cash flow and financing v2

www.scorechicago.org

Cash Flow & Funding

Presented By:

SCORE-CHICAGO


Your presenter

Mark LiebermanMark [email protected]@gmail.com


SCORE

► About SCORE► Educational programs► One-on-one

counseling► Mentoring► Consulting► We offer, you choose


If You Have to Leave Now …

•

4 Links You Should Have4 Links You Should HaveMe:[email protected]:[email protected]:linkedin.com/in/liebermanmarkMyLinkedin:linkedin.com/in/liebermanmarkSCORE Local: SCORE Local: www.scorechicago.orgwww.scorechicago.orgSCORE National: www.score.orgSCORE National: www.score.org


Tonight’s Discussion

What Is CF? Why Should you Care?

How Do You Forecast CF?

Need Financing?


Cash Flow …

►Don’t proceed any further with out this!►Project your revenues

Know your price and volume Revenue=Price x Volume

►Compile your start up and operating costs: this is your cash flow statement.►How full is your tank?


How Else Can You Explain?

• What is total investment required?• How large of loan is needed?

• Can loan be repaid?• Is the business likely to succeed?• Are there future cash problems?• How to improve business results?


If You Aren’t Thinking About Cash Flow…

You’re either very lucky …

or you’re whistling past the graveyard.


Guess Who Isn’t Going to Help!

Unless you are very lucky,you aren’t likely to find an accountant who wants to help small business with cashflow.


Service Oriented Sales Plan

Product Oriented Sales Plan

Balance Sheet

Funds Flow(Cash Flow)

Maybe Both

P&L

Where Do I Start?


The Math is Simple

But You Have To Know Your Business


Don’t Reinvent the Wheel

•Templates available at Score.org/resources•Business Plan for Start-Up Business• Finance Templates

• Excel Cash Flow, P&L, and Balance Sheet

•Sales Template


Digging Deeper

• Forecast is only as good as the estimatesGIGO: Garbage In, Garbage Out

• Be reasonable – – Not too optimistic or pessimistic

• Research, not guesses

Where Do Estimates Originate?


Cash Flow

Revenue EstimatesOperating expensesStart up estimatesNon Cash Items

What Are The Pieces?


Start Up Estimates

Cash In

Operating Expenses EOMCash

Balance

Other Stuff

Special Info

BOM Cash Balance


Estimating Revenues

• Difficult; that's life• Extremely important• Don’t try to estimate total sales• Split into major categories

– Major items / minor items– Products / services

– Retail / wholesale

– Storefront / On Line


Price Cost Margin

A 1.00 .50 .50

B 2.00 1.25 .75

C 3.00 2.10 .90

D 4.00 3.00 1.00

Product Categories

Product Oriented Step 1



Unit Sales

1 2 3 4 5 6 Total

A 1 3 5 7 9 11 36

B 5 7 9 11 15 17 64

C 20 21 22 23 24 25 135

D 1 3 5 7 9 11 36

18

Number of Periods Varies



Sales Forecast

1 2 3 4 5 6 Total

A 1 3 5 7 9 11 36

B 10 14 18 22 30 34 128

C 60 63 66 69 72 75 405

D 4 12 20 28 36 44 144

Total 75 92 109 126 147 164 713

Units x Price



Gross Margin

1 2 3 4 5 6 Total

A 0.5 1.5 2.5 3.5 4.5 6.5 18

B 3.75 5.25 6.75 8.25 11.25 12.75 48

C 18 18.9 19.8 20.7 21.6 22.5 121.5

D 1 3 5 7 9 11 36

Total 23.5 28.65 34.05 39.45 46.35 51.75 223.5

Units x Margin

www.scorechicago.org21

Estimating Revenues

• Your market share– Total market area– Sales of top 3 competitors

• Research competition– Why will customers leave them and join you?– Competitive advantage

• Association data• Interview similar (non-competing) businesses

– Start up and 2nd year volumes– Sales/marketing strategies

• Sufficient staff and operational support?

