ENTREPRENEURIAL FINANCE Fifth Edition Chapter 1 Financial and

$$ $$ $$ $$ $$ ENTREPRENEURIAL FINANCE Fifth Edition Chapter 1 Financial and Economic Concepts Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -1 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Buffett and Gates § Buffett and Gates Section 5 http: //www. youtube. com/watch? feature=player_detailpage&v=_4_jj 843 x 2 Q § Buffett and Gates Section 6 http: //www. youtube. com/watch? feature=player_detailpage&v=_4_jj 843 x 2 Q § Buffett and Gates Section 7 http: //www. youtube. com/watch? feature=player_detailpage&v=g 3 e 3 RFx 0 D_c § Buffett and Gates Section 8 http: //www. youtube. com/watch? feature=player_detailpage&v=Ez_pji. Iy 0 s. Y Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -2 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ What is it? § Finance is essentially any transaction in which money or a money- like instrument is exchanged for other money or another money- like instrument. § Tasks › Cash management › Investing › Financing › Implementation of strategic plans Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -3 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Cash Management § § Critical task for managers Obviously need cash to operate Cannot exist very long with poor cash management What do we manage › Inflow of cash – From customers – From investors › Outflow of cash – To suppliers – To creditors – To owners Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -4 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Investing § Managers invest in two basic asset types › Invest in the securities of other companies – Strategies followed are identical to the strategies of individual investors › Invest in plant and equipment – Processes are very similar to individuals – Ultimate goal is to maximize the value of the firm Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -5 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Financing § Where do managers get funds to enable the firm to grow and operate. § Sources of funds › Their own assets › Friends, family, other people › Banks and insurance companies › Bonds › Stocks › Profits of the firm § The size and type of the firm will determine which of these can be used. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -6 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ Source: www. bizstats. com $$ $$ Entrepreneurial Finance, 5 th Edition $$ Adelman and Marks 1 -7 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Implementation of the strategic plan § The overall outcome of financial management is to provide the mechanism and tools to implement the plans of the company. § A secondary activity is providing data for understanding how the plan is functioning. Also, data for the creation of the plan is provided through the tools available from financial management. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -8 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Economic concepts § In the US, basic principle is that individuals can achieve their own objectives within a free enterprise system. § Market economy – individuals and institutions exchange goods and services freely › Real estate › Retail › Commodities › Financial instruments § Who gains when we perform transactions? › Both sides (buyers and sellers) believe they gain from a transaction. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -9 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Economic Concepts § Scarce resources – scarce because people want more than they have. § Types › Natural resources › Human resources › Capital resources – Economic – Financial › Entrepreneurial resources § http: //www. youtube. com/watch? feature=player_detailpage &v=Vtt. Ab. SYYIsw Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -10 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Economic Concepts § Opportunity costs › The highest value that is surrendered when a decision to invest funds is made. Table 1 -1 Expected Financial Returns of Investment Opportunity Purchase stock 11 Purchase home 9 Purchase bonds 6 Place money in bank savings account 2 Purchase new car § Expected Annual Return (%) -15 http: //www. youtube. com/watch? feature=player_detailpage&v=p. WE 7 WDZC-l. Q Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -11 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Income, Expenditures, and Taxes § Gross income is all of the money received from all sources during the year. › Wages › Tips › Interest earned on savings and bonds › Income from rental property › Profits to entrepreneurs Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -12 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Taxes § Progressive taxes: larger percentage of tax paid as income increases. § Regressive taxes: larger percentage of tax paid as income decreases. § Proportional taxes: percentage of tax paid remains the same at all levels of income. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -13 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Example of Progressive Tax § Formula for tax percentage paid: § Income tax is progressive: Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -14 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Example of Regressive Tax § Sales tax is regressive: › Income = $20, 000; savings = 0; sales tax = 5% › Sales tax paid = $20, 000 x 0. 05 = 1, 000 › Income = $60, 000; savings = $10, 000; sales tax = 5% › Sales tax paid = $20, 000 x 0. 05 = $1, 000 Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -15 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Example of Proportional Tax § Formula for tax percentage paid: › Medicare tax is 1. 45% › Annual income $30, 000 › Medicare tax = $30, 000 x 0. 0145 = $435 › Annual income $500, 000 › Medicare tax=$500, 000 x 0. 0145 = $7, 250 Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -16 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Basic Income Calculations § Gross income - taxes = Disposable income › For most of us, disposable income is take-home pay. § Disposable income - Fixed expenses = Discretionary income › Fixed expenses are contractual obligations like rent, utilities, insurance, and car payments. › Discretionary income is that we can spend or save. – Does this include debt? ? NO § Would the government want to find a way to increase disposable income? Why? ? § Would the government rather you spend or save your disposable income? ? Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -17 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ What do we learn? 1) We have a progressive tax system. 2) Fixed expenses decrease as a percentage of income, as income increases. 3) Discretionary income increases as wealth increases. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -18 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Economic Concepts § Factors Affecting Interest Rates › The supply of money saved is primarily the total money that is placed in demand deposit (checking) accounts, savings accounts, and money market mutual funds. – law of supply relates to the price paid and the quantity of a resource that is provided at that price. › The demand for borrowed funds is all of the money that is demanded in our economy at a given price. – The law of demand states that as the price of an item decreases, people will demand a larger quantity of that item, Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -19 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ As interest rates increase, all people would desire to save more money, but at a decreasing rate. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -20 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

