
Sales = Units x Avg. Price
For January – Year 1
(600 x $5.00) + (100 x $25.95) = $5,595.00
Product Lines Units Price COGS
Cupcakes 1 $5.00 $1.00
Cupcake 6-pack 1 $25.95 $6.50
Sales per Month Cupcake
s – Year
1
6-Pack
– Year 1
Cupcakes
– Year 2
6-Pack
– Year 2
Cupcakes
– Year 3
6-Pack
– Year 3
January 600 100 835 265 1,010 310
February 620 120 850 270 1,020 312
March 640 140 865 275 1,030 314
April 660 160 890 280 1,040 316
May 680 180 905 285 1,050 318
June 700 200 920 290 1,060 320
July 720 210 935 295 1,070 322
August 740 220 950 300 1,080 324
September 760 230 965 302 1,090 326
October 780 240 980 304 1,100 328
November 800 250 990 306 1,120 330
December 820 260 1,000 308 1,130 330
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Enter Sales Assumptions
Tab 3a: SalesForecastYear1
Product Lines Units SalesPrice Per
Unit
COGS Per
Unit
Margin Per Unit
Cupcakes 1 5.00
$ 1.00
$ 4.00
$
6-pack of cupcakes 1 25.95
$ 6.50
$ 19.45
$
-
$
-
$
-
$
-
$
Product Lines J
anuary February March April
Cupcakes
1 Sold 600 620 640 660
Total Sales 3,000 3,100 3,200 3,300
Total COGS 600 620 640 660
Total Margin 2,400 2,480 2,560 2,640
6-pack of cupcakes
1 Sold 100 120 140 160
Total Sales 2,595 3,114 3,633 4,152
Total COGS 650 780 910 1,040
Margin 1,945 2,334 2,723 3,112
Complete ThisChart First:
Enter unit sales.
Revenue & COGS
are calculated
automatically.
Enter product
types, selling prices
& COGS here.
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Karla’s Kupcakes – Operating Expenses
Operating Expenses are non-
capitalized expenses not directly
associated with the COGS.
• Non-capitalized means the expenses are
recognized in the period in which they
occur, not amortized over multiple years.
• These are also referred to as “fixed” or
“indirect” expenses.
• The template assumes operating
expenses in years 2 and 3 will be a
percentage increase above year 1
expenses, which can be adjusted.
• If you believe there will be major
exceptions, you can insert dollar amounts
to override the percentages in tab 5b.
• Total monthly fixed costs = $1,625.
Monthly Operating Expenses $ Amt.
Advertising $200
Car and Truck Expenses (Gas, etc.) $50
Commissions and Fees --
Contract Labor (Not included in payroll) --
Insurance (other than health) $100
Legal and Professional Services $75
Licenses --
Office Expense --
Rent / Lease -- Vehicles, Machinery,
Equipment
--
Rent or Lease -- Other Business
Property
$800
Repairs and Maintenance $60
Supplies $40
Travel, Meals and Entertainment --
Utilities $240
Miscellaneous $60
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Enter Operating Expenses
Tab 5a: OpExYear1
J
anuary February March April
Expenses
Advertising 200 200 200 200
Car and Truck Expenses 50 50 50 50
Commissions and Fees
Contract Labor (Not included in payroll)
Insurance (other than health) 100 100 100 100
Legal and Professional S
ervices 75 75 75 75
Licenses
Office Expense
Rent or Lease -- Vehicles, Machinery, Equipment
Rent or Lease -- Other Business Property 800 800 800 800
Repairs and Maintenance 60 60 60 60
S
upplies 40 40 40 40
Travel, Meals and Entertainment
Utilities 240 240 240 240
Miscellaneous 60 60 60 60
Total Expenses 1,625
$ 1,625
$ 1,625
$ 1,625
$
Other Expenses
Depreciation 467 467 467 467
Interest
Commercial Loan - - - -
Commercial Mortgage - - - -
Credit Card Debt - - - -
Vehicle Loans - - - -
Other Bank Debt - - - -
Line of Credit - 14 24 32
Bad Debt Expense - - - -
Total Other Expenses 467
$ 480
$ 491
$ 499
$
Total Fixed OperatingExpenses 2,092
$ 2,105
$ 2,116
$ 2,124
$
Enter monthly fixed
expenses here.
HINT: If they are fixed
expenses, you should be
able to copy January
numbers into all the other
months.
Now you are
ready to see
the results!
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Results in the Financial Template
1. 6a-CashFlowYear1 – This is the most critical results tab. If your ending
cash balance (line 33) is negative, it means your business is unlikely to
survive the first year under the assumptions you have made.
2. 6b-CashFlowYrs1-3 – Shows cash flow by month for the first three years.
Again, if ending cash balance (line 32) is negative, your business will not
survive the first three years under the assumptions you have made.
3. 7a-IncomeStatementYear1 – Shows your income statement by month for
the first year.
4. 7b-IncomeStatementYrs1-3 – Shows your income statement annually for
the first three years.
5. 8-BalanceSheet – Shows your balance sheet annually for the first three
years
6. Breakeven Analysis – Shows the number f units that need to be sold to
break even. (Revenues = Expenses)
7. Financial Ratios – These are ratios commonly used to gauge the health and
progress of a company.
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See Cash Flow Results
Tab 6a: CashFlowYear1
J
anuary February March April May J
une
Beginning Balance 1,000
$ 1,000
$ 1,000
$ 1,000
$ 1,000
$ 1,000
$
Cash Inflows
Cash S
ales 5,595 6,214 6,833 7,452 8,071 8,690
Accounts Receivable - - - - - -
Total Cash Inflows 5,595
$ 6,214
$ 6,833
$ 7,452
$ 8,071
$ 8,690
$
Cash Outflows
InvestingActivities
New Fixed Asset Purchases - - - - - -
Additional Inventory
Cost of Goods S
old 1,250 1,400 1,550 1,700 1,850 2,000
OperatingActivities
OperatingExpenses 1,625 1,625 1,625 1,625 1,625 1,625
Payroll 4,783 4,783 4,783 4,783 4,783 4,783
Taxes - - - - - -
FinancingActivities
Loan Payments - - - - - -
Owners Distribution
Line of Credit Interest 14 24 32 37 38
Line of Credit Repayments
Dividends Paid
Total Cash Outflows 7,658
$ 7,822
$ 7,982
$ 8,140
$ 8,295
$ 8,446
$
Net Cash Flows (2,063)
$ (1,608)
$ (1,149)
$ (688)
$ (224)
$ 244
$
Operating Cash Balance (1,063)
$ (608)
$ (149)
$ 312
$ 776
$ 1,244
$
Line of Credit Drawdown 2,063
$ 1,608
$ 1,149
$ 688
$ 224
$ -
$
Ending Cash Balance 1,000
$ 1,000
$ 1,000
$ 1,000
$ 1,000
$ 1,244
$
Line of Credit Balance 2,063
$ 3,671
$ 4,820
$ 5,508
$ 5,732
$ 5,732
$
Net Cash Flow does
not turn positive
until June ($244).
Borrowing on the LOC
peaks in May ($5,732).
Sales are increasing
each month.
COGS increases as
sales increase.
What LOC?
This says you
will need one!
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See Income Statement Results
Tab 7a: IncomeStatementYear1
This program does
not break out direct
labor separately.
Gross margin will be
overstated.
January February March April May June July August
Revenue
Cupcakes 3,000 3,100 3,200 3,300 3,400 3,500 3,600 3,700
6-pack of cupcakes 2,595 3,114 3,633 4,152 4,671 5,190 5,450 5,709
Total Revenue $ 5,595 $ 6,214 $ 6,833 $ 7,452 $ 8,071 $ 8,690 $ 9,050 $ 9,409
Cost of Goods Sold
Cupcakes 600 620 640 660 680 700 720 740
6-pack of cupcakes 650 780 910 1,040 1,170 1,300 1,365 1,430
Total Cost of Goods Sold $ 1,250 $ 1,400 $ 1,550 $ 1,700 $ 1,850 $ 2,000 $ 2,085 $ 2,170
Gross Margin $ 4,345 $ 4,814 $ 5,283 $ 5,752 $ 6,221 $ 6,690 $ 6,965 $ 7,239
Payroll $ 4,783 $ 4,783 $ 4,783 $ 4,783 $ 4,783 $ 4,783 $ 4,783 $ 4,783
Operating Expenses
Advertising 200 200 200 200 200 200 200 200
Car and Truck Expenses 50 50 50 50 50 50 50 50
Insurance (other than health) 100 100 100 100 100 100 100 100
Legal and Professional Services 75 75 75 75 75 75 75 75
Rent or Lease -- Other Business 800 800 800 800 800 800 800 800
Repairs and Maintenance 60 60 60 60 60 60 60 60
Supplies 40 40 40 40 40 40 40 40
Utilities 240 240 240 240 240 240 240 240
Miscellaneous 60 60 60 60 60 60 60 60
Total Operating Expenses $ 1,625 $ 1,625 $ 1,625 $ 1,625 $ 1,625 $ 1,625 $ 1,625 $ 1,625
Income (Before Other Expenses) $ (2,063) $ (1,594) $ (1,125) $ (656) $ (187) $ 282 $ 557 $ 831
Other Expenses
Amortized Start-up Expenses 154 154 154 154 154 154 154 154
Depreciation 467 467 467 467 467 467 467 467
Interest - Line of Credit - 14 24 32 37 38 38 38
Total Other Expenses 621 634 645 653 657 659 659 659
Net Income Before Income Tax $ (2,684) $ (2,228) $ (1,770) $ (1,309) $ (844) $ (377) $ (102) $ 172
Income Tax $ - $ - $ - $ - $ - $ - $ - $ -
Net Profit/Loss $ (2,684) $ (2,228) $ (1,770) $ (1,309) $ (844) $ (377) $ (102) $ 172
NIBT does not turn
positive until August
($172).
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Applying for a Loan?
This is what you should have with you.
• The output from the financial projections and a summary of key
numbers, such as funding needs, breakeven point, etc.
• The assumptions you made about the start-up costs, other expenses
and revenue you input to the forecast.
- Have them in writing in in your business plan or a separate document.
- Be prepared to defend every number you used by listing the research
you did to arrive at them.
• A second “Worst Case” forecast.
- The worst-case forecast should (hopefully) show that you can pay back
the loans even if things go worse than you expect.
- Add a “contingencies” expense equal to 20% of expected start-up costs.
- Lower your monthly sales estimates by 10%.
- If this worst case cannot show a positive cash flow by month 12, you
have not minimized your risk.
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Questions?
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Section 2
Building Your
Business Plan
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What is a Business Plan? ?
A Business Plan …
• is a document describing the nature of your business, the products
and services to be offered, the sales and marketing strategy to be
used and how your business will operate
• includes financial projections for revenue, cost, profit/loss and cash
flow resulting from your business activities, as well as the capital
required to get started
• will move you from uncertainty (unknown future) to risk (known
possible outcomes)
• will minimize your risk of failure
It’s your roadmap
to success!
