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					SCORE                              ®
Counselors to America’s Small Business




                                    Create a Winning
                                     Business Plan

                                                Session 5
                                                Supporting Documents
                                         Other Financial Statements / Analysis
                                                  Doing It Checklist
                                                       Wrap-up
                Business Plan Outline
      1.   The Title Form
      2.   Table of Contents
      3.   Executive Summary (complete last)
      4.   Business Section
      5.   Marketing Section
      6.   Financial Section
      7.   Supporting Documents
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                  Supporting Documents
          Personal resumes and other documents
          Owner’s financial statements & credit report
          Copy of leases, mortgages, purchase agreements
          Contracts and Letters of reference
          Key Employee job Descriptions
          Licenses and permits required
          Attorney/accountants/insurance advisors

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                      Financial Statements
                           Accounting Methods

          Cash Basis
           – Very simple - (like household accounting)
           – Recognize income when received
           – Recognize expenses when paid

          Accrual Basis
           –   More complex - need an accountant
           –   More financial reports generated
           –   Software is more difficult to use
           –   Recognize income when earned
           –   Recognize expenses when incurred


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                      Financial Statements

          Profit & Loss Statement (also called income statement)
           – reflects on-going business performance over a period of time

          Balance Sheet
           – Displays net worth of business at a given point in time

          Cash Flow Statement
           – Reflects all projected cash inflows and outflows
           – This is the most important financial statement

              Important to produce and analyze
              these statements regularly (monthly)

03/06/08                                                                    5
                 Profit & Loss Statement
                    Reflects performance over a period of time

    Gross Sales (Revenue)
    -      Cost of Goods Sold             Cost to buy, make or provide the product
                                          or service sold
    Gross Profit                           Variable expenses (costs which vary with sales)
                                           Fixed (or period) expenses incl. depreciation
    -      Operating expenses              Selling expenses
                                           General & Administrative expenses
    Operating Income
    -      Interest expense
    Net Income before taxes
    -      Income taxes
    Net Income (Profit)
03/06/08                                                                                 6
                                       Balance Sheet
                       Displays net worth of business at a given point in time

           Assets (what you own)                           Liabilities (what you owe)
           +    Cash                                       + Accounts Payable
                                                           + Accrued Taxes
           +    Accounts Receivable
                                                           + Short-term Notes Payable
           +    Inventory
                                                           + Current due on Long-term Debt
           Current Assets                                  Current Liabilities
           (convertible to cash within one year)           (Collectible within one year)

           +   Equipment                                   +     Long-term Notes Payable
                                                                 (Payable in longer than one year)
           +   Furniture & Fixtures                        Total Liabilities
           +   Property
           -   Depreciation                                +     Owners Investment
           Fixed Assets                                    +     Retained Earnings (income reinvested in the
                                                                 company)
           (longer than one year to convert to cash)
                                                           Net Worth (Equity of the company)


03/06/08   TOTAL ASSETS                                =   TOTAL LIABILITIES+NET WORTH                     7
                                  An Example

          Start up costs                        Start up financing
           –   Fixtures                  65       – Equity             35
           –   Pick up truck             15       – Debt               65
           –   Inventory                  5            Total          100
           –   Cash on hand              15
                   Total                100



           Fixed Asset Life = 5 years              Debt Term = 5 years
           Annual Depreciation = 16                Interest = 11%
                                                   Annual Interest = 7
                                                   Principal payment = 13


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                                          Example (continued)

          1st year operations:
           – Revenue                                   100 … but collect 97
           – Cost of sale                               67 … and built             5 of inv. but paid 60
             Materials; Direct Labor; Delivery, etc.


           – Fixed costs                                12
             Craft Supplies & Artists; Shop & Truck Rental; Advertising, Utilities, Insurance, Legal, Accounting


           – Owner’s draw                               10
             Minimum amount needed to live on




03/06/08                                                                                                           9
                    Cash Flows - Year 0
                                                Checkbook
           Cash Balance - Beginning of the Year     0
           Add: Cash Receipts
             Owner's Equity Contribution            35
             Loan from Bank                         65
                            Total Cash Received    100
           Less: Cash Disbursements
             Fixtures                               65
             Pick up truck                          15
             Inventory                              5
                      Total Cash Disbursements      85

           Cash Balance - End of Year             15
03/06/08                                                    10
                      Cash Flows - Year 0
           Cash Balance - Beginning of the Year    15
           Add: Cash Receipts
             Sales Income                          97
             Inventory build
                             Total Cash Received   97
           Less: Cash Disbursements
             Cost of sale                          60
             Fixed costs                           12
             Owner's draw                          10
             Depreciation
             Interest Expense                       7
             Loan Repayment                         13
                            Total Cash Disbursed   102
                                  Net Cash Flow    (5)