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$$ $$ $$ $$ $$ Economic Concepts § Factors Affecting Interest Rates › The supply of money saved is primarily the total money that is placed in demand deposit (checking) accounts, savings accounts, and money market mutual funds. – law of supply relates to the price paid and the quantity of a resource that is provided at that price. › The demand for borrowed funds is all of the money that is demanded in our economy at a given price. – The law of demand states that as the price of an item decreases, people will demand a larger quantity of that item, Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -22 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

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$$ $$ $$ $$ $$ Factors Affecting Interest Rates (continued) § In a totally free market supply and demand will determine interest rates. We do not have a totally free market. § Federal Reserve Policy › The Federal Reserve is the central bank of the United States. § Monetary policy is the government’s action to alter the supply of money. § Goals of monetary policy › Economic growth › Price stability › Full employment Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -26 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

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$$ $$ $$ $$ $$ Factors Affecting Interest Rates (continued) § Inflation is a primary concern for the FED. § A primary goal is to assure that inflation remains in check to create stability in prices. § How do they attempt to control inflation? › Open market operations › Discount rate › Reserve requirements Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -28 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Factors Affecting Interest Rates (continued) § Risk › Systematic Risk: Risk associated with economic, political, and sociological changes that affect all participants on an equal basis. – Frequently referred to as market risk – This risk is not diversifiable › Unsystematic Risk: Risk unique to an individual, firm, or industry. – Frequently referred to as company specific risk – This risk is diversifiable Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -29 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Chapter 2 Financial Management and Planning Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -30 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ What is management? § The process of working with or through others to achieve an individual or business goal by efficiently and effectively using resources. § Five basic functions › Planning › Organizing › Staffing › Directing › Controlling operations. § http: //www. youtube. com/watch? feature=player_detailpage &v=b_slep 81 F 4 E Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -31 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Management Functions § Planning is a systematic process that takes us from some current state to some future desired state. › Strategic planning involves establishing an overall plan for the business. – Where do we want our business to be at some time in the future? › Functional planning is driven by strategic plans and is related to specific functional areas of a business such as accounting, marketing, or human resources. – Financial planning – The reason so many businesses fail is because of a lack of adequate financial planning. § Nobody begins a business with a plan for failure, but too many businesses have been started with a failure to plan. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -32 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Management Functions (continued) § Goal setting is precursor to establishing a plan. › Goals must be measurable, achievable, and have a time frame. › Basic financial goals of a for-profit organization: – To maximize the wealth of the business owners (investors) over the life of the business – To meet interest payments on debt – To grow § Goals vs Objectives › Goals are normally considered to be long term › Objectives are intermediate goals that measure progress toward the overall long- term goal. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -33 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Management Functions (continued) § Organizing is the second function of the manager and defines the structure of the business. › Who will do it? › What skills do they need? › What is the time frame that we have set in which to have it accomplished? › Where will it be accomplished? › How do we get it accomplished? Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -34 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Management Functions (continued) § Staffing requires that the manager obtain the most capable personnel to implement the business plans. › Determine job requirements. › Develop a job description. § Directing (leading). Providing proper guidance and direction to others to accomplish the organization’s mission. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -35 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Management Functions (continued) § Controlling is a three-step process: 1) Establishing a standard of measurement 2) Measuring actual performance against the standard 3) Taking corrective action when actual performance varies from the established standard Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -36 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Forms of Business Ownership SOURCE: Internal Revenue Service, SOI Bulletin, Historical Table, Fall 2007. Excel ver. 4. August 2005. Securities & Exchange Commission filings. