Entrepreneurship Overview of Cash flow Entrepreneurship Agenda Business Plan Presentation Financials...

EntrepreneurshipEntrepreneurship

Entrepreneurship

Overview of Cash flow


Agenda

• Business Plan Presentation

• Financials– Cash Flow– Notes on Forecasting (REVENUE) and

Developing a Profit and Loss Statement


[Company Name]

Business Plan

Adapted from Microsoft Power Point Template


Mission Statement

• Business Concept– Summarize key technology, concept or

strategy on which your business is based

• A clear statement of your company’s long-term mission.

• Try to use words that will help direct the growth of your company, but be as concise as possible.


The Team

• List CEO and key management by name

• Include previous accomplishments to show these are people with a record of success

• Summarize number of years of experience in this field


Market Summary• Market: past, present, & future:

– Review those changes in market share, leadership, players, market shifts, costs, pricing, or competition that provide the opportunity for your company’s success.

• Problems and opportunities:– State consumer problems, and

define nature of product/service opportunities created by those problems.

• Competition– Summarize competition– Outline your company’s

competitive advantage

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

0

10

20

30

40

50

60

70

80

90

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

East

West

North


Goals & Objectives

• Five-year goals– State specific measurable objectives – State market share objectives– State revenue/profitability objectives


Financial Plan

• High-level financial plan that defines financial model, pricing assumptions, and reviews yearly expected sales and profits for the next 3 - 5 years.

Year 1 Year 2 Year 3 Year 4 Year 5Revenue 1,000,000 € 8,000,000 € 12,000,000 € 15,000,000 € 17,500,000 €

COGS 650,000 5,000,000 7,000,000 8,500,000 10,000,000Net Sales 350000 3000000 5000000 6500000 7500000

ExpensesSales/Marketing 115,000 920,000 1,380,000 1,725,000 2,012,500

General Administration 80,000 640,000 960,000 1,200,000 1,400,000 Engineering 65,000 520,000 780,000 975,000 1,137,500

Other 10,000,000 2,000,000 1,500,000 1,500,000 1,500,000Total Expenses 10,260,000 4,080,000 4,620,000 5,400,000 6,050,000

Income (9,910,000) (1,080,000) 380,000 1,100,000 1,450,000

Taxes - - 152,000 440,000 580,000 Net Income -9,910,000 € -1,080,000 € 228,000 € 660,000 € 870,000 €


Resource Requirements

• Technology requirements

• Personnel requirements

• Resource requirements– Financial, distribution, promotion, etc.

• External requirements– Products/services/technology required to

be purchased outside company


Risks & Rewards

• Risks– Summarize risks of

proposed project

• Addressing risk– Summarize how risks will

be addressed

• Rewards– Estimate expected pay-

off, particularly if seeking funding

• funding, state specifics

• Key Issues• Near term

– Isolate key decisions and issues that need immediate or near-term resolution

• Long term– Isolate issues needing long-

term resolution– State consequences of

decision postponement

• If you are seeking


Cash Flow


What you will learn in this module:

• What you should learn:– The basics of how cash flows in an

organization– The difference between cash inflows and

cash outflows• What revenue is• What expenses are

– Introduction to advanced cash flow concepts


Frame of Reference: A Family

• For this module, lets look at a typical families monthly cash flow.

• There are two primary components:– The amount of money coming in

• Salary, Interest, Other Income

– The amount of money spent• Mortgages, food, loan repayment, utilities, etc.


Let’s put this in a business context:

Each Month:

• MONEY COMES IN

• MONEY GOES OUT

• You receive 4,400 euros in salary/month.

• You receive 1,167 euros/month in rent for an apartment you own

• Your spouse earns 2,433 euros per month in salary

• You spend


Salary, Interest Earned, Other Income, and Rental Income are cash inflows.

InflowYour

FamilyOutflow

Control

BANK

SalaryInterest EarnedOther IncomeRental Income

Cash In Flows are also called REVENUE

4,400

1,1672,433


We also consider how much money is in the ‘bank’.

Example:

• On February 1st, our Bank Balance showed 1000 Euros.

• Also on February 1, we were received 8000 euros in cash in salaries, and in rental income for January.

1000 Euros in Bank

+ 8000 Euros in Cash

= 9000 Euros Cash

• The 9000 Euros is the cash we can spend in the month of February


Quick Review

• Revenue – the money we take in during a certain period of time (e.g. 1 month), in exchange for the delivery of services or products.

These are also called ‘Cash In Flows’


What are Expenses?

• Expenses are money that U pay to other companies and people.