Reality Checks


Estimating Expenses

• Sources– Library (RMA & Subscription Data Bases)– Realtors

– Sales agents

– Government agencies

– “Competitors”– Stores– Advertisements– Internet

– Trade associations


Estimate Start Up Expenses

Telephone Expense Computers Collateral Material

Web Site Advertising Licenses

Build Outs Accountants Equipment

Wages Deposits Part Time Help

Vehicles Fees Travel


Estimating Non Cash Items

It’s a little more complicated•Depreciation

•Loan Amortization

•Payroll and Income Taxes

•Inventory Buys

•Other Accruals


• Compare actual results with plan • Focus on major variances and causal factors• Identify problems and opportunities• Define actions to improve results• Modify future Cash Flow forecast if appropriate.• Assess impact of changes

Timely information is essential

Monthly Cash Flow Review


What If You Need Financing?


Don’t Count on It

“For the current [2013-2014) season, the show’s producers received 35,000 applications. Of those, 157 — that’s 0.4 percent — were selected.”Abba Bhattaral, The Washington Post, 1/19/2014


Show me the money!

► How much capital do you need? From your cash flow analysis, what

you need From your personal financial

statement, what you have Calculate the difference


Where the Money Comes From

Earnings 32%

Credit Cards 30%

Large Bank 19%

Community Bank

19%

Friends or Family

17%

Vendor Credit 15%

Leasing 6%

SBA 4%

Debt -PP 2%

Credit Union 2%

Factor AR 2%

Stock - PP 2%

Non Bank Loan 1%

State/Regional Programs

1%

Crowd Funding 1%

Source:Mullins, How to Start a Business with Very Little Money, WSJ,1/26/2015, R1.


It’s all about money

• Do you know how much money you want?

• Do you know why you want? – Can you justify?– Is it reasonable?– Do you have adequate collateral?

• Do you know how you would pay it back?

• Do you know when you would pay it back?


You want a loan?

• You may have to guarantee personally

• You need a personal financial statement

• Do you have one?

• Do you know how to prepare one?

• What does it say?


Select banks

• Get referrals • Line up more than one bank• They know your industry• They are in your community • Room for growth

• Banks are eager to do business too!

• Do your home work


Meet the banker

• Make contact• Proper business etiquette• Have all relevant

documents• Build a rapport• Keep them informed• No surprises• Ask questions• Go with an “attitude”


What bankers may not like…

• Getting outside your area of expertise

• Absentee management/ownership

• Going through divorce proceedings

• Burnout; no enthusiasm!

• Growing beyond your capacity

• Relocation


Questions banker may ask you…

• Your product/service• Your experience• Down payment, 25%-

30%• Collateral• Your personal debt• Your credit history:

– They will check it anyway!• Your selling plans• Your business plan

• About your competition• Your team

– Your banker– Accountant– Attorney– SCORE?

• Your tax returns• Bankruptcy

• Most importantly:– How and when

would you pay back the loans?


• Lying• Not forthcoming• Surprises• Omission of key info• Exaggeration• Ever changing story• Arguing • Excessive secrecy• Asking to sign Non-

disclosure agreement• Inability to answer direct

questions with direct answers

• Coming late for meetings• Investing on unnecessary

items• Fail to attract top talent• Not disclosing personal

liabilities

How to irritate an investor


4 Links You Should Have4 Links You Should HaveMe:[email protected]:[email protected]:linkedin.com/in/liebermanmarkMyLinkedin:linkedin.com/in/liebermanmarkSCORE Local: SCORE Local: www.scorechicago.orgwww.scorechicago.orgSCORE National: www.score.orgSCORE National: www.score.org


Q&AQ&A

cash flow and financing v2

Documents

orgproduct oriented

cash flow statement

cash flowyoure

flow dont

estimatesnon cash items

score local

flow fundingpresented

business likely