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Why You Need a Business Plan
There are many reasons to have a written plan.
• It provides a written roadmap of what you plan to achieve, how you plan to achieve
it and steps along the way to measure your progress and test your assumptions
• It provides a place to capture and incorporate what you learn and decisions you
make into your plan, creating a living document to be reviewed and refined often
• It forces you to review everything at once: your value proposition, marketing
assumptions, operations plan, financial plan, staffing plan, etc. Does it all make
sense when you put it together?
• It communicates your plans to lenders and investors and others needed to
support you, such as family, partners and professionals
• The plan lays out targets in all major areas: sales, expense items, hiring positions
and financing goals. Once laid out, the targets become performance goals
• When actual results fall short of the plan, it gives you a good diagnostic tool to find
out what is wrong – either with the business or the assumptions in your plan
Businesses don’t plan to fail, they fail to plan.
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The SCORE Business Plan Template
1. Go to the SCORE Jacksonville website https://jacksonville.score.org/
2. On the blue banner, go to, then click on “Browse the Library”
3. Scroll down to and click on the “Business Planning & Financial Statements
Template Gallery”
4. Under “Business Plan Templates”, click on one of two options:
• Business Plan for a Start-up Business
• Business Plan for an Established Business
5. Click on “Download
Template” and save the file
to your PC
6. The template outlines the
steps you need to
complete a business plan
and provides a series of
questions to consider
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Sections of the SCORE Business Plan
The template has the following sections:
1. Executive Summary
2. General Company Description
3. Products and Services
4. Marketing Plan
5. Operational Plan
6. Management and Organization
7. Personal Financial Statement
8. Startup Expenses and Capitalization
9. Financial Plan
10. Appendices
11. Refining the Plan
• Not every business will need every section
• The level of detail will vary depending on your situation
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1. The Executive Summary
Think of this section as your audition for “Shark Tank”.
• Write this section last.
• Make it a maximum of two pages.
• Include everything that you would cover in a five-minute interview
• Explain the fundamentals of the proposed business.
– What will your product or service be?
– Who will your customers be?
– Who are the owners?
– What does the future hold for your business and your industry?
• Make it enthusiastic, professional, complete, and concise
• If applying for a loan, state clearly how much you want, precisely how
you are going to use it, and how the money will make your business
more profitable, thereby ensuring repayment.
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2. General Company Description
This section is an in-depth description of the business,
now and in the future.
• Mission, Vision and Value Statements: The mission statement explaining
the reason for being and the guiding principles.
• Company Goals and Objectives: Where do you want your business to be
in a year? In five years? What are your annual targets for sales, profitability,
customer satisfaction, repeat business, etc.
• Target Market: Who are your customers? How many are they? Where?
• Industry Description: Describe your industry. Is the industry growing?
What industry changes do you foresee, short term and long term? How will
your company be poised to take advantage of them?
• Business Strengths and Core Competencies: What factors will make the
company succeed? What is your competitive advantage? What background
experience, skills, and strengths do you personally bring to this new venture?
• Legal Form: What will be the legal form of ownership and why?
Jacksonville.score.org
3. Products and Services
Describe in depth your products and/or services and
how they will be used by customers.
• Start with your product concept description.
- Product Name – What will you call it?
- Headline – A one sentence description of the product as it might be used
in advertising.
- Product Description – A full description of what the product will be and
what it will do.
- Target Market – Define the target market for this product. How large is it?
- Functional Customer Benefits – Will it save time, money or effort for the
customer?
- Emotional Customer Benefits – How will it make the customer feel?
- Unique Value Proposition – What is your competitive advantage?
• If you offer multiple products/services which are significantly different,
have a product concept for each.
Jacksonville.score.org
3. Products and Services
Describe in depth your products or services and how
they will be used by customers
• Describe your product’s functionality
– Function: What is the customer trying to accomplish?
– Tasks: What steps does the customer take to complete the function?
– Pain Points: What happens while executing those tasks that frustrates
the customer and is improved by your product? What tasks are
eliminated, performed easier, more conveniently or less expensively?
– Solutions: How will your product alleviate the pain points?
• At what stage is your product development?
- If it is still in development, explain what still needs to be done
- Describe your product testing methods and results
Jacksonville.score.org
4. Marketing Plan
This section describes how you will promote your
product to the target market (customers)
• Positioning: Will your image be performance based, best value,
lowest cost, etc.? How do you differ from your competitors?
• Price: How will you set your prices? Is price driven by competition?
• Distribution: Will you sell through your own stores, the internet, a
third party or some combination?
• Unique Selling Proposition: What makes your product or business
unique? What will distinguish you from your competitors?
• Promotional Plan: How will you reach your target market? How
much of your marketing budget will you allocate to internet, direct
mail, print media, radio, discounts, etc.
• Marketing Budget: How much money will you spend on marketing,
and on what? Can you allocate it monthly in a cash flow statement?
Jacksonville.score.org
5. Operational Plan
Explain the day-to-day operation of the business
• Your operational plan should answer these key questions
– What are the most important (3 to 5) tasks that need to be completed?
– Who (what position) is responsible for each of these tasks?
– What is the timing and cost of completing each task?
– How will the people/departments work together?
– What metrics (KPIs) will be used to measure success?
• Potential key questions - Production
‒ How and where will your products be produced?
– If manufacturing, describe process from raw materials to finished
product.
– If a service, describe the service process from start to finish.
– How will quality control be measured and managed?
Jacksonville.score.org
5. Operational Plan
Explain the day-to-day operation of the business
• Potential key questions – Supply Chain
– Describe the supplier selection process
– Who are the key (and secondary) suppliers of raw materials/inventory?
– Where will raw materials come from and how will they be delivered?
– What level of raw material inventory is optimal?
• Potential key questions - Warehousing
‒ What level of finished goods is optimal?
– Where will finished good be stored and managed?
– Describe how finished goods will be delivered to customers
• Potential key questions – Customer Relations
‒ Describe the customer purchase process
– Describe the process for returns and refunds
– Describe the warranty handling process
Jacksonville.score.org
5. Operational Plan
Explain the day-to-day operation of the business
• Potential key questions – Personnel Management
‒ Describe the employee hiring process
– Describe the employee training process
– Provide job descriptions and wage setting process
– Describe the employee severance process
– Will you use contract workers? How will you source them?
• Potential key questions - Credit Policies
– Will you sell on credit? On what terms?
– Describe the customer credit assessment process
– Describe the bad credit collections process
Jacksonville.score.org
6. Management and Organization
How the business is managed on a day-to-day basis
• Management Structure and Responsibilities
– If you’ll have more than 8 to 10 employees, create an organizational
chart showing the management hierarchy and who is responsible for
key functions
– Include position descriptions for key employees, including the owners
– Is there a plan to replace a key person who leaves or is incapacitated?
• Professional and Advisory Support (provide names):
– Board of directors or advisory board
– Attorney
– Accountant
– Insurance agent
– Banker
– Consultants, mentors and key advisors
Jacksonville.score.org
7. Personal Financial Statement
This section is usually only needed if you are looking
for outside financing.
• Include personal financial statements for each owner and major
stockholder, showing assets and liabilities held outside the business
and personal net worth.
• Owners will often have to draw on personal assets to finance the
business, and these statements will show what is available.
• Owners will usually have to personally guarantee that all loans will be
repaid by him, if not repaid by the business.
Jacksonville.score.org
8. Startup Expenses and Capitalization
You need to know how much money you will spend
before the doors open.
• You will have many expenses before you even begin operating your
business. It’s important to estimate these expenses accurately and
then to plan where you will get sufficient capital.
• The more thorough your research efforts, the less chance that you will
leave out important expenses or underestimate them.
• Opening a new business can cost more than you anticipate. Add a
separate line item, called contingencies, to account for the unknown,
equal to 20% of estimated start-up costs.
• Talk to others who have started similar businesses to get a good idea
of start-up costs and how much to allow for contingencies.
Jacksonville.score.org
8. Startup Expenses and Capitalization
Below is a list of common start-up expense categories.
• Renting or Buying a Business Location: Consider down
payments, security deposits or closing costs, and first month’s rent.
• Store Improvements/Remodeling: You may need to renovate the
store to meet your requirements - negotiate this in your lease.
• Furniture and Equipment: You may need to lease or buy office
furniture, computers, printers, software, outdoor business signs,
displays, construction and manufacturing equipment.
• Inventory and Supplies: You need to buy your initial inventory or
materials to build your product - don’t forget cleaning and office
supplies, such as paper, ink, toner, and pens and pencils.
• Advertising and Marketing Your Business: You will need business
logos, pamphlets, brochures, websites, social media campaigns, and
print and broadcast ads. Will you offer introductory discounts?
Jacksonville.score.org
8. Startup Expenses and Capitalization
Don’t forget these start-up expenses.
• Paying Wages and Benefits: You may need to hire employees in
order to prepare to open the doors. There may be a paid training
period. Will you pay yourself prior to opening?
• Structuring Your Business: It makes sense to engage and consult
with a CPA, lawyer and other business services providers to help
register your business, review the building lease and supplier
contracts, etc.
• Obtaining Licenses, Permits, and Insurance: Many businesses
are required to obtain business licenses or other permits from
government agencies before opening their establishment.
Furthermore, you should consider the expenses of insuring your
business from damage and liability.
• Research and Technology Expenses: Product development and
testing can be expensive and take a long time to complete.
Jacksonville.score.org
1. Income statement:
Did I make a profit or loss?
What expenses did I spend money on?
2. Cash flow statement:
Do I have enough sources of funds to
operate, sustain & grow the business?
How many months to reach positive cash
flow (more money coming in than going out)?
3. Balance sheet:
What are my assets & liabilities?
How much is the business worth?
The three statements tell you different things
about the business.
9. Financial Plan – Three Statements
Jacksonville.score.org
10. Appendices
Include details and studies used in your business plan.
• Market research studies, product testing results
• Industry studies
• Blueprints and plans
• Prototype brochures and advertising materials
• Maps and photos of location(s)
• Copies of leases and contracts
• Letters of support from future customers
• Detailed lists of equipment owned or to be purchased
• List of assets available as collateral for a loan
Jacksonville.score.org
11. Refining the Plan
This is not a separate section, but modifications to the
plan based on the circumstances of your business.
• If you have lenders: They want to know how you plan to repay the loan
• If you have investors: They want to know how they will be rewarded. They
want to know the “exit strategy” (stock buybacks, sale of the business, IPO,
etc.).
• If you manufacture: What are the planned production levels, direct
production costs and indirect/overhead costs (versus industry averages)?
What percent of work will be subcontracted to other firms?
• If you are a service business: Show the methods used to set prices, the
quality control procedures, and how labor productivity and customer
satisfaction will be measured.
