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Edit Comment Close Premium member Presentation Transcript Financing Growth for the Small Business : Financing Growth for the Small Business “Practical Cash Tactics” Dean Capper Finance Dept. - CSUF dcapper@fullerton.edu 949-370-8738 Why consider having your own business? : Why consider having your own business? “when you get the desire to have/start your own business, you should lie down until the feeling goes away” Thank you for doing it anyway! : Thank you for doing it anyway! “A large portion of our positive activities depend on spontaneous optimism rather than on mathematical expectation … if animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but mathematical expectation, enterprise will fade and die.” -- J. M. Keynes Perspective … : Perspective … ~25,000 Publicly Owned Firms Less than 1% Several Million Privately Owned More than 99% Our Focus … the Privately Owned! Touted Sources of Raising Money – The “Success” Hierarchy : Touted Sources of Raising Money – The “Success” Hierarchy Angel Investors Venture Capitalists Investment Bankers Initial Public Offerings Stock Bonds However … : However … 90% of Cos. in NASDAQ never received O/S funding! Public Cos. make-up less than 1% of all Cos. … So, what are your chances? Lets Look at Some Relative Costs : Lets Look at Some Relative Costs Choices available for funds – Opportunity costs : Choices available for funds – Opportunity costs Hurdle Rates For Venture Capital : Hurdle Rates For Venture Capital Balance Sheet : Balance Sheet Assets Debt & Equity Current Assets: Cash Accounts Receivable Inventories Fixed Assets: Machinery and Equipment Buildings and Land “Free” Debt: Accounts Payable “Not-Free” Debt: Short-term Notes Long-term Notes Mortgages Equity: Ownership – “Really Not-Free” Slide 11: Income Statement SALES Cost of Goods Sold Operating Expenses = OPERATING INCOME Interest Expense Income Taxes = NET INCOME Money for the Owners!! A practical approach!… Doing more with what you already have : A practical approach!… Doing more with what you already have Its about Time Management! : Its about Time Management! Don’t “waste” time looking “outside” for money … Sell Something! Let Customers become your funding source. - Small Business Owners are 1st and Foremost … Salespeople. Then manage the Income Statement & Balance Sheet to maximize the “Cash” you already have! Managing the Income Statement : Managing the Income Statement Why? : Why? To reduce costs … increase “real” profits. To reduce/delay Taxes … increase the cash you get to keep! Some Bootstrapping Thoughts/Ideas … Reducing, Avoiding Expenses : Some Bootstrapping Thoughts/Ideas … Reducing, Avoiding Expenses Home office, Garage, Basement Avoid rent and maybe some taxes Husband/Wife as de facto receptionist And the kids?! Do you really need that new car? Bootstrapping … cont. : Bootstrapping … cont. Why the “latest/greatest” PDA? Cell phones for all? Focus on a market niche If you are going to compete with Muhammad Ali … don’t do it in the ring Bootstrapping … cont. : Bootstrapping … cont. E-mail vs. direct mail advertising Use independent contractors Hire temps/lease employees Student interns/consultants TITAN CO. LTD. : TITAN CO. LTD. - Ouch!! Reducing/Delaying Taxes … “Private Business Mindset” : Reducing/Delaying Taxes … “Private Business Mindset” Advantages of a “Private” Business. Do you need/want the “Sale” this year? Be aggressive with “judgment” expenses. Bad Debt “write-offs” Warranty “reserves” Returns/allowances Inventory “write-off” … most popular … Inventory Balance vs. Income – a Basic Rule : Inventory Balance vs. Income – a Basic Rule The Higher the Ending Inventory, the Higher the Income. The Lower the Ending Inventory, the Lower the Income. How to “Value” Inventory : How to “Value” Inventory Lower of Cost or Market Materials Labor & Overhead Devaluing inventory: Obsolescence Avoid the “Pack-Rat” syndrome! ADJUSTED INCOME STATEMENT : ADJUSTED INCOME STATEMENT OLD NEW HOW TO SUCCEED IN BUSINESS! : HOW TO SUCCEED IN BUSINESS! HOW DID YOU DO THAT? However … There is a caveat!! The View from Outside … : The View from Outside … PATTERN OF EARNINGS The IDEAL pattern: Time Earnings $’s Here you don’t have to be clairvoyant to see where this company’s earnings are going Understand the downside! : Understand the downside! PATTERN OF EARNINGS The “We never pay taxes” syndrome Time Earnings + - Congratulations! Now how are we going to value your wonderful company? MANAGING THE BALANCE SHEET : MANAGING THE BALANCE SHEET