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -37 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Forms of Business Ownership (continued) § A sole proprietorship is operated by an individual for profit. § A partnership is an association of two or more persons who carry out a business as co-owners for a profit. § A corporation is a legal entity with most of the rights of individuals § A limited liability corporation is a hybrid of a partnership and a corporation. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -38 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Forms of Business Ownership (continued) § A sole proprietorship is operated by an individual for profit. › Advantages – No formal legal requirements – Title to property is in owner’s name – No formal organizational style – All that is needed to start is an idea and a desire › Disadvantages – Capital structure limited – Unlimited liability – Life of business = life of business owner – May lack managerial skills – May be difficult to hire long-term employees or employees with specific skill sets Pearson Higher Education • Accountant © 2010 by Pearson Education, Inc. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -39 Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Forms of Business Ownership (continued) § A partnership is an association of two or more persons who carry out a business as co-owners for a profit. – Advantages over sole proprietorship lies in the number of people involved. › General partnership › Limited partnership – Requires one general partner – “silent partners” • Cannot participate in business Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -40 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Terms § Liability › Who pays? › Where does the money come from? § Taxes › Who pays? › What rate? § Buy-sell agreements › Stops the sale of interest to unknown people › Important because of liability issues Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -41 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Forms of Business Ownership(continued) § The corporation is a legal entity according to U. S. law. › Incorporated in one of the fifty states or territories of the United States. – Public Corporation: stock is sold to the public. – Private Corporation: Stock is not sold to the public. – All corporations are formed as C corporations unless they meet the requirements of and request Subchapter S tax status. • Subchapter S corporation: Private corporation with special tax status granted by Internal Revenue Service (IRS) • Maximum of 100 shareholders • No double taxation § Taxes › Who pays? What rate? Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -42 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Forms of Business Ownership (continued) § A Limited Liability Company (LLC) is a hybrid business entity having features of both partnerships and corporations. › Taxed as a partnership › Has limited liability for all owners › Flows through income and losses to individual owner’s tax returns › Not legal in all states Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -43 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Forms of Business Ownership (continued) § Franchise not an actual form of ownership. A franchise is a business in which the buyer, who is the franchisee, purchases the right to sell the goods or services of the seller, who is the franchiser. § http: //www. youtube. com/watch? feature=player_detailpage &v=uh. SEVj. Tci. A 0 Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -44 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Forms of Business Ownership (continued) § What form to choose? › Liability › tax advantages › financial support › the owner’s desires › the type and location of the business. § Three types of business owners › http: //www. youtube. com/watch? feature=player_detailpage&v=uh. S EVj. Tci. A 0 § Where to form the business › http: //www. youtube. com/watch? feature=player_detailpage&v=g. R V 6 xx 4 Bft. Q Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -45 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ Starting a Business $$ $$ § Run a SWOT analysis $$ › Strengths are the core competencies of a business. They are those factors $$ that will make your business succeed because you perform in these areas $$ better than your competitor. $$ › Weaknesses are those areas of your company that definitely need $$ improvement. $$ › Opportunities are factors that exist outside of your business, but that if taken advantage of, will help your business to grow and prosper (e. g. , low $$ interest rates for business loans). $$ › Threats are factors that exist in the environment that may impede the $$ growth of your business, directly or indirectly (e. g. , new competition). $$ $$ $$ Pearson Higher Education $$ Entrepreneurial Finance, 5 th Edition © 2010 by Pearson Education, Inc. 1 -46 Upper Saddle River, NJ 07458 $$ Adelman and Marks

$$ $$ $$ $$ $$ Development of a Business Plan § Executive summary: Part of business plan that investors review to determine if they want to read further. Two pages or fewer, the executive summary should contain: › Business strategy for success › Brief description of the market and what makes your business unique › Brief description of the product or service › Brief description of management teams’ qualifications › Summary of revenue and expense projections › Estimate of how much money is needed and how it will be used Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -47 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