• If you are a retail business: Explain pricing and markdown policies,
inventory management procedures and inventory turnover rates. State the
customer service and return policies.
Jacksonville.score.org
Where Can I Get Help With My Plan?
There are many resources available…
• Achieve Your Business Dream workshops: This comprehensive
series of four workshops covers what needs to be in your plan and
the sources you can use to find the inputs.
• SCORE Mentors: A mentor can meet with you to review your plan
and suggest improvements - meet as often as you need!
• Read: The JPL has many books on assembling a business plan -
many are industry specific.
• GOOGLE Searches: Search engines can be used to find answers to
specific questions or find data you need.
• Do NOT use a Consultant: We strongly recommend AGAINST using
a consultant to put the plan together for you. You learn little about
what is ahead for you if you let someone else to the work. They can
also be very expensive and deliver a “cookie cutter” plan.
Jacksonville.score.org
Questions?
Jacksonville.score.org
Five Minute
Break
Jacksonville.score.org
Section 4
Preparing to Raise Funds
Jacksonville.score.org
Personal Budget Considerations
First, get your personal financial affairs in order.
• Clear as much debt as possible. Don’t enter business with significant
credit card debt and car loans. Get a home equity loan in place before
you start your business.
• Check your credit report. If you try to obtain financing or sell B2B, they
will check it. Check yours first and resolve any problems.
• Prepare your family. Let them know what you are planning to do well
ahead of the transition. Make sure they understand sacrifices may be
necessary and that you have their support.
• Learn to live on a budget. The first two years are the hardest, with
many unexpected expenses. Track your cash monthly or even weekly.
• Have a reserve for living expenses. Have at least 6 to 12 months of
living expenses in savings or reliable income from other activities to
cover you until the business turns profitable.
Jacksonville.score.org
Steps for Capitalization
The following steps should be part of your business plan.
1. Develop & refine your business plan
2. Identify realistic business goals
– What is your five-year plan?
– Targets for revenue, profit, locations, etc.
3. Prepare financial projections
– Pre-opening costs
– Monthly cash flows for 24-36 months
4. Identify types of funding needed
– Long-term, working capital, seasonal, etc.
5. Identify suitable funding sources
6. Deliver on your plan
7. Refine your plan as necessary
Jacksonville.score.org
Why Most New Ventures Need Funding
Three Reasons Start-Ups Need Funding
CASH FLOW
CHALLENGES
Purchase Inventory.
Train employees.
Advertising.
Grand opening.
These “disposable”
start-up costs require
upfront expenditures.
Buying real estate.
Buying buildings.
Buying equipment.
Buying furniture.
Other capital
expenditures.
These “capitalized”
costs typically exceed
a firm's ability to self-
fund.
CAPITAL
INVESTMENTS
Some products are
under development
for years before they
generate earnings.
The up-front costs
often exceed a firm's
ability to fund these
activities on its own.
LONG PRODUCT
DEVELOPMENT
CYCLES
Jacksonville.score.org
Equity
Signifies Ownership
• Personal savings
– Self financing
– Home equity
• Bootstrapping
• Family and friends
• Partners’contributions
• Profits retained in the business
• Equity crowd funding
• Private equity/Angel investors
Debt
Does NOT Signify Ownership
• Banks and credit unions*
• Community Express Micro Loans*
• Online Loans
• Credit cards (not cash advances)
• Public debt offerings
• Debt crowd funding
*Often guaranteed by SBA
Equity vs. Debt Financing
Jacksonville.score.org
Five C’s of Credit
These are the main criteria lenders will use to make a
credit decision.
Five C’s of Credit Metrics
Character Your trustworthiness as a borrower, reflected
by your credit score and payment history.
Capacity to Pay Debt-to-income ratio. Secondary income
sources.
Collateral Property or possessions used as security.
Capital Owner equity invested. Down payment. Net
worth.
Conditions State of local or national economy. Financial
health of the borrower’s industry.
Competition.
Jacksonville.score.org
Section 5
Sources of
Business Funding
• Self Funding
• Bootstrapping
• Banks & Credit
Unions
• On Line Lenders
• Micro Lenders
• Non-Profit Lenders
• Invoice Financing
• Grants
• Non-Equity
Crowdfunding
• Equity Crowdfunding
Jacksonville.score.org
Sources of Start-Up Funding
Read graph clockwise starting at 61.4%
(Personal/Family savings)
Most start-up funds come from the owners themselves.
Jacksonville.score.org
Bootstrapping
Bootstrapping is finding ways to avoid the need for
external financing through creativity, ingenuity,
thriftiness, cost-cutting, or any means necessary.
• It is the most common source of start-up funding and most entrepreneurs
bootstrap out of necessity.
• Examples of bootstrapping include …
‒ Buying used instead of new equipment.
‒ Leasing equipment instead of buying.
‒ Sharing office space with other businesses.
‒ Obtaining payments in advance from customers
‒ Making due with what you have
Jacksonville.score.org
Traditional vs. Online Lenders
TRADITIONAL LENDERS:
1. Lengthy application process
2. Lots of time-consuming
paperwork
3. Personal credit report & score
are primary drivers
4. Lend only large amounts of
capital
5. Usually require 1-2 years in
operation.
6. Often require very specific high-
value collateral
7. One transaction in an ongoing
relationship
ONLINE LENDERS:
1. Short application process
2. Less paperwork
3. Data-driven approach that looks
beyond credit scores
4. Lend smaller amounts of capital
5. Willing to work with younger
businesses
6. May require blanket lien on entire
business but often
uncollateralized
7. Single, non-personal transaction
There are still differences, but the lines are blurring.
Jacksonville.score.org
Small Business Credit Cards
A business credit card is an unsecured line of credit,
similar to a personal credit card.
• Business credit cards are a good first step in establishing a credit
history for a business.
• Banks will often offer a credit card application when opening a
business checking account.
• These cards are usually issued in the name of the business, but
sole proprietors may be eligible for one in their personal name.
• Card issuers will usually consider the personal credit ratings of the
owners of start-up or early stage businesses.
• The size of the credit lines are usually small for start-ups, but can
grow with the business.
• Business cards with rewards points or cash back are available just
like personal credit cards.
Jacksonville.score.org
Traditional Business Lenders
• Commercial Bank Loans
‒ Banks offer a wide variety of financing options, including term loans, lines
of credit (LOCs), real estate loans, etc.
‒ Banks usually loan only to businesses with a proven track record.
‒ Bank loans can have among the lowest interest rates.
‒ Some banks offer Small Business Administration guaranteed loans.
‒ LOCs up to 7 years and $350,000.
‒ Term loans up to 20 years and $5 million
‒ SBA guarantees the loan for the issuing bank, not the borrower.
• Credit Unions
‒ CUs offer many of the same business loan products as banks.
‒ CUs usually have lower rates and fees than banks.
‒ The average business loan by credit unions is over $200,000.
‒ Many CUs limit business lending to commercial mortgages.
‒ As of 2015, only 200 credit unions offered SBA guaranteed loans and they
averaged less than 10 SBA loans per year.
Jacksonville.score.org
Online Business Lenders
• Approval is often extremely fast (under 24 hours).
• Decisions are based on more than your personal credit rating.
‒ May require tie-in to business transaction account.
• Ideal for opportunities where payback is short term (< 6 mos.).
• Good for seasonal and project-based businesses.
• Generally not available to startups or new businesses.
• Higher interest rates than traditional loans.
‒ Some charge flat monthly fees instead of interest.
• Possible sources for online business loans:
‒ Funding Circle (www.fundingcircle.com)
‒ SmartBiz (www.smartbizloans.com)
‒ Kabbage (www.kabbage.com)
‒ OnDeck (www.ondeck.com)
Here are some characteristics of online lenders.
Jacksonville.score.org
Business Micro Lenders
• SBA Micro Loan Program
‒ The SBA provides funds to nonprofit community-based organizations with
experience in lending as well as management and technical assistance.
‒ The Microloan program provides loans up to $50,000 to help small businesses
and not-for-profit childcare centers. The average microloan is about $13,000.
• Micro Lenders Active in Jacksonville
‒ Ascendus – formerly Accion East (www.us.ascendus.org)
o Ascendus is the largest nonprofit micro- and small business lending network in the
U.S.
o Will lend to startups and provide financing for as little as $1,000.
‒ LiftFund (www.liftfund.com)
o A non-profit organization that assists entrepreneurs who can (or cannot) access
traditional funding sources.
o Help small-business owners improve their credit rating.
‒ Black Business Investment Fund of Florida (www.bbifflorida.com)
o Mission is to develop & promote Black business enterprises through education,
training, loans, investments, and other activities.
o Provides loans along with business development training.
o Invests in economic development for low income, distressed neighborhoods.
Jacksonville.score.org
Invoice Financing (Factoring)
You sell your accounts receivable to a third party.
• Available for a long time by commercial banks, but now online for much
smaller dollar amounts.
• Frees up cash trapped in invoices.
• Effective interest rate/fees may be high, but expectation is short term
borrowing.
• Good for seasonal businesses and those offering credit terms to
customers.
Examples of Invoice Financing providers:
• BlueVine (www.bluevine.com)
‒ Credit lines from $20,000 to $2M
‒ Accepts receivables due in up to 90 days
‒ Approval within 24 hours
• Fundbox (www.fundbox.com)
‒ Credit lines up to $100,000
‒ Will advance 100% of receivables
‒ Pay back the amount and a clearing fee over 12 or 24 weeks
Jacksonville.score.org
Small Business Grants
Grants are funds provided to small businesses or
startups without the need to be repaid.
• Grants can be provided by government entities or NGOs (non-
government organizations) such as non-profits and
universities.
• Small business grants are hard to find and qualify for.
• The most comprehensive website on grants we have found is
at: www.fundera.com/blog/small-business-grants
• The federal government makes very few grants directly to for-
profit businesses that are not technology or defense based,
but can fund other organizations that do.
• All federal grants can be found at: www.grants.gov
• We are not aware of any grant programs by the state of
Florida or city of Jacksonville available to for-profit businesses.
Jacksonville.score.org
Non-Equity Crowdfunding
• Donation-based Crowdfunding
– Donation-based crowdfunding is typically used to raise money for a non-profit
organization, a social cause or a personal need, but rarely for business financing.
– Donors donate personal funds (typically $25 to $1,000).
– GoFundMe and Crowdrise are two of the most popular donation-based
crowdfunders.
• Rewards-based (or Affinity) Crowdfunding
– The reward is often the item being produced, sold at a discount or with early
delivery.
– Companies often only produce products if the pre-sales’ target is met.
– Donors funding average is under $100 per subscriber.
– Kickstarter and Indiegogo are the most popular but there are many others.
• Debt Crowdfunding
– Multiple lenders each provide small dollar amounts as loans to be paid back plus
interest.
– Many only fund a loan if the funds raised reach 100% of the borrower’s goal.
– Debt-crowdfunding can be used for personal or business purposes.