Why? : Why? Every dollar tied up in an asset is a dollar that could be used elsewhere! Managing Cash … : Managing Cash … Why should a firm worry about having too much cash? Because cash is about the most unproductive asset of all! Cash on hand indicates an Opportunity Cost where could it be used to generate a return?? Managing Cash : Managing Cash Many Firms today utilize “sweep” or “zero balance” accounts They “sweep” into and out of Money Market Accounts Or better yet … into and out of a “Line of Credit” Managing Accounts Receivable : Managing Accounts Receivable Where the real cash is … Collection Effort … be a Pest! Managing Accounts Receivable… Understand the Cash Discount… Is it worth offering? : Managing Accounts Receivable… Understand the Cash Discount… Is it worth offering? Effective Annual Interest Rates in Typical 10 day Discount Period and 30 day Credit Period: 1.0% Discount = 18% 2.0% Discount = 36% 3.0% Discount = 54% Managing Inventory : Managing Inventory Effective inventory management is directly related to the size of the investment in inventory … ways to reduce: Just-in-Time … JIT Take on consignment Vendor hold & deliver only when needed Vendor deliver direct Shorten production/turnaround time Managing Fixed Assets : Managing Fixed Assets Rent or lease … don’t buy physical assets Buy used furniture & equipment Outsource … let someone else make the investment/take the risk Managing Accounts Payable : Managing Accounts Payable Everything I said under Managing Accounts Receivable … only in REVERSE! … remember: Its “free” money Rate of return on Discounts If they don’t care enough to follow-up? Slide 36: Some Tips for those times when things are not going well … What to Manage First?? : What to Manage First?? Income Statement Dollars are Gone forever! Balance Sheet can come later Dollar in Inventory, A/R, A/P = Cash! The “Fixed Cost” Myth! Another Thought : Another Thought … Letters of Credit! Using Customers as a funding source! : Using Customers as a funding source! Back-to-Back Letters of Credit A Transferable L/C Assignment of Proceeds Debt Management …a Cash Flow approach : Debt Management …a Cash Flow approach Say you have $100k per year to service debt: At 10%, Interest only, you can service a loan of $1,000,000. At 15%, Interest only, you can service a loan of $666,666. At 12%, Principal & Interest over 7 years, you can service a loan of $455,000. At 10%, Principal & Interest over 3 years, you can service a loan of $250,000. Debt Management …Subordinated Debt : Debt Management …Subordinated Debt Debt that serves as Equity … something to consider when: - Buying a business - Selling a business - Structuring your debt. Slide 42: Thanks for your Attention! Dean Capper Finance Dept. - CSUF dcapper@fullerton.edu 949-370-8738 What Mom Taught Me : What Mom Taught Me Don’t owe anyone Pay your bills on time Do good in school, learn how to add & subtract Be a good citizen Be nice, respectful of others What I Really Needed to Know! : What I Really Needed to Know! Its better to owe than to be owed If they don’t follow-up its their problem Forget adding & subtracting, learn how to deduct Don’t ever pay taxes any earlier than you have to When someone owes you money its OK to be a pest Financing Sources for Private Business … a partial list : Financing Sources for Private Business … a partial list Self (Bootstrapping) Savings Home Equity Credit cards Friends and Family Bank of Dad ©2003, Entrepreneurial Finance, Smith and Kiholm Smith Chapter 15 Financing Sources for Private Business … cont. : Financing Sources for Private Business … cont. Business Operations Profits Employee-provided Financing Accounts Receivable Discounts Suppliers and Customers Customer Financing Vendor Financing (Trade Credit) ©2003, Entrepreneurial Finance, Smith and Kiholm Smith Chapter 15 Financing Sources for Private Business … cont. : Financing Sources for Private Business … cont. Government assistance programs Small Business Administration Economic Development Program Small Business Investment Companies-SBICs Commercial Banks/Finance Cos. Equipment Leasing Asset-based Lending Factoring Term Loan ©2003, Entrepreneurial Finance, Smith and Kiholm Smith Chapter 15 Most of these can have substantial associated costs … - Out-of-pocket - Emotional : Most of these can have substantial associated costs … - Out-of-pocket - Emotional You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