Development of a Business Plan $$ $$ (continued) $$ § General Company Description: $$ › Mission Statement: – Company goals $$ – Company objectives $$ – Business philosophy $$ › Form or forms of business ownership $$ › Products and services $$ › Marketing plan – 4 Ps: Price, Product, Promotion, Place. $$ – Government contracts as source of revenue $$ › Operational plan $$ › Management and organization $$ › Personal financial statement of each owner or major stockholder $$ › Startup expenses and capitalization › Financial plan; a 4 -year projection of profit $$ $$ Pearson Higher Education $$ Entrepreneurial Finance, 5 th Edition © 2010 by Pearson Education, Inc. 1 -48 Upper Saddle River, NJ 07458 $$ Adelman and Marks

$$ $$ $$ $$ $$ Development of a Business Plan (continued) § Appendices › › › › Brochures, advertising materials, business cards Industry studies Maps and photos of location List of equipment owned or purchased Copies of leases or contracts Letters of support from suppliers and future customers Market research studies List of assets available for a loan Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -49 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Business Succession Plans § Determine who will take the business if owner is unable to function. § Succession Planning › Buy-sell agreement is overt › Owner and spouse on same page › Heirs receive ownership rights directly, or in trust › Ownership by family members only or do we include non-family members? › Gather information from spouse and children when formulating a buy-sell agreement or succession plan. › Consult with attorney and other professionals. § http: //www. youtube. com/watch? feature=player_detailpage &v=v. ITv-jjve 9 Y Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -50 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Financing a Business or Raising Capital § Suppliers of funds include lenders and investors › Lenders increase debt and include banks and any other lender – The amount of the loan. – How the funds are used. – What the loan will accomplish and how it makes the business stronger. – How many years to repay the loan – What collateral is being offered for the loan. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -51 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Sources of Financing § Sources of financing typically include › Personal assets: savings, investments, credit cards and home equity lines. › Equity financing: retained earnings, fixed assets (buildings, equipment and inventory) as collateral. › Small Business Administration: – Not a lender but a guarantor of a percentage of the laon amount. – 504 -Major machinery or building construction or expansion. – 7(a)-Guarantee Loan Program. – Other programs: Micro-loan Technical Assistance Grants, SBA Micro-loan and Patriot Express Pilot Loan Initiative. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -52 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Investors and Grants › Investors increase company equity and expect a positive return on their investment: – Company owners – Angel investors provide seed money and mentoring to start-up businesses – Venture capitalist normally invests in companies with proven track record › Grants are monies provided to the firm which do not have to be paid back as long as grantee provides services for which the grant was approved. Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -53 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Chapter 3 Financial Statements Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -54 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Statements § Personal Financial Statements § Sole proprietors and partners § Corporations § Audited statements › Why? › How? – Independent auditors – http: //www. youtube. com/watch? feature=player_detailpage&v =g_9 y. SVOoi. Yk Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -55 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Financial Statement (Personal Form) § Single bank loan application form which incorporates two individual financial forms: › Statement of financial position – Cash equivalents – Invested assets – Use assets – Liabilities – Net worth › Personal cash flow statement – Income – Fixed expenses – Variable expenses § http: //www. youtube. com/watch? feature=player_detailpage&v=T_8 t 2 y. Tr. Cms Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -56 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Entrepreneurial Finance, 5 th Edition Adelman and Marks Cash Mgt and Budgeting 1 -57 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Entrepreneurial Finance, 5 th Edition Adelman and Marks Personal net worth 1 -58 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

$$ $$ $$ $$ $$ Personal Income Statement (Cash Flow Statement) § Income—Include all sources › Wages, tips, overtime › Interest on savings, stock dividends, etc. § Fixed expenses › Contractual, must be paid › Rent, insurance, utilities, car payments, etc. § Variable expenses › You control level of expenses (food, clothing) Entrepreneurial Finance, 5 th Edition Adelman and Marks 1 -59 Pearson Higher Education © 2010 by Pearson Education, Inc. Upper Saddle River, NJ 07458

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