– The Lending Club makes small business loans of $5,000 to $300,000.
– Kiva is a 503(c) non-profit that makes interest-free micro loans up to $10,000.
Jacksonville.score.org
Rewards Crowdfunding Examples
Indiegogo (www.indiegogo.com)
Travis the Translator
• BENEFITING: Travis Translator, Rotterdam, NL
• THE STORY: The personal voice translator that lets
you instantly communicate in over 80 languages.
• OFFERS: (1) Travis for $149 (25% off) or …
• (1) Business Travis & (1) Business Meetings
Transcripts for $224
• RAISED: $666,121; 785% funded; 3,855 backers.
8-in-1 Evolution Bra
• BENEFITING: Knix Wear, Toronto, Canada
• THE STORY: The Evolution Bra is designed for active
women. It is made of moisture wicking, 4-way stretch
material imbedded with anti-microbial silver threads.
• OFFERS: (1) Evolution for $55 (no discount) or …
• (2) Evolutions for $105
• RAISED: $1,612,511; 3684% of goal; 6,507 backers.
Indiegogo Fees:
4-9% Indiegogo platform fee and payment processor
fees (3-5% per processor).
Kickstarter (www.kickstarter.com)
Fruit Leather
• BENEFITING: Christopher P. Cook
• THE STORY: A perfect natural snack for camping,
hiking and emergencies. It has no preservatives,
MSG, HFCS or onions. Comes in 20 flavors.
• OFFERS: Various product amounts for 20 different
pledge amounts.
• RAISED: $996 of $300 goal from 28 backers.
The Worlds SMARTEST Handbag
• BENEFITING: Danielle Richeson, Ogden, UT.
• THE STORY: The ultimate leather travel and work
handbag. Comes with wireless charging, Bluetooth
proximity alerts, fingerprint locks, RFID data protection
and multiple pockets for PCs and other devices.
• OFFERS: Various sizes and colors for 10 different
pledge amounts.
• RAISED: $46,187 of $30,000 goal from 60 backers.
Kickstarter Fees:
5% from each donation you receive and payment
processor fees (3-5% per processor).
Jacksonville.score.org
Equity Crowdfunding
What is Equity Crowdfunding?
• It is a process that lets businesses raise capital by selling stock
(equity) in small amounts (up to $1,070,000 annually) through
broker-dealers or internet-based platforms to "non-accredited" or
“accredited” investors.
• This differs from "rewards crowdfunding" models such as
Kickstarter, on which supporters usually receive product
discounts but no equity in the business.
• Most equity offerings are done through an online “Funding
Portal”, an intermediary between the issuing business and the
pool of investors.
• If this is of interest to you, the two largest funding portals are:
‒ Wefunder Portal LLC at wefunder.com (41% of offerings in 2016).
‒ StartEngine Capital LLC at startengine.com (17% of offerings).
◦
Jacksonville.score.org
The Impact of Legal Status
The use of equity crowdfunding depends on legal status.
• Non-Profit 501(c)(3) – Not eligible.
• Sole Proprietorship – Not eligible.
• General Partnership - Not eligible.
• Limited Liability Company – Favorable form for equity crowdfunding.
◦ Permitted to raise capital under Title II (accredited investors only) or Title III.
◦ Allowed to issue preferred or common stock (i.e. - LLC membership interests).
◦ Allowed to issue voting and non-voting equity.
◦ Easy to convert to S or C corporation in the future without tax implications.
• S Corporation – Unfavorable for equity crowdfunding.
◦ Limited to 100 equity investors.
◦ Can only issue one class of stock.
• C Corporation – Favorable form for equity crowdfunding.
◦ The lowering of the C Corp tax rate to 21% may make this more attractive.
◦ Dividends to shareholders taxed at 15%, do not need to be paid out.
◦ Multiple classes of stock allowed and unlimited number of shareholders.
Jacksonville.score.org
Questions?
Jacksonville.score.org
Next Steps
Jacksonville.score.org
Sign Up With a Mentor
Sign up for a
mentor Register for a workshop
Find templates &
webinars
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Remember to complete your homework!
Submit homework to craig.linsky@scorevolunteer.org for feedback.
Jacksonville.score.org
If you liked this course …
Let other entrepreneurs know. Leave a Google review!
1. Open Google and make sure you are signed in to your Google account.
2. Scan or take a photo of the QR code given below
3. This should take you directly to the review page.
Jacksonville.score.org
Jacksonville.score.org
Disclaimer
This presentation was developed by Craig Linsky for the Jacksonville, Florida chapter of
SCORE. Any commercial or other use of this presentation by anyone other than SCORE
members requires permission from Craig Linsky or the Chairman of the Jacksonville Chapter
of SCORE.
If you have suggestions on additional details or other material that should be included, ways
to improve this presentation or have any follow up questions, please contact us at
craig.linsky@scorevolunteer.org.
The material in this presentation is a partial description only, offered for educational
purposes, and is not intended as legal advice, securities advice or tax advice. You should
consult with a qualified, licensed Florida attorney for legal advice customized to your
particular situation, a tax preparer or accountant for taxation advice and an SEC licensed
securities advisor for securities advice.
Jacksonville.score.org
Funded in part through a cooperative
agreement with the U.S. Small Business
Administration.
All opinions, conclusions, and/or
recommendations expressed herein are
those of the author(s) and do not
necessarily reflect the
views of the SBA.

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Achieve Your Business Dreams

  • 2. Jacksonville.score.org Expectations for this Course • This week, you will learn … Week 1 – Business Foundations • Should You be an Entrepreneur? • Your Business Vision & Self Assessment • Business Plan Overview • Developing a Support Network • Creating a Legal Entity • Mission, Vision & Value Statements Week 3 – Product & Marketing • The Four P’s of Marketing • Generating Product Concepts • Selecting a Pricing Method • Product Distribution Channels • Product Promotion & Social Media Week 2 – Accounting & Finances • Accounting Basics • Understanding Financial Statements • Determining Financing Needs • Industry, Competitor & Market Analysis • Selecting a Name for Your Business Week 4 – Funding & Business Plans • Sources of Funding • Writing Your Business Plan • Financial Projections
  • 3. Jacksonville.score.org Homework Assignment #4 #3 • List one to three attributes that should describe your company. 1. ________________________ 2. ________________________ 3. ________________________ • Come up with three possible names. – Fanciful: A fanciful trademark is made-up for the sole purpose of functioning as a trademark. ________________________ – Suggestive: A name that suggests a specific quality or characteristic. ________________________ – Descriptive: A descriptive trademark merely describes some portion of the goods or services to be sold. ________________________
  • 5. Jacksonville.score.org What is a Financial Forecast? A financial forecast is a projection of future revenues, expenses, profit and cash flow. • Using a financial projection template allows you to input your assumptions about funding levels, revenue, startup costs and monthly fixed and variable expenses. • The output results will include pro forma cash flow, income and balance sheet statements. • Use these statements to determine … ‒ if your assumptions will result in a profitable business. ‒ if your assumptions are realistic. ‒ what is your breakeven volume. ‒ how much external funding you will need. ‒ how much you will be able to pay yourself as the owner.
  • 6. Jacksonville.score.org The Financial Projections Template There is a free forecast template at the SCORE website. 1. Go to the SCORE Jacksonville website https://jacksonville.score.org/ 2. In the blue bar at the top, click on the “Browse the Library” tab. 3. Scroll to and click on “Business Planning & Financial Statements Template Gallery”. 4. Under “Finance Templates”, you will see a series of templates listed. 5. Click on the first one listed, “SCORE Financial Projections Template” 6. Click on “Download Template” and download the file to your PC. 7. A dialogue box will open. Click the radio button “Open with”, then click “OK”. 8. An Excel spreadsheet will open. At the top, click “Enable Editing” box. 9. Save the spreadsheet to your PC.
  • 7. Jacksonville.score.org 1. Income statement: Did I make a profit or loss? What expenses did I spend money on? 2. Cash flow statement: Do I have enough sources of funds to operate, sustain & grow the business? How many months to reach positive cash flow (more money coming in than going out)? 3. Balance sheet: What are my assets & liabilities? What is the book value (equity) of the business? You need 36 monthly projections for three financial statements. The Three Financial Statements
  • 8. Jacksonville.score.org Major Revenue & Expense Categories 1. Fixed Asset Purchases: Initial cash outlays for assets expected to last multiple years. 2. Startup Operating Capital: One time cash outlays needed to get the doors open. 3. Variable Costs of Production: Mainly labor and materials expenses that vary with the amount of production. 4. Fixed (Overhead) Costs: Costs incurred monthly regardless of sales or production. 5. Revenue: Average sale price per unit times the number units expected to be sold by product type. This is usually the most difficult to estimate. Almost all revenue and expenses can be broadly categorized into the following:
  • 9. Jacksonville.score.org Estimating Revenue (Dollars Sales) • Unit Sales ◦ Are sales the same each month or seasonal? ◦ If seasonal, estimate different sales for each month. ◦ What will your return/refund rate be? • Selling Days ◦ Are you open on Sundays, holidays, etc.? ◦ Account for differences in days open each month. • Selling Price ◦ Use expected average price, not retail price. ◦ Account for volume discounts, coupons, etc. Revenue = 60 units/day X 22 days X $20.00 = $26,400/mo. Sales Dollars = Units/day x Selling Days x Selling Price
  • 10. Jacksonville.score.org Estimating Revenue – Industry Averages Estimating Restaurant Sales: Estimating Gymnasium Sales: Estimating Kitchen Remodel: • : “Average sales for sit down restaurants (if all things work well), average $3,100 per night”. $3,100 x 6 nights = $18,600/week x 52 weeks $967,200 Sales : “AFS Report: Average Fitness Studio Revenue Was Less Than $300,000 in 2014.”. http://www.clubindustry.com/profits/afs- report-average-fitness-studio-revenue- was-less-300000-2014 : The average cost of a major kitchen remodel in Jacksonville in 2016 was $55,649. $55,649 x 1 remodel per month x 12 months $667,788 Sales https://member.afsfitness.com/store www.costvsvalue.com
  • 12. Jacksonville.score.org Data Tabs in Forecast Template 1. Directions – Read the instructions in this tab. No data is entered here. 2. 1-Starting Point – Use this tab to enter expenses and funding obtained prior to opening. 3. 2a-PayrollYear1 – Enter expected hours worked and wage rates. If you only enter data in the 12 orange cells, the same amounts will appear every month. If you expect substantial growth during year one, you may want to enter monthly figures directly. 4. 2b-PayrollYr1-3 – Input the percent increase in wage expense expected in years 2 and 3. 5. 3a-SalesForecastYear1 – Enter products, price and COGS in upper cells B9-E14. Then enter expected unit sales by month. 6. 3a-SalesForecastYrs1-3 – While this tab is supposed to autofill, we suggest you enter expected unit sales in rows 12, 18, 24, etc. 7. 4-AdditionalInputs – If you expect additional fixed assets purchases after opening or A/R or A/P to have terms beyond 30 days, use this tab. 8. 5a-OpExYear1 – Enter your operating (day-to-day) expenses. 9. 5a-OpExYrs1-3 – State the expected growth rates in expenses or enter amounts in columns E and G. 10. Cash Flow tabs 6a & 6b – Enter data here to account for loan payments and owner withdrawals.
