Marketing Essentials n Chapter 35 Developing a Business

Marketing Essentials n Chapter 35 Developing a Business Plan Section 35. 3 Financial Aspects of The Business Plan Chapter 35 n Developing a Business Plan 1

SECTION 35. 3 Financial Aspects of the Business Plan What You'll Learn = How to describe the elements found in the financial section of a business plan = How to identify sources of equity capital = How to identify sources of debt capital Chapter 35 n Developing a Business Plan 2

SECTION 35. 3 Financial Aspects of the Business Plan Why It's Important It takes money to start and operate a business. Most entrepreneurs need to borrow money to begin business operations. Potential investors and lenders want to look at the financial estimates for a new business to insure that their efforts will be profitable for them. Chapter 35 n Developing a Business Plan 3

SECTION 35. 3 Financial Aspects of the Business Plan Key Terms = equity capital = debt capital = collateral = credit union Chapter 35 n Developing a Business Plan 4

SECTION 35. 3 Financial Aspects of the Business Plan Equity Capital Raising money from within your company or by selling part of the interest in the business is called using equity capital. You do not need to repay the money or pay interest, but the investor becomes a co-owner. Equity capital sources include: = personal savings = partners = shareholders Chapter 35 n Developing a Business Plan 5

SECTION 35. 3 Debt Capital Financial Aspects of the Business Plan Raising funds by borrowing money is called using debt capital. You must pay interest when you repay your loan, but the interest you pay is a tax-deductible business expense, and no ownership passes to the lender. Debt capital sources include: = banks = credit unions = friends and relatives = suppliers and previous owners Slide 1 of 5 Chapter 35 n Developing a Business Plan 6

SECTION 35. 3 Debt Capital Financial Aspects of the Business Plan Banks evaluate potential borrowers on criteria called the six Cs of credit: = Capital—your personal investment in the business. = Collateral—assets pledged to insure repayment. = Capability and Character—your background and credit history. = Coverage—insurance. = Circumstances—the general circumstances of your business. Slide 2 of 5 Chapter 35 n Developing a Business Plan 7

SECTION 35. 3 Debt Capital Financial Aspects of the Business Plan Credit Unions A credit union is a cooperative association formed by labor unions or groups of employees for the benefit of its members. Credit unions often charge lower interest rates on loans than banks do, but you must be a member to borrow money. Slide 3 of 5 Chapter 35 n Developing a Business Plan 8

SECTION 35. 3 Debt Capital Financial Aspects of the Business Plan Friends and Relatives Many people begin their businesses with funds borrowed from relatives and friends. When borrowing money from family or friends, put all agreements in writing to avoid future problems and misunderstandings. Slide 4 of 5 Chapter 35 n Developing a Business Plan 9

SECTION 35. 3 Debt Capital Financial Aspects of the Business Plan Suppliers and Previous Owners Some suppliers may provide you with a low interest loan to purchase inventory, furniture, fixtures, and equipment on a delayed payment basis. The previous business owner may provide you with a loan and a favorable repayment plan to get you started. Slide 5 of 5 Chapter 35 n Developing a Business Plan 10

SECTION 35. 3 Financial Aspects of the Business Plan Financial Statements Your financial statements display your business’s projected income and expenses, and help persuade investors to loan you money. Chapter 35 n Developing a Business Plan 11

35. 3 ASSESSMENT Reviewing Key Terms and Concepts 1. Name the two major parts in the financial section of a business plan. 2. Identify three main sources of equity capital. 3. How can a corporation raise capital? 4. What are the main sources of debt capital? 5. What are the six Cs of credit? Chapter 35 n Developing a Business Plan 12

35. 3 ASSESSMENT Thinking Critically What factors would you consider in selecting a lender for a business? Chapter 35 n Developing a Business Plan 13

Marketing Essentials End of Section 35. 3 Chapter 35 n Developing a Business Plan 14