2. FINANCE YOUR BUSINESS
WITH EQUITY CAPITAL
⢠Equity capital is money invested
in a business in return for a share
in the businessâs profits.
⢠Sources of equity
âPersonal financing
âFriends and family
âVenture capitalist
3. FINANCE YOUR BUSINESS
WITH DEBT CAPITAL
⢠Debt capital is money loaned to a
business that will be repaid with interest (a
loan).
⢠Types of bank loans
âSecured loans
âUnsecured loans
⢠Types of secured loans
â Line of credit
â Short-term loan
â Long-term loan
4. ⢠The business is a start up
⢠Lack of a solid business plan
⢠Lack of adequate experience
⢠Lack of confidence in the borrower
⢠Inadequate investment in the business
REASONS A BANK
MAY NOT LEND MONEY
5. SMALL BUSINESS ADMINISTRATION
LOAN REQUIREMENTS
⢠Your business must be considered a small
business.
⢠Your business must not be the leader in its field.
⢠Your business must comply with all federal
employment laws.
⢠Your business cannot create or distribute ideas or
opinions.
⢠You must have been unable to obtain financing
from a commercial bank.
⢠You must invest a reasonable amount of your own
money in the venture.
⢠You must provide adequate collateral.
6. OTHER SOURCES OF LOANS
⢠Small Business Investment Companiesâ
SBIC
⢠Minority Enterprise Small Business
Investment CompaniesâMESBIC
⢠Department Of Housing And Urban
DevelopmentâHUD
⢠Economic Development Administrationâ
EDA
⢠State governments
⢠Local and municipal governments
10. CASH FLOW STATEMENT
⢠What money physically comes in (revenues)
MINUS
⢠What money physically goes out (expenses)
=Cash Flow
11. Difference Between Income Statement and
Cash Flow Statement:
⢠Often you sell and will be paid later so you didnât have money actually
coming in, however, you did sell somethingâShows on Income Statement
but not Cash Flow Statement
⢠The same is true of expenses; you may purchase something with an
agreement to be billed and pay later so no money actually went out, but you
did purchase somethingâShows on Income Statement but not Cash Flow
Statement
⢠Credit Card Sales?
15. Balance Sheet
⢠Shows what you own (assets), what you owe
(liabilities), and what your company is worth
(equity)
⢠AssetsâFurniture, equipment, building, vehicles,
accounts receivable, etc.
⢠LiabilitiesâLoans, accounts payable, etc.
⢠Accounting Formula
A-L=E
16. Assets
⢠Fixed
⢠Permanent thingsâBuilding, vehicle,
equipment, furniture
⢠Current
⢠Things that can be converted into cash
immediately or used upâCash, inventory,
supplies, accounts receivable
17. Depreciation for Fixed Assets
⢠Amount an asset loses in value as it gets older so you
can show its current worth
18. Accounts Receivable
Means money you are entitled to receive in
the near future
You sell something and bill the customer
who agrees to pay you in, say, 30 days
You did not receive any money at the time of
the sale though
19. Allowance for Uncollectible Accounts
Contra-asset (ContraâOpposite)
Why?
Those customers you bill and expect to pay later; some of them are not going to
pay you
So
Of the money you are entitled to receive, some of it you will not so this estimated
amount will lower your total Accounts Receivable (the amount you will receive)
20. Liabilities
⢠Long term
⢠Will take more than one year to pay off
⢠Mortgage on your building
⢠Loan for remodeling
⢠Short term
⢠Will be paid off in one year or less
⢠Mortgage or any loan that is in its last year
⢠Accounts payableâwhen you buy something and pay in, say, 30
days