  • 13. Jacksonville.score.org Karla’s Kupkakes – Start-up Assumptions Fixed Asset Purchases Assumption Leasehold improvements $2,000 Baking equipment $5,000 Furniture and fixtures $3,000 Delivery vehicle $20,000 Operating Capital Assumption Pre-Opening Salaries & Wages $1,000 Prepaid Insurance Premiums $500 Inventory $750 Legal and Accounting Fees $200 Lease Deposit $2,000 Utility Deposits $300 Supplies $240 Advertising and Promotions $1,000 Licenses $100 Other Initial Start-Up Costs $200 Working Capital (Cash On Hand) $1,000 Sources of Funding Assumption Owner’s Equity $50,000 Loans from family $10,000 Unknown -- TOTAL $60,000 Employees Yr 1 Count Hourly Pay Hours per Week Owner(Karla) 1 $0.00 60 Full Time Employees 1 $12.25 40 Part Time Employees 3 $8.50 20 Employee Expense Growth Growth Yr 1 to 2 Growth Yr 2 to 3 Owner(s) 50% 50% Full-Time Employees 30% 20% Part-Time Employees 25% 15%
  • 14. Jacksonville.score.org Enter Opening Assumptions Tab: 1-Starting Point Prepared By: Company Name: Craig Linsky Karla's KupKakes LLC Fixed Assets Amount Depreciation (years) Real Estate-Land Not Depreciated Real Estate-Buildings 20 Leasehold Improvements 2,000 7 Equipment 5,000 7 Furniture and Fixtures 3,000 5 Vehicles 20,000 5 Other 5 Total Fixed Assets 30,000 $ Operating Capital Amount Pre-Opening Salariesand W ages 1,000 Prepaid Insurance Premiums 500 Inventory 750 Legal and Accounting Fees 200 Rent Deposits 2,000 Utility Deposits 300 Supplies 240 Advertising and Promotions 1,000 Licenses 100 Other Initial Start-Up Costs 200 W orking Capital (Cash On Hand) 1,000 Total Operating Capital 7,290 $ Total Required Funds 37,290 $ Sourcesof Funding Percentage Totals Loan Rate Term in Months Monthly Payments Notes Owner'sEquity 134.08% 50,000 Outside Investors 26.82% 10,000 Additional Loansor Debt Commercial Loan 0.00% 9.00% 84 - Commercial Mortgage 0.00% 9.00% 240 - Credit Card Debt 0.00% 7.00% 60 - Vehicle Loans 0.00% 6.00% 48 - Other Bank Debt 0.00% 5.00% 36 - Total Sourcesof Funding 160.90% 60,000 $ - $ Total Funding Needed (22,710) $ Notes Notes Your funding exceedsyour needs(Not Balanced) Cell D 42 must equal cell C31 Enter your fixed asset expenses here. Enter your operating capital expenses here. Enter your sources of funding here. The cash flow statement will tell you if you have enough.
  • 15. Jacksonville.score.org Enter Salary Assumptions Tab: 2-Starting Point Prepared By: Company Name: CraigLinsky Karla's KupKakes LLC Employee Types Number of Owners /Employees Average Hourly Pay (to 2 decimal places, ex. $15.23) Estimated Hrs./W eek (per person) Estimated Pay/Month (Total) J anuary February March Owner(s) 1 0.00 60 - $ - - - Full-Time Employees 1 12.25 40 2,123 $ 2,123 2,123 2,123 Part-Time Employees 3 8.50 20 2,210 $ 2,210 2,210 2,210 Independent Contractors 0 0.00 - $ - - - Total Salariesand W ages 5 20.75 $ 120 4,333 $ 4,333 $ 4,333 $ 4,333 $ Payroll Taxesand Benefits W age Base Limit Percentage of Salary/W age Estimated Taxes& Benefits/Month (Total) J anuary February March S ocial S ecurity 117,000 $ 6.20% 269 $ 269 269 269 Medicare -- 1.45% 63 $ 63 63 63 Federal Unemployment Tax (FUTA) 7,000 $ 0.60% 18 $ 18 18 18 S tate Unemployment Tax (S UTA) 7,000 $ 3.45% 101 $ 101 101 101 Employee Pension Programs -- 0.00% - $ - - - Worker's Compensation -- 0.00% - $ - - - Employee Health Insurance -- 0.00% - $ - - - Other Employee Benefit Programs -- 0.00% - $ - - - Total Payroll Taxesand Benefits 11.70% 450 $ 450 $ 450 $ 450 $ Total Salariesand Related Expenses 4,783 $ 4,783 $ 4,783 $ 4,783 $ Enter number of employees, pay rates and hours worked here. Payroll taxes and benefits are calculated automatically. If you expect a lot of variability by month, you can manually add expense here.
  • 16. Jacksonville.score.org Estimating Sales Price – Check Competitors “Mystery Shop” your competitors to find pricing. • Google search: “gourmet cupcakes Jacksonville Florida” • First Result: “The 15 Best Places for Cupcakes in Jacksonville” ‒ Created by Foursquare Lists; Published On: February 4, 2018 1. Sweet by Holly 9.1 ($3.00) 2. CamiCakes 8.1 ($3.25) 3. 4 Rivers Smokehouse 8.9 4. Sivada's Cupcakery 7.5 ($3.75) 5. Cupcake Girls Dessert Co. 7.4 ($3.00) 6. Sweet Theory Baking Com. 8.9 7. Publix 8.1 8. Dairy Queen 8.2 9. Three Layers Coffeehouse 8.0 10. Cold Stone Creamery 9.1 • Visit direct competitors to get pricing – plus other products offered, décor, service level, etc. www.jacks onville.sco 11. Starbucks 7.1 12. Simply Sara’s 8.6 13. Jacksonville NAS Commissary 8.5 14. The Melting Pot 8.5 15. The Garage 7.9
  • 17. Jacksonville.score.org Variable Costs & Gross Profit Margin The major costs of production (variable expenses) are labor and materials, but there can be others. • Direct or Variable Costs • (Cost of Goods Sold)  Raw Materials  Labor to make the product  Packaging materials  Production supplies  Sales commissions (not salary)  Delivery costs (incl. shipping insurance)  Other expenses directly tied to production. Gross Profit Margin: Average selling price $5.00 Sugar, flour, chocolate, etc. $0.70 Baker’s labor $0.27 Cupcake baking cups $0.03 Sales commission $0.00 Cost of Goods Sold $1.00 Gross Profit Margin - Dollars $4.00 Gross Profit Margin - Percent 80% Total COGS for January – Year 1 (600 x $1.00) + (100 x $6.50) = $1,250.00
  • 18. Jacksonville.score.org Karla’s Kupcakes – Sales Assumptions Sales = Units x Avg. Price For January – Year 1 (600 x $5.00) + (100 x $25.95) = $5,595.00 Product Lines Units Price COGS Cupcakes 1 $5.00 $1.00 Cupcake 6-pack 1 $25.95 $6.50 Sales per Month Cupcake s – Year 1 6-Pack – Year 1 Cupcakes – Year 2 6-Pack – Year 2 Cupcakes – Year 3 6-Pack – Year 3 January 600 100 835 265 1,010 310 February 620 120 850 270 1,020 312 March 640 140 865 275 1,030 314 April 660 160 890 280 1,040 316 May 680 180 905 285 1,050 318 June 700 200 920 290 1,060 320 July 720 210 935 295 1,070 322 August 740 220 950 300 1,080 324 September 760 230 965 302 1,090 326 October 780 240 980 304 1,100 328 November 800 250 990 306 1,120 330 December 820 260 1,000 308 1,130 330
  • 19. Jacksonville.score.org Enter Sales Assumptions Tab 3a: SalesForecastYear1 Product Lines Units SalesPrice Per Unit COGS Per Unit Margin Per Unit Cupcakes 1 5.00 $ 1.00 $ 4.00 $ 6-pack of cupcakes 1 25.95 $ 6.50 $ 19.45 $ - $ - $ - $ - $ Product Lines J anuary February March April Cupcakes 1 Sold 600 620 640 660 Total Sales 3,000 3,100 3,200 3,300 Total COGS 600 620 640 660 Total Margin 2,400 2,480 2,560 2,640 6-pack of cupcakes 1 Sold 100 120 140 160 Total Sales 2,595 3,114 3,633 4,152 Total COGS 650 780 910 1,040 Margin 1,945 2,334 2,723 3,112 Complete ThisChart First: Enter unit sales. Revenue & COGS are calculated automatically. Enter product types, selling prices & COGS here.
  • 20. Jacksonville.score.org Karla’s Kupcakes – Operating Expenses Operating Expenses are non- capitalized expenses not directly associated with the COGS. • Non-capitalized means the expenses are recognized in the period in which they occur, not amortized over multiple years. • These are also referred to as “fixed” or “indirect” expenses. • The template assumes operating expenses in years 2 and 3 will be a percentage increase above year 1 expenses, which can be adjusted. • If you believe there will be major exceptions, you can insert dollar amounts to override the percentages in tab 5b. • Total monthly fixed costs = $1,625. Monthly Operating Expenses $ Amt. Advertising $200 Car and Truck Expenses (Gas, etc.) $50 Commissions and Fees -- Contract Labor (Not included in payroll) -- Insurance (other than health) $100 Legal and Professional Services $75 Licenses -- Office Expense -- Rent / Lease -- Vehicles, Machinery, Equipment -- Rent or Lease -- Other Business Property $800 Repairs and Maintenance $60 Supplies $40 Travel, Meals and Entertainment -- Utilities $240 Miscellaneous $60
  • 21. Jacksonville.score.org Enter Operating Expenses Tab 5a: OpExYear1 J anuary February March April Expenses Advertising 200 200 200 200 Car and Truck Expenses 50 50 50 50 Commissions and Fees Contract Labor (Not included in payroll) Insurance (other than health) 100 100 100 100 Legal and Professional S ervices 75 75 75 75 Licenses Office Expense Rent or Lease -- Vehicles, Machinery, Equipment Rent or Lease -- Other Business Property 800 800 800 800 Repairs and Maintenance 60 60 60 60 S upplies 40 40 40 40 Travel, Meals and Entertainment Utilities 240 240 240 240 Miscellaneous 60 60 60 60 Total Expenses 1,625 $ 1,625 $ 1,625 $ 1,625 $ Other Expenses Depreciation 467 467 467 467 Interest Commercial Loan - - - - Commercial Mortgage - - - - Credit Card Debt - - - - Vehicle Loans - - - - Other Bank Debt - - - - Line of Credit - 14 24 32 Bad Debt Expense - - - - Total Other Expenses 467 $ 480 $ 491 $ 499 $ Total Fixed OperatingExpenses 2,092 $ 2,105 $ 2,116 $ 2,124 $ Enter monthly fixed expenses here. HINT: If they are fixed expenses, you should be able to copy January numbers into all the other months. Now you are ready to see the results!
