Presentation at conference for entreprenuers.

1. E2 Detroit 2009: Developing the Right
Entrepreneurial Team
Starting Your Business
Section: Managing Your Capital
James T, Deiotte
Partner

2. Managing Your CapitalPage 2
Managing Your Capital
► Background – Sources of Capital
► Basic Financial Reports and Analysis
► Focus on Cash
► Start up Costs
► Taxes Matters
► Working Capital Management
► Compensation programs

3. Managing Your CapitalPage 3
Background – Sources of Capital
► U.S. Census Bureau's 2002 Survey of Small Business Owners found that roughly:
► 30% of respondents reported that they had started their business with no capital
► 60% were self-financed with funding from family, friends, or their own savings
► 11% obtained bank loans
► Included in this amount were funds from venture capital companies and angel investors
► 9% drew from credit cards
► Borrowed Capital
► Ease in using existing banking relationships
► Unfortunately, banks tend to dislike the risks of a start up
► Financing is usually dependant on personal credit and may require security of assets outside of
the business
► Repayment terms are generally fixed and not adjusted if business conditions change
► Investor Capital
► Venture capitalists
► In addition to looking for very profitable, risked based returns, VC will have a say in important
company decisions
► Angel Investors
► Many are provide start-up funding and limit their involvement

4. Managing Your CapitalPage 4
Key Financial Reports and Analysis
► Forecasts and Budgets
► Key assumptions
► Support/studies on market demand
► Breakeven Analysis
► Sensitivity Analysis (Sales)
► +10/-10% Impact
► Trends and KP
► Comparing yourself to peers
► Financial Statements
► Opening Balance Sheet
► Periodic (Monthly, Quarterly, Annual)
► Cash basis and accrual conversions
► Tax Compliance and Reporting
Break even example:
Fixed Costs $250,000
Variable Costs are $1.5 million on expected
sales of $2.0 million (VC/Sales 75%)
Expected profit is $250,000
BE sales needed are:
$250,000 FC / 25% (1- VC to Sales) =
$1,000,000

5. Managing Your CapitalPage 5
Focus on Cash
► Cash Flow Planning
► Start up cost estimation
► Entity selection and taxes
► Working capital management
► Compensation programs

6. Managing Your CapitalPage 6
Start Up Costs
► Costs incurred before the start of business operations
► Defining the start up point
► Types of costs
► One time costs
► Formation, borrowing/equity placement, building, studies, etc.
► Continuing costs
► Wages, utilities, insurance, brochures, advertising, etc.
► Don’t forget a need to create your working capital
► Finance receivables, inventories less your payable

7. Managing Your CapitalPage 7
Start Up Costs (Cont)
► Characterization
► Overhead
► Fixed (office equipment rental)
► Variable (office costs, administrative salaries, etc.)
► Operational
► Fixed (rental of property)
► Variable (inventory or supplies)
► Contingency Reserves
► Credibility
► Likelihood of need

8. Managing Your CapitalPage 8
Tax Matters
► Corporate versus flow through enterprises
► LLCs, S Corporations
► Tax treatment of start up expenses
► Capital versus current expenses
► Treatment of start up costs
► Capitalized and amortized (60 months)
► Period of start up
► Finance cost treatment
► Debt – Interest deductibility
► Equity

9. Managing Your CapitalPage 9
Working Capital
► Accounts receivable
► Terms and discounts
► Impact of bad debts
► Example – 10% pre-tax margin
► Incur a bad debt of $10,000
► Impact is equivalent to generating $100,000 in business
► Credit sales – costs versus cash flow
► Inventory and supplies
► JIT – reducing obsolesce, insurance and possible ad valorem
taxes
► Impact of a loss of sales – see example above on the impact of
errors
► Accounts payable and term
► Maximizing float – without impacting credit worthiness

10. Managing Your CapitalPage 10
Compensation
► Attracting and Retaining Talent
► Cash
► Fixed and variable programs
► Other programs
► Flexibility
► Equity
► Options/Grants
► Mirrored Equity – but retaining ownership