PLAN AND TRACK YOUR

FINANCES

Finance Your Business

Pro Forma Financial Statements

Record Keeping for Businesses

FINANCE YOUR BUSINESS

Goals Estimate your startup costs and personal

net worth. Identify sources of equity capital for your

business. Identify sources of debt capital for your

business.

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TERMS net worth debt-to-equity ratio equity capital venture capitalists debt capital collateral

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WITH A PARTNER, MAKE AN ITEMIZED LIST OF START-UP COSTS.

Itemize startup costs. Determine the amount of capital

required to start your business.

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ASSESS YOUR FINANCIAL NEEDS

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PERSONAL FINANCIAL STATEMENT net worth =

assets ─ liabilities personal financial statement =

personal assets ─ personal liabilities

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Why is the net worth of an entrepreneur important to potential investors in the business?

EQUITY CAPITAL debt-to-equity ratio

the relation between the dollars you have borrowed and the dollars you have invested in your business

The higher percentage of your own money that you have invested, the easier it will be for you to get others to invest.

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the money invested in a business in return for a share in the profits of the business

Sources of equity include:Personal ContributionsFriends and RelativesVenture Capitalists

individuals or companies that make a living investing in startup companies

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equity capital

DEBT CAPITAL debt capital

money loaned to a business with the understanding that the money will be repaid usually with interest

Friends and Relativesdetermine how the loan will affect your

relationshipprepare a formal agreement regarding

repayment terms

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COMMERCIAL BANK LOANS secured loans

loans that are backed by collateral collateral

property that the borrower forfeits if he or she defaults on the loan

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line of creditlong-term loanaccounts receivable financinginventory financing

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Types of secured loans include the following:

loans that are not guaranteed with collateralonly made to creditworthy customers

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unsecured loans

The business is a startup.A lack of:

a solid business plan adequate experience confidence in the borrower personal investment

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Reasons a bank may not lend money include:

Small Business AdministrationSmall Business Investment CompaniesMinority Enterprise Small Business

Investment CompaniesDepartment of Housing and Urban

DevelopmentThe Economic Development

AdministrationState GovernmentsLocal and Municipal Governments

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Other sources of loans include:

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In an email to Mr. Farrar, answer the following questions. Make sure to use complete sentences.

1. Where can entrepreneurs look for debt financing?

2. What are some of the challenges you might encounter if you get equity financing from friends and/or family?

3. Why is a secured loan easier to get then an unsecured loan?

4. Why would a bank be more willing to grant an SBA-guaranteed loan to a new business owner?

Your Task