  • 22. Jacksonville.score.org Results in the Financial Template 1. 6a-CashFlowYear1 – This is the most critical results tab. If your ending cash balance (line 33) is negative, it means your business is unlikely to survive the first year under the assumptions you have made. 2. 6b-CashFlowYrs1-3 – Shows cash flow by month for the first three years. Again, if ending cash balance (line 32) is negative, your business will not survive the first three years under the assumptions you have made. 3. 7a-IncomeStatementYear1 – Shows your income statement by month for the first year. 4. 7b-IncomeStatementYrs1-3 – Shows your income statement annually for the first three years. 5. 8-BalanceSheet – Shows your balance sheet annually for the first three years 6. Breakeven Analysis – Shows the number f units that need to be sold to break even. (Revenues = Expenses) 7. Financial Ratios – These are ratios commonly used to gauge the health and progress of a company.
  • 23. Jacksonville.score.org See Cash Flow Results Tab 6a: CashFlowYear1 J anuary February March April May J une Beginning Balance 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ Cash Inflows Cash S ales 5,595 6,214 6,833 7,452 8,071 8,690 Accounts Receivable - - - - - - Total Cash Inflows 5,595 $ 6,214 $ 6,833 $ 7,452 $ 8,071 $ 8,690 $ Cash Outflows InvestingActivities New Fixed Asset Purchases - - - - - - Additional Inventory Cost of Goods S old 1,250 1,400 1,550 1,700 1,850 2,000 OperatingActivities OperatingExpenses 1,625 1,625 1,625 1,625 1,625 1,625 Payroll 4,783 4,783 4,783 4,783 4,783 4,783 Taxes - - - - - - FinancingActivities Loan Payments - - - - - - Owners Distribution Line of Credit Interest 14 24 32 37 38 Line of Credit Repayments Dividends Paid Total Cash Outflows 7,658 $ 7,822 $ 7,982 $ 8,140 $ 8,295 $ 8,446 $ Net Cash Flows (2,063) $ (1,608) $ (1,149) $ (688) $ (224) $ 244 $ Operating Cash Balance (1,063) $ (608) $ (149) $ 312 $ 776 $ 1,244 $ Line of Credit Drawdown 2,063 $ 1,608 $ 1,149 $ 688 $ 224 $ - $ Ending Cash Balance 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,244 $ Line of Credit Balance 2,063 $ 3,671 $ 4,820 $ 5,508 $ 5,732 $ 5,732 $ Net Cash Flow does not turn positive until June ($244). Borrowing on the LOC peaks in May ($5,732). Sales are increasing each month. COGS increases as sales increase. What LOC? This says you will need one!
  • 24. Jacksonville.score.org See Income Statement Results Tab 7a: IncomeStatementYear1 This program does not break out direct labor separately. Gross margin will be overstated. January February March April May June July August Revenue Cupcakes 3,000 3,100 3,200 3,300 3,400 3,500 3,600 3,700 6-pack of cupcakes 2,595 3,114 3,633 4,152 4,671 5,190 5,450 5,709 Total Revenue $ 5,595 $ 6,214 $ 6,833 $ 7,452 $ 8,071 $ 8,690 $ 9,050 $ 9,409 Cost of Goods Sold Cupcakes 600 620 640 660 680 700 720 740 6-pack of cupcakes 650 780 910 1,040 1,170 1,300 1,365 1,430 Total Cost of Goods Sold $ 1,250 $ 1,400 $ 1,550 $ 1,700 $ 1,850 $ 2,000 $ 2,085 $ 2,170 Gross Margin $ 4,345 $ 4,814 $ 5,283 $ 5,752 $ 6,221 $ 6,690 $ 6,965 $ 7,239 Payroll $ 4,783 $ 4,783 $ 4,783 $ 4,783 $ 4,783 $ 4,783 $ 4,783 $ 4,783 Operating Expenses Advertising 200 200 200 200 200 200 200 200 Car and Truck Expenses 50 50 50 50 50 50 50 50 Insurance (other than health) 100 100 100 100 100 100 100 100 Legal and Professional Services 75 75 75 75 75 75 75 75 Rent or Lease -- Other Business 800 800 800 800 800 800 800 800 Repairs and Maintenance 60 60 60 60 60 60 60 60 Supplies 40 40 40 40 40 40 40 40 Utilities 240 240 240 240 240 240 240 240 Miscellaneous 60 60 60 60 60 60 60 60 Total Operating Expenses $ 1,625 $ 1,625 $ 1,625 $ 1,625 $ 1,625 $ 1,625 $ 1,625 $ 1,625 Income (Before Other Expenses) $ (2,063) $ (1,594) $ (1,125) $ (656) $ (187) $ 282 $ 557 $ 831 Other Expenses Amortized Start-up Expenses 154 154 154 154 154 154 154 154 Depreciation 467 467 467 467 467 467 467 467 Interest - Line of Credit - 14 24 32 37 38 38 38 Total Other Expenses 621 634 645 653 657 659 659 659 Net Income Before Income Tax $ (2,684) $ (2,228) $ (1,770) $ (1,309) $ (844) $ (377) $ (102) $ 172 Income Tax $ - $ - $ - $ - $ - $ - $ - $ - Net Profit/Loss $ (2,684) $ (2,228) $ (1,770) $ (1,309) $ (844) $ (377) $ (102) $ 172 NIBT does not turn positive until August ($172).
  • 25. Jacksonville.score.org Applying for a Loan? This is what you should have with you. • The output from the financial projections and a summary of key numbers, such as funding needs, breakeven point, etc. • The assumptions you made about the start-up costs, other expenses and revenue you input to the forecast. - Have them in writing in in your business plan or a separate document. - Be prepared to defend every number you used by listing the research you did to arrive at them. • A second “Worst Case” forecast. - The worst-case forecast should (hopefully) show that you can pay back the loans even if things go worse than you expect. - Add a “contingencies” expense equal to 20% of expected start-up costs. - Lower your monthly sales estimates by 10%. - If this worst case cannot show a positive cash flow by month 12, you have not minimized your risk.
  • 28. Jacksonville.score.org What is a Business Plan? ? A Business Plan … • is a document describing the nature of your business, the products and services to be offered, the sales and marketing strategy to be used and how your business will operate • includes financial projections for revenue, cost, profit/loss and cash flow resulting from your business activities, as well as the capital required to get started • will move you from uncertainty (unknown future) to risk (known possible outcomes) • will minimize your risk of failure It’s your roadmap to success!
  • 29. Jacksonville.score.org Why You Need a Business Plan There are many reasons to have a written plan. • It provides a written roadmap of what you plan to achieve, how you plan to achieve it and steps along the way to measure your progress and test your assumptions • It provides a place to capture and incorporate what you learn and decisions you make into your plan, creating a living document to be reviewed and refined often • It forces you to review everything at once: your value proposition, marketing assumptions, operations plan, financial plan, staffing plan, etc. Does it all make sense when you put it together? • It communicates your plans to lenders and investors and others needed to support you, such as family, partners and professionals • The plan lays out targets in all major areas: sales, expense items, hiring positions and financing goals. Once laid out, the targets become performance goals • When actual results fall short of the plan, it gives you a good diagnostic tool to find out what is wrong – either with the business or the assumptions in your plan Businesses don’t plan to fail, they fail to plan.
  • 30. Jacksonville.score.org The SCORE Business Plan Template 1. Go to the SCORE Jacksonville website https://jacksonville.score.org/ 2. On the blue banner, go to, then click on “Browse the Library” 3. Scroll down to and click on the “Business Planning & Financial Statements Template Gallery” 4. Under “Business Plan Templates”, click on one of two options: • Business Plan for a Start-up Business • Business Plan for an Established Business 5. Click on “Download Template” and save the file to your PC 6. The template outlines the steps you need to complete a business plan and provides a series of questions to consider
  • 31. Jacksonville.score.org Sections of the SCORE Business Plan The template has the following sections: 1. Executive Summary 2. General Company Description 3. Products and Services 4. Marketing Plan 5. Operational Plan 6. Management and Organization 7. Personal Financial Statement 8. Startup Expenses and Capitalization 9. Financial Plan 10. Appendices 11. Refining the Plan • Not every business will need every section • The level of detail will vary depending on your situation
  • 32. Jacksonville.score.org 1. The Executive Summary Think of this section as your audition for “Shark Tank”. • Write this section last. • Make it a maximum of two pages. • Include everything that you would cover in a five-minute interview • Explain the fundamentals of the proposed business. – What will your product or service be? – Who will your customers be? – Who are the owners? – What does the future hold for your business and your industry? • Make it enthusiastic, professional, complete, and concise • If applying for a loan, state clearly how much you want, precisely how you are going to use it, and how the money will make your business more profitable, thereby ensuring repayment.
  • 33. Jacksonville.score.org 2. General Company Description This section is an in-depth description of the business, now and in the future. • Mission, Vision and Value Statements: The mission statement explaining the reason for being and the guiding principles. • Company Goals and Objectives: Where do you want your business to be in a year? In five years? What are your annual targets for sales, profitability, customer satisfaction, repeat business, etc. • Target Market: Who are your customers? How many are they? Where? • Industry Description: Describe your industry. Is the industry growing? What industry changes do you foresee, short term and long term? How will your company be poised to take advantage of them? • Business Strengths and Core Competencies: What factors will make the company succeed? What is your competitive advantage? What background experience, skills, and strengths do you personally bring to this new venture? • Legal Form: What will be the legal form of ownership and why?
  • 34. Jacksonville.score.org 3. Products and Services Describe in depth your products and/or services and how they will be used by customers. • Start with your product concept description. - Product Name – What will you call it? - Headline – A one sentence description of the product as it might be used in advertising. - Product Description – A full description of what the product will be and what it will do. - Target Market – Define the target market for this product. How large is it? - Functional Customer Benefits – Will it save time, money or effort for the customer? - Emotional Customer Benefits – How will it make the customer feel? - Unique Value Proposition – What is your competitive advantage? • If you offer multiple products/services which are significantly different, have a product concept for each.