03/06/08
           Cash at the end of Year 1               10    11
                      Cash Flows - Year 1
           Cash Balance - Beginning of the Year    15
           Add: Cash Receipts
             Sales Income                          97    100
             Inventory build                               5
                             Total Cash Received   97    105
           Less: Cash Disbursements
             Cost of sale                          60     72
             Fixed costs                           12     12
             Owner's draw                          10     10
             Depreciation                                 16
             Interest Expense                       7      7
             Loan Repayment                        13
                            Total Cash Disbursed   102   117
                                  Net Cash Flow    (5)   (12)
03/06/08   Cash at the end of Year 1               10       12
                     Beginning Balance Sheet
                          ASSETS                           LIABILITIES AND EQUITY
                                          0th Yr.                                    0th Yr.
           Current Assets                           Current Liabilities
             Cash                           15        Accounts Payable                 0
             Accounts Receivable             0        Taxes Payable                    0
             Inventory                       5        Bank Debt Pay. in 1 Year         13
                Total Current Assets        20        Total Current Liabilities        13

           Property and Equipment                   Note Payable to Bank               52
             Store Fixtures                 65
             Pick-up Truck                  15           Total Liabilities             65
             Less: Depreciation              0
                Net Property and Equip.     80      Owner's Equity
                                                      Original Investment              35
                                                      Earnings Retained in Busness     0
                                                       Total Owner's Equity            35

           TOTAL ASSETS                    100      TOTAL LIABIL. & EQUITY            100
03/06/08                                                                                    13
                         0th Yr. Year 1                                0th Yr. Year 1
 Current Assets                           Current Liabilities
   Cash                     15     10       Accounts Payable               0     12
   Accounts Receivable       0      3       Taxes Payable                  0      0
   Inventory                 5     10       Bank Debt Pay. in 1 Year      13     13
 Total Current Assets       20     23       Total Current Liab.           13     25

 Property and Equipment                   Note Payable to Bank            52     39
   Store Fixtures           65      65
   Pick-up Truck            15      15        Total Liabilities           65     64
   Less: Depreciation        0     (16)
 Net Property and Equip.    80      64 Owner's Equity
                                          Original Investment             35      35
                                          Retained Earnings                0     (12)
                                        Total Equity                      35      23

 TOTAL ASSETS
03/06/08                  100      87 TOTAL LIAB & EQUITY               100      8714
           Cash Flow Statement
                                               1st Year
           Sources of Cash
           Cash - Beginning Of The Year         15
            Net Income                          (12)
            Add: Depreciation                   16
            Incr: Accounts Payable              12
                    Total Sources Of Cash        31
           Uses Of Cash
           Incr. Accounts Receivable              3
           Increase Inventories                   5
           Purchase New Equipment                 0
           Repay Part Of Bank Loan               13
                          Total Uses Of Cash     21

03/06/08
           Cash - End Of Year                    10       15
                             Financial Statements
                        Analyze Your Business Regularly

              Measure your performance
               – against industry (ratio analysis compares relationship between two line
                 items to provide benchmarking information)

               – today vs. yesterday vs. same day last year (trend analysis)
               – How did I do vs. how did I say I would do (actual vs
                 forecast)

              Helps recognize red flags; becomes a
               diagnostic tool



03/06/08                                                                                   16
               Types of Benchmark Ratios
          Profitability Ratios
           – Measure the efficiency of the business and the owner’s
             return on investment

          Liquidity Ratios
           – Measure the ability of the business to meet its financial
             obligations

          Leverage Ratios
           – Measure the business risk arising from the debt
             structure of the business

          Activity Ratios
           – Measure the rate the business is creating cash

03/06/08                                                                 17
            Benchmark Ratios - Examples

          Profitability Ratios
           – Gross Profit as % of sales
           – Before Tax Income as % of sales

          Liquidity Ratios
           – Quick asset ratio: cash + receivables / current liabilities

          Leverage Ratios
           – Debt / equity; Debt / Total Liabilities + Net Worth

          Activity Ratios
           – Inventory Turnover
03/06/08                                                                   18
      Other Benchmark Ratio Examples

              Accounts Receivable as % of sales
              Cost of Goods Sold as % of sales
              Operating Expenses as % of sales
              Wages as a % of sales
              Return on Investment
                 = Before Tax income as % of Investment



03/06/08                                                  19
                      Doing It Check List
          Create legal business
          Get Federal Employer Identification Number
          Get state employer I.D. or sales tax permit
          Obtain a business license or permit
          Obtain financing (equity & debt)
          Identify Personnel and begin recruiting
          Set up a business checking account
          Establish a line of credit (if necessary)

03/06/08                                                 20
                  Doing It Check List            (continued)



          Establish Credit Card/Check Protection Services
          Buy insurance
          Line up suppliers
          Set a starting date
          Set up physical business
          Order business cards and stationary
          Order signage (Outside and Point of Sale)
          Develop a website
          Begin pre-opening advertising
03/06/08                                                       21
                                Summary
              Value of a plan lies in thinking about your
               business in a systematic way
              You can’t be all things to all people
              Segment, differentiate products / services
              Emphasize benefits over features
              Market research reduces your risk
              When you’re out of cash you’re out of business!
              Cash flow forecast is a tool for testing the
               condition of a startup or existing business.
              Budget, Budget, and Budget!
              Analyze your performance
03/06/08                                                         22
                   Workshop Critique

          What did you like about the workshop?




          What could be improved?




03/06/08                                           23
SCORE                              ®
Counselors to America’s Small Business




                                 Congratulations
                                       &
                                   Thank You!

                                     Keep in touch.
                                         www.scorehouston.org
           Katy Area Chamber of Commerce




03/06/08                                   25

				
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