Financing Growth for the Small Business. aSGuest5646 Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 447 Category: Business & Fin.. License: All Rights Reserved Like it (1) Dislike it (0) Added: December 08, 2008 This Presentation is Public Favorites: 0 Presentation Description No description available. Comments Posting comment... By: telloo (26 month(s) ago) thanx Saving..... Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript Financing Growth for the Small Business : Financing Growth for the Small Business “Practical Cash Tactics” Dean Capper Finance Dept. - CSUF dcapper@fullerton.edu 949-370-8738 Why consider having your own business? : Why consider having your own business? “when you get the desire to have/start your own business, you should lie down until the feeling goes away” Thank you for doing it anyway! : Thank you for doing it anyway! “A large portion of our positive activities depend on spontaneous optimism rather than on mathematical expectation … if animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but mathematical expectation, enterprise will fade and die.” -- J. M. Keynes Perspective … : Perspective … ~25,000 Publicly Owned Firms Less than 1% Several Million Privately Owned More than 99% Our Focus … the Privately Owned! Touted Sources of Raising Money – The “Success” Hierarchy : Touted Sources of Raising Money – The “Success” Hierarchy Angel Investors Venture Capitalists Investment Bankers Initial Public Offerings Stock Bonds However … : However … 90% of Cos. in NASDAQ never received O/S funding! Public Cos. make-up less than 1% of all Cos. … So, what are your chances? Lets Look at Some Relative Costs : Lets Look at Some Relative Costs Choices available for funds – Opportunity costs : Choices available for funds – Opportunity costs Hurdle Rates For Venture Capital : Hurdle Rates For Venture Capital Balance Sheet : Balance Sheet Assets Debt & Equity Current Assets: Cash Accounts Receivable Inventories Fixed Assets: Machinery and Equipment Buildings and Land “Free” Debt: Accounts Payable “Not-Free” Debt: Short-term Notes Long-term Notes Mortgages Equity: Ownership – “Really Not-Free” Slide 11: Income Statement SALES Cost of Goods Sold Operating Expenses = OPERATING INCOME Interest Expense Income Taxes = NET INCOME Money for the Owners!! A practical approach!… Doing more with what you already have : A practical approach!… Doing more with what you already have Its about Time Management! : Its about Time Management! Don’t “waste” time looking “outside” for money … Sell Something! Let Customers become your funding source. - Small Business Owners are 1st and Foremost … Salespeople. Then manage the Income Statement & Balance Sheet to maximize the “Cash” you already have! Managing the Income Statement : Managing the Income Statement Why? : Why? To reduce costs … increase “real” profits. To reduce/delay Taxes … increase the cash you get to keep! Some Bootstrapping Thoughts/Ideas … Reducing, Avoiding Expenses : Some Bootstrapping Thoughts/Ideas … Reducing, Avoiding Expenses Home office, Garage, Basement Avoid rent and maybe some taxes Husband/Wife as de facto receptionist And the kids?! Do you really need that new car? Bootstrapping … cont. : Bootstrapping … cont. Why the “latest/greatest” PDA? Cell phones for all? Focus on a market niche If you are going to compete with Muhammad Ali … don’t do it in the ring Bootstrapping … cont. : Bootstrapping … cont. E-mail vs. direct mail advertising Use independent contractors Hire temps/lease employees Student interns/consultants TITAN CO. LTD. : TITAN CO. LTD. - Ouch!! Reducing/Delaying Taxes … “Private Business Mindset” : Reducing/Delaying Taxes … “Private Business Mindset” Advantages of a “Private” Business. Do you need/want the “Sale” this year? Be aggressive with “judgment” expenses. Bad Debt “write-offs” Warranty “reserves” Returns/allowances Inventory “write-off” … most popular … Inventory Balance vs. Income – a Basic Rule : Inventory Balance vs. Income – a Basic Rule The Higher the Ending Inventory, the Higher the Income. The Lower the Ending Inventory, the Lower the Income. How to “Value” Inventory : How to “Value” Inventory Lower of Cost or Market Materials Labor & Overhead Devaluing inventory: Obsolescence Avoid the “Pack-Rat” syndrome! ADJUSTED INCOME STATEMENT : ADJUSTED INCOME STATEMENT OLD NEW HOW TO SUCCEED IN BUSINESS! : HOW TO SUCCEED IN BUSINESS! HOW DID YOU DO THAT? However … There is a caveat!! The View from Outside … : The View from Outside … PATTERN OF EARNINGS The IDEAL pattern: Time Earnings $’s Here you don’t have to be clairvoyant to see where this company’s earnings are going Understand the downside! : Understand the downside! PATTERN