  • 35. Jacksonville.score.org 3. Products and Services Describe in depth your products or services and how they will be used by customers • Describe your product’s functionality – Function: What is the customer trying to accomplish? – Tasks: What steps does the customer take to complete the function? – Pain Points: What happens while executing those tasks that frustrates the customer and is improved by your product? What tasks are eliminated, performed easier, more conveniently or less expensively? – Solutions: How will your product alleviate the pain points? • At what stage is your product development? - If it is still in development, explain what still needs to be done - Describe your product testing methods and results
  • 36. Jacksonville.score.org 4. Marketing Plan This section describes how you will promote your product to the target market (customers) • Positioning: Will your image be performance based, best value, lowest cost, etc.? How do you differ from your competitors? • Price: How will you set your prices? Is price driven by competition? • Distribution: Will you sell through your own stores, the internet, a third party or some combination? • Unique Selling Proposition: What makes your product or business unique? What will distinguish you from your competitors? • Promotional Plan: How will you reach your target market? How much of your marketing budget will you allocate to internet, direct mail, print media, radio, discounts, etc. • Marketing Budget: How much money will you spend on marketing, and on what? Can you allocate it monthly in a cash flow statement?
  • 37. Jacksonville.score.org 5. Operational Plan Explain the day-to-day operation of the business • Your operational plan should answer these key questions – What are the most important (3 to 5) tasks that need to be completed? – Who (what position) is responsible for each of these tasks? – What is the timing and cost of completing each task? – How will the people/departments work together? – What metrics (KPIs) will be used to measure success? • Potential key questions - Production ‒ How and where will your products be produced? – If manufacturing, describe process from raw materials to finished product. – If a service, describe the service process from start to finish. – How will quality control be measured and managed?
  • 38. Jacksonville.score.org 5. Operational Plan Explain the day-to-day operation of the business • Potential key questions – Supply Chain – Describe the supplier selection process – Who are the key (and secondary) suppliers of raw materials/inventory? – Where will raw materials come from and how will they be delivered? – What level of raw material inventory is optimal? • Potential key questions - Warehousing ‒ What level of finished goods is optimal? – Where will finished good be stored and managed? – Describe how finished goods will be delivered to customers • Potential key questions – Customer Relations ‒ Describe the customer purchase process – Describe the process for returns and refunds – Describe the warranty handling process
  • 39. Jacksonville.score.org 5. Operational Plan Explain the day-to-day operation of the business • Potential key questions – Personnel Management ‒ Describe the employee hiring process – Describe the employee training process – Provide job descriptions and wage setting process – Describe the employee severance process – Will you use contract workers? How will you source them? • Potential key questions - Credit Policies – Will you sell on credit? On what terms? – Describe the customer credit assessment process – Describe the bad credit collections process
  • 40. Jacksonville.score.org 6. Management and Organization How the business is managed on a day-to-day basis • Management Structure and Responsibilities – If you’ll have more than 8 to 10 employees, create an organizational chart showing the management hierarchy and who is responsible for key functions – Include position descriptions for key employees, including the owners – Is there a plan to replace a key person who leaves or is incapacitated? • Professional and Advisory Support (provide names): – Board of directors or advisory board – Attorney – Accountant – Insurance agent – Banker – Consultants, mentors and key advisors
  • 41. Jacksonville.score.org 7. Personal Financial Statement This section is usually only needed if you are looking for outside financing. • Include personal financial statements for each owner and major stockholder, showing assets and liabilities held outside the business and personal net worth. • Owners will often have to draw on personal assets to finance the business, and these statements will show what is available. • Owners will usually have to personally guarantee that all loans will be repaid by him, if not repaid by the business.
  • 42. Jacksonville.score.org 8. Startup Expenses and Capitalization You need to know how much money you will spend before the doors open. • You will have many expenses before you even begin operating your business. It’s important to estimate these expenses accurately and then to plan where you will get sufficient capital. • The more thorough your research efforts, the less chance that you will leave out important expenses or underestimate them. • Opening a new business can cost more than you anticipate. Add a separate line item, called contingencies, to account for the unknown, equal to 20% of estimated start-up costs. • Talk to others who have started similar businesses to get a good idea of start-up costs and how much to allow for contingencies.
  • 43. Jacksonville.score.org 8. Startup Expenses and Capitalization Below is a list of common start-up expense categories. • Renting or Buying a Business Location: Consider down payments, security deposits or closing costs, and first month’s rent. • Store Improvements/Remodeling: You may need to renovate the store to meet your requirements - negotiate this in your lease. • Furniture and Equipment: You may need to lease or buy office furniture, computers, printers, software, outdoor business signs, displays, construction and manufacturing equipment. • Inventory and Supplies: You need to buy your initial inventory or materials to build your product - don’t forget cleaning and office supplies, such as paper, ink, toner, and pens and pencils. • Advertising and Marketing Your Business: You will need business logos, pamphlets, brochures, websites, social media campaigns, and print and broadcast ads. Will you offer introductory discounts?
  • 44. Jacksonville.score.org 8. Startup Expenses and Capitalization Don’t forget these start-up expenses. • Paying Wages and Benefits: You may need to hire employees in order to prepare to open the doors. There may be a paid training period. Will you pay yourself prior to opening? • Structuring Your Business: It makes sense to engage and consult with a CPA, lawyer and other business services providers to help register your business, review the building lease and supplier contracts, etc. • Obtaining Licenses, Permits, and Insurance: Many businesses are required to obtain business licenses or other permits from government agencies before opening their establishment. Furthermore, you should consider the expenses of insuring your business from damage and liability. • Research and Technology Expenses: Product development and testing can be expensive and take a long time to complete.
  • 45. Jacksonville.score.org 1. Income statement: Did I make a profit or loss? What expenses did I spend money on? 2. Cash flow statement: Do I have enough sources of funds to operate, sustain & grow the business? How many months to reach positive cash flow (more money coming in than going out)? 3. Balance sheet: What are my assets & liabilities? How much is the business worth? The three statements tell you different things about the business. 9. Financial Plan – Three Statements
  • 46. Jacksonville.score.org 10. Appendices Include details and studies used in your business plan. • Market research studies, product testing results • Industry studies • Blueprints and plans • Prototype brochures and advertising materials • Maps and photos of location(s) • Copies of leases and contracts • Letters of support from future customers • Detailed lists of equipment owned or to be purchased • List of assets available as collateral for a loan
  • 47. Jacksonville.score.org 11. Refining the Plan This is not a separate section, but modifications to the plan based on the circumstances of your business. • If you have lenders: They want to know how you plan to repay the loan • If you have investors: They want to know how they will be rewarded. They want to know the “exit strategy” (stock buybacks, sale of the business, IPO, etc.). • If you manufacture: What are the planned production levels, direct production costs and indirect/overhead costs (versus industry averages)? What percent of work will be subcontracted to other firms? • If you are a service business: Show the methods used to set prices, the quality control procedures, and how labor productivity and customer satisfaction will be measured. • If you are a retail business: Explain pricing and markdown policies, inventory management procedures and inventory turnover rates. State the customer service and return policies.
  • 48. Jacksonville.score.org Where Can I Get Help With My Plan? There are many resources available… • Achieve Your Business Dream workshops: This comprehensive series of four workshops covers what needs to be in your plan and the sources you can use to find the inputs. • SCORE Mentors: A mentor can meet with you to review your plan and suggest improvements - meet as often as you need! • Read: The JPL has many books on assembling a business plan - many are industry specific. • GOOGLE Searches: Search engines can be used to find answers to specific questions or find data you need. • Do NOT use a Consultant: We strongly recommend AGAINST using a consultant to put the plan together for you. You learn little about what is ahead for you if you let someone else to the work. They can also be very expensive and deliver a “cookie cutter” plan.
  • 52. Jacksonville.score.org Personal Budget Considerations First, get your personal financial affairs in order. • Clear as much debt as possible. Don’t enter business with significant credit card debt and car loans. Get a home equity loan in place before you start your business. • Check your credit report. If you try to obtain financing or sell B2B, they will check it. Check yours first and resolve any problems. • Prepare your family. Let them know what you are planning to do well ahead of the transition. Make sure they understand sacrifices may be necessary and that you have their support. • Learn to live on a budget. The first two years are the hardest, with many unexpected expenses. Track your cash monthly or even weekly. • Have a reserve for living expenses. Have at least 6 to 12 months of living expenses in savings or reliable income from other activities to cover you until the business turns profitable.
  • 53. Jacksonville.score.org Steps for Capitalization The following steps should be part of your business plan. 1. Develop & refine your business plan 2. Identify realistic business goals – What is your five-year plan? – Targets for revenue, profit, locations, etc. 3. Prepare financial projections – Pre-opening costs – Monthly cash flows for 24-36 months 4. Identify types of funding needed – Long-term, working capital, seasonal, etc. 5. Identify suitable funding sources 6. Deliver on your plan 7. Refine your plan as necessary
  • 54. Jacksonville.score.org Why Most New Ventures Need Funding Three Reasons Start-Ups Need Funding CASH FLOW CHALLENGES Purchase Inventory. Train employees. Advertising. Grand opening. These “disposable” start-up costs require upfront expenditures. Buying real estate. Buying buildings. Buying equipment. Buying furniture. Other capital expenditures. These “capitalized” costs typically exceed a firm's ability to self- fund. CAPITAL INVESTMENTS Some products are under development for years before they generate earnings. The up-front costs often exceed a firm's ability to fund these activities on its own. LONG PRODUCT DEVELOPMENT CYCLES
  • 55. Jacksonville.score.org Equity Signifies Ownership • Personal savings – Self financing – Home equity • Bootstrapping • Family and friends • Partners’contributions • Profits retained in the business • Equity crowd funding • Private equity/Angel investors Debt Does NOT Signify Ownership • Banks and credit unions* • Community Express Micro Loans* • Online Loans • Credit cards (not cash advances) • Public debt offerings • Debt crowd funding *Often guaranteed by SBA Equity vs. Debt Financing
  • 56. Jacksonville.score.org Five C’s of Credit These are the main criteria lenders will use to make a credit decision. Five C’s of Credit Metrics Character Your trustworthiness as a borrower, reflected by your credit score and payment history. Capacity to Pay Debt-to-income ratio. Secondary income sources. Collateral Property or possessions used as security. Capital Owner equity invested. Down payment. Net worth. Conditions State of local or national economy. Financial health of the borrower’s industry. Competition.
  • 57. Jacksonville.score.org Section 5 Sources of Business Funding • Self Funding • Bootstrapping • Banks & Credit Unions • On Line Lenders • Micro Lenders • Non-Profit Lenders • Invoice Financing • Grants • Non-Equity Crowdfunding • Equity Crowdfunding
  • 58. Jacksonville.score.org Sources of Start-Up Funding Read graph clockwise starting at 61.4% (Personal/Family savings) Most start-up funds come from the owners themselves.
  • 59. Jacksonville.score.org Bootstrapping Bootstrapping is finding ways to avoid the need for external financing through creativity, ingenuity, thriftiness, cost-cutting, or any means necessary. • It is the most common source of start-up funding and most entrepreneurs bootstrap out of necessity. • Examples of bootstrapping include … ‒ Buying used instead of new equipment. ‒ Leasing equipment instead of buying. ‒ Sharing office space with other businesses. ‒ Obtaining payments in advance from customers ‒ Making due with what you have
  • 60. Jacksonville.score.org Traditional vs. Online Lenders TRADITIONAL LENDERS: 1. Lengthy application process 2. Lots of time-consuming paperwork 3. Personal credit report & score are primary drivers 4. Lend only large amounts of capital 5. Usually require 1-2 years in operation. 6. Often require very specific high- value collateral 7. One transaction in an ongoing relationship ONLINE LENDERS: 1. Short application process 2. Less paperwork 3. Data-driven approach that looks beyond credit scores 4. Lend smaller amounts of capital 5. Willing to work with younger businesses 6. May require blanket lien on entire business but often uncollateralized 7. Single, non-personal transaction There are still differences, but the lines are blurring.
  • 61. Jacksonville.score.org Small Business Credit Cards A business credit card is an unsecured line of credit, similar to a personal credit card. • Business credit cards are a good first step in establishing a credit history for a business. • Banks will often offer a credit card application when opening a business checking account. • These cards are usually issued in the name of the business, but sole proprietors may be eligible for one in their personal name. • Card issuers will usually consider the personal credit ratings of the owners of start-up or early stage businesses. • The size of the credit lines are usually small for start-ups, but can grow with the business. • Business cards with rewards points or cash back are available just like personal credit cards.
  • 62. Jacksonville.score.org Traditional Business Lenders • Commercial Bank Loans ‒ Banks offer a wide variety of financing options, including term loans, lines of credit (LOCs), real estate loans, etc. ‒ Banks usually loan only to businesses with a proven track record. ‒ Bank loans can have among the lowest interest rates. ‒ Some banks offer Small Business Administration guaranteed loans. ‒ LOCs up to 7 years and $350,000. ‒ Term loans up to 20 years and $5 million ‒ SBA guarantees the loan for the issuing bank, not the borrower. • Credit Unions ‒ CUs offer many of the same business loan products as banks. ‒ CUs usually have lower rates and fees than banks. ‒ The average business loan by credit unions is over $200,000. ‒ Many CUs limit business lending to commercial mortgages. ‒ As of 2015, only 200 credit unions offered SBA guaranteed loans and they averaged less than 10 SBA loans per year.
  • 63. Jacksonville.score.org Online Business Lenders • Approval is often extremely fast (under 24 hours). • Decisions are based on more than your personal credit rating. ‒ May require tie-in to business transaction account. • Ideal for opportunities where payback is short term (< 6 mos.). • Good for seasonal and project-based businesses. • Generally not available to startups or new businesses. • Higher interest rates than traditional loans. ‒ Some charge flat monthly fees instead of interest. • Possible sources for online business loans: ‒ Funding Circle (www.fundingcircle.com) ‒ SmartBiz (www.smartbizloans.com) ‒ Kabbage (www.kabbage.com) ‒ OnDeck (www.ondeck.com) Here are some characteristics of online lenders.
  • 64. Jacksonville.score.org Business Micro Lenders • SBA Micro Loan Program ‒ The SBA provides funds to nonprofit community-based organizations with experience in lending as well as management and technical assistance. ‒ The Microloan program provides loans up to $50,000 to help small businesses and not-for-profit childcare centers. The average microloan is about $13,000. • Micro Lenders Active in Jacksonville ‒ Ascendus – formerly Accion East (www.us.ascendus.org) o Ascendus is the largest nonprofit micro- and small business lending network in the U.S. o Will lend to startups and provide financing for as little as $1,000. ‒ LiftFund (www.liftfund.com) o A non-profit organization that assists entrepreneurs who can (or cannot) access traditional funding sources. o Help small-business owners improve their credit rating. ‒ Black Business Investment Fund of Florida (www.bbifflorida.com) o Mission is to develop & promote Black business enterprises through education, training, loans, investments, and other activities. o Provides loans along with business development training. o Invests in economic development for low income, distressed neighborhoods.
  • 65. Jacksonville.score.org Invoice Financing (Factoring) You sell your accounts receivable to a third party. • Available for a long time by commercial banks, but now online for much smaller dollar amounts. • Frees up cash trapped in invoices. • Effective interest rate/fees may be high, but expectation is short term borrowing. • Good for seasonal businesses and those offering credit terms to customers. Examples of Invoice Financing providers: • BlueVine (www.bluevine.com) ‒ Credit lines from $20,000 to $2M ‒ Accepts receivables due in up to 90 days ‒ Approval within 24 hours • Fundbox (www.fundbox.com) ‒ Credit lines up to $100,000 ‒ Will advance 100% of receivables ‒ Pay back the amount and a clearing fee over 12 or 24 weeks
  • 66. Jacksonville.score.org Small Business Grants Grants are funds provided to small businesses or startups without the need to be repaid. • Grants can be provided by government entities or NGOs (non- government organizations) such as non-profits and universities. • Small business grants are hard to find and qualify for. • The most comprehensive website on grants we have found is at: www.fundera.com/blog/small-business-grants • The federal government makes very few grants directly to for- profit businesses that are not technology or defense based, but can fund other organizations that do. • All federal grants can be found at: www.grants.gov • We are not aware of any grant programs by the state of Florida or city of Jacksonville available to for-profit businesses.
  • 67. Jacksonville.score.org Non-Equity Crowdfunding • Donation-based Crowdfunding – Donation-based crowdfunding is typically used to raise money for a non-profit organization, a social cause or a personal need, but rarely for business financing. – Donors donate personal funds (typically $25 to $1,000). – GoFundMe and Crowdrise are two of the most popular donation-based crowdfunders. • Rewards-based (or Affinity) Crowdfunding – The reward is often the item being produced, sold at a discount or with early delivery. – Companies often only produce products if the pre-sales’ target is met. – Donors funding average is under $100 per subscriber. – Kickstarter and Indiegogo are the most popular but there are many others. • Debt Crowdfunding – Multiple lenders each provide small dollar amounts as loans to be paid back plus interest. – Many only fund a loan if the funds raised reach 100% of the borrower’s goal. – Debt-crowdfunding can be used for personal or business purposes. – The Lending Club makes small business loans of $5,000 to $300,000. – Kiva is a 503(c) non-profit that makes interest-free micro loans up to $10,000.
  • 68. Jacksonville.score.org Rewards Crowdfunding Examples Indiegogo (www.indiegogo.com) Travis the Translator • BENEFITING: Travis Translator, Rotterdam, NL • THE STORY: The personal voice translator that lets you instantly communicate in over 80 languages. • OFFERS: (1) Travis for $149 (25% off) or … • (1) Business Travis & (1) Business Meetings Transcripts for $224 • RAISED: $666,121; 785% funded; 3,855 backers. 8-in-1 Evolution Bra • BENEFITING: Knix Wear, Toronto, Canada • THE STORY: The Evolution Bra is designed for active women. It is made of moisture wicking, 4-way stretch material imbedded with anti-microbial silver threads. • OFFERS: (1) Evolution for $55 (no discount) or … • (2) Evolutions for $105 • RAISED: $1,612,511; 3684% of goal; 6,507 backers. Indiegogo Fees: 4-9% Indiegogo platform fee and payment processor fees (3-5% per processor). Kickstarter (www.kickstarter.com) Fruit Leather • BENEFITING: Christopher P. Cook • THE STORY: A perfect natural snack for camping, hiking and emergencies. It has no preservatives, MSG, HFCS or onions. Comes in 20 flavors. • OFFERS: Various product amounts for 20 different pledge amounts. • RAISED: $996 of $300 goal from 28 backers. The Worlds SMARTEST Handbag • BENEFITING: Danielle Richeson, Ogden, UT. • THE STORY: The ultimate leather travel and work handbag. Comes with wireless charging, Bluetooth proximity alerts, fingerprint locks, RFID data protection and multiple pockets for PCs and other devices. • OFFERS: Various sizes and colors for 10 different pledge amounts. • RAISED: $46,187 of $30,000 goal from 60 backers. Kickstarter Fees: 5% from each donation you receive and payment processor fees (3-5% per processor).
  • 69. Jacksonville.score.org Equity Crowdfunding What is Equity Crowdfunding? • It is a process that lets businesses raise capital by selling stock (equity) in small amounts (up to $1,070,000 annually) through broker-dealers or internet-based platforms to "non-accredited" or “accredited” investors. • This differs from "rewards crowdfunding" models such as Kickstarter, on which supporters usually receive product discounts but no equity in the business. • Most equity offerings are done through an online “Funding Portal”, an intermediary between the issuing business and the pool of investors. • If this is of interest to you, the two largest funding portals are: ‒ Wefunder Portal LLC at wefunder.com (41% of offerings in 2016). ‒ StartEngine Capital LLC at startengine.com (17% of offerings). ◦
  • 70. Jacksonville.score.org The Impact of Legal Status The use of equity crowdfunding depends on legal status. • Non-Profit 501(c)(3) – Not eligible. • Sole Proprietorship – Not eligible. • General Partnership - Not eligible. • Limited Liability Company – Favorable form for equity crowdfunding. ◦ Permitted to raise capital under Title II (accredited investors only) or Title III. ◦ Allowed to issue preferred or common stock (i.e. - LLC membership interests). ◦ Allowed to issue voting and non-voting equity. ◦ Easy to convert to S or C corporation in the future without tax implications. • S Corporation – Unfavorable for equity crowdfunding. ◦ Limited to 100 equity investors. ◦ Can only issue one class of stock. • C Corporation – Favorable form for equity crowdfunding. ◦ The lowering of the C Corp tax rate to 21% may make this more attractive. ◦ Dividends to shareholders taxed at 15%, do not need to be paid out. ◦ Multiple classes of stock allowed and unlimited number of shareholders.
  • 73. Jacksonville.score.org Sign Up With a Mentor Sign up for a mentor Register for a workshop Find templates & webinars
  • 74. Jacksonville.score.org Remember to complete your homework! Submit homework to craig.linsky@scorevolunteer.org for feedback.
  • 75. Jacksonville.score.org If you liked this course … Let other entrepreneurs know. Leave a Google review! 1. Open Google and make sure you are signed in to your Google account. 2. Scan or take a photo of the QR code given below 3. This should take you directly to the review page.
  • 77. Jacksonville.score.org Disclaimer This presentation was developed by Craig Linsky for the Jacksonville, Florida chapter of SCORE. Any commercial or other use of this presentation by anyone other than SCORE members requires permission from Craig Linsky or the Chairman of the Jacksonville Chapter of SCORE. If you have suggestions on additional details or other material that should be included, ways to improve this presentation or have any follow up questions, please contact us at craig.linsky@scorevolunteer.org. The material in this presentation is a partial description only, offered for educational purposes, and is not intended as legal advice, securities advice or tax advice. You should consult with a qualified, licensed Florida attorney for legal advice customized to your particular situation, a tax preparer or accountant for taxation advice and an SEC licensed securities advisor for securities advice.
  • 78. Jacksonville.score.org Funded in part through a cooperative agreement with the U.S. Small Business Administration. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.