OF EARNINGS The “We never pay taxes” syndrome Time Earnings + - Congratulations! Now how are we going to value your wonderful company? MANAGING THE BALANCE SHEET : MANAGING THE BALANCE SHEET Why? : Why? Every dollar tied up in an asset is a dollar that could be used elsewhere! Managing Cash … : Managing Cash … Why should a firm worry about having too much cash? Because cash is about the most unproductive asset of all! Cash on hand indicates an Opportunity Cost where could it be used to generate a return?? Managing Cash : Managing Cash Many Firms today utilize “sweep” or “zero balance” accounts They “sweep” into and out of Money Market Accounts Or better yet … into and out of a “Line of Credit” Managing Accounts Receivable : Managing Accounts Receivable Where the real cash is … Collection Effort … be a Pest! Managing Accounts Receivable… Understand the Cash Discount… Is it worth offering? : Managing Accounts Receivable… Understand the Cash Discount… Is it worth offering? Effective Annual Interest Rates in Typical 10 day Discount Period and 30 day Credit Period: 1.0% Discount = 18% 2.0% Discount = 36% 3.0% Discount = 54% Managing Inventory : Managing Inventory Effective inventory management is directly related to the size of the investment in inventory … ways to reduce: Just-in-Time … JIT Take on consignment Vendor hold & deliver only when needed Vendor deliver direct Shorten production/turnaround time Managing Fixed Assets : Managing Fixed Assets Rent or lease … don’t buy physical assets Buy used furniture & equipment Outsource … let someone else make the investment/take the risk Managing Accounts Payable : Managing Accounts Payable Everything I said under Managing Accounts Receivable … only in REVERSE! … remember: Its “free” money Rate of return on Discounts If they don’t care enough to follow-up? Slide 36: Some Tips for those times when things are not going well … What to Manage First?? : What to Manage First?? Income Statement Dollars are Gone forever! Balance Sheet can come later Dollar in Inventory, A/R, A/P = Cash! The “Fixed Cost” Myth! Another Thought : Another Thought … Letters of Credit! Using Customers as a funding source! : Using Customers as a funding source! Back-to-Back Letters of Credit A Transferable L/C Assignment of Proceeds Debt Management …a Cash Flow approach : Debt Management …a Cash Flow approach Say you have $100k per year to service debt: At 10%, Interest only, you can service a loan of $1,000,000. At 15%, Interest only, you can service a loan of $666,666. At 12%, Principal & Interest over 7 years, you can service a loan of $455,000. At 10%, Principal & Interest over 3 years, you can service a loan of $250,000. Debt Management …Subordinated Debt : Debt Management …Subordinated Debt Debt that serves as Equity … something to consider when: - Buying a business - Selling a business - Structuring your debt. Slide 42: Thanks for your Attention! Dean Capper Finance Dept. - CSUF dcapper@fullerton.edu 949-370-8738 What Mom Taught Me : What Mom Taught Me Don’t owe anyone Pay your bills on time Do good in school, learn how to add & subtract Be a good citizen Be nice, respectful of others What I Really Needed to Know! : What I Really Needed to Know! Its better to owe than to be owed If they don’t follow-up its their problem Forget adding & subtracting, learn how to deduct Don’t ever pay taxes any earlier than you have to When someone owes you money its OK to be a pest Financing Sources for Private Business … a partial list : Financing Sources for Private Business … a partial list Self (Bootstrapping) Savings Home Equity Credit cards Friends and Family Bank of Dad ©2003, Entrepreneurial Finance, Smith and Kiholm Smith Chapter 15 Financing Sources for Private Business … cont. : Financing Sources for Private Business … cont. Business Operations Profits Employee-provided Financing Accounts Receivable Discounts Suppliers and Customers Customer Financing Vendor Financing (Trade Credit) ©2003, Entrepreneurial Finance, Smith and Kiholm Smith Chapter 15 Financing Sources for Private Business … cont. : Financing Sources for Private Business … cont. Government assistance programs Small Business Administration Economic Development Program Small Business Investment Companies-SBICs Commercial Banks/Finance Cos. Equipment Leasing Asset-based Lending Factoring Term Loan ©2003, Entrepreneurial Finance, Smith and Kiholm Smith Chapter 15 Most of these can have substantial associated costs … - Out-of-pocket - Emotional : Most of these can have substantial associated costs … - Out-of-pocket - Emotional