• In return, they provide you with a product or service of value to you.

• Facilities– Buildings– Warehouses– Factories

• Utilities– Telecommunications– Energy– Water

• Outsource Payments• Food• Travel• Loan payments


Lets now put it altogether.

• First, we look at inflows…

• Money we make or acquire (REVENUE)

• And then at out flows…

• Money we spend (EXPENSES)

Inflow Family Outflow

Control

BANKU may have money to putin the bank each month!


Quick Review

• Revenue – the money we take in during a certain period of time (e.g. 1 month), in exchange for the delivery of services or products.

These are also called ‘Cash In Flows’

• Expenses – the money we spend during a certain period of time (e.g. 1 month) for certain products or services we use.

These are also called ‘Cash Out Flows’


The first month of cash inflow might look like this:

• Your total cash inflow (REVENUE) in January is 7,700 Euros

• In this example, we have no cash from the prior month.

• But we have received a Salary (4,400 Euros); Other Income (2,000 Euros); and Rental Income (1,300 Euros).

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DECCash left over

from prior month 0 1,000 3,400 2,800 4,200 3,600 4,600 (1,700) 1,600 4,600 3,200 4,200 Revenue

Salary 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 52,800 Interest Earned 1,000 1,000

Other Income 2,000 2,000 2,000 2,000 2,000 2,000 2,000 3,600 4,000 2,000 2,000 3,600 29,200 Rental Income 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 900 900 900 900 14,000

7,700 9,700 11,100 10,500 11,900 11,300 12,300 7,600 10,900 11,900 10,500 13,100 97,000 Expenses

Food 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000 Clothing 400 400 400 1,200 Shelter 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 24,000

Mortgage 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 19,200 Other Loans/Interest 300 300 300 300 300 300 300 300 300 300 300 300 3,600

Utilities 400 400 400 400 400 400 400 400 400 400 400 400 4,800 Travel 2,000 2,000 8,000 2,000 4,000 18,000

Assistance 300 300 300 300 300 300 300 300 300 300 3,000 Insurance 500 500 500 500 500 500 500 500 500 500 500 500 6,000

Miscellaneous 200 200 200 200 200 200 200 200 200 200 200 200 2,400

1,000 3,400 2,800 4,200 3,600 4,600 (1,700) 1,600 4,600 3,200 4,200 2,800 2,800


Control

BANK


The family also has cash outflows in January as follows:

• The family's cash outflows are money spent on:– Food– Clothing– Shelter/Housing – Paying back loans– Utilities– Travel– Assistance services– Insurance– Etc. (Miscellaneous)





7,700 9,700 11,100 10,500 11,900 11,300 12,300 7,600 10,900 11,900 10,500 13,100 97,000 Expenses





Miscellaneous 200 200 200 200 200 200 200 200 200 200 200 200 2,400 6,700 6,300 8,300 6,300 8,300 6,700 14,000 6,000 6,300 8,700 6,300 10,300 94,200

Net Change in Working Capital 1,000 3,400 2,800 4,200 3,600 4,600 (1,700) 1,600 4,600 3,200 4,200 2,800 2,800


Control

BANK


U Inc. also puts money in the bank in January (JAN):

• To figure out how much money gets put into the bank, we subtract The Families sum of all EXPENSES from The Families sum of all REVENUES.

• The Families TOTAL EXPENSES = 6,700 Euros

• The Families TOTAL REVENUE = 7,700 Euros

• Our NET CHANGE in CASH is 1,000 Euros.





7,700 9,700 11,100 10,500 11,900 11,300 12,300 7,600 10,900 11,900 10,500 13,100 97,000 Expenses





Miscellaneous 200 200 200 200 200 200 200 200 200 200 200 200 2,400 6,700 6,300 8,300 6,300 8,300 6,700 14,000 6,000 6,300 8,700 6,300 10,300 94,200


7,700-6,7001,000


The money in the Bank helps February (FEB) get off to a positive start.

• In February (FEB) – we have 1000 euros in cash from the prior month to start with.

• The 1000 Euros comes from subtracting all of your cash outflows (EXPENSES) from your cash inflows (REVENUES)

• You SUBTRACT because you spend money to buy products or services from the money you have taken in.





7,700 9,700 11,100 10,500 11,900 11,300 12,300 7,600 10,900 11,900 10,500 13,100 97,000 Expenses





Miscellaneous 200 200 200 200 200 200 200 200 200 200 200 200 2,400 6,700 6,300 8,300 6,300 8,300 6,700 14,000 6,000 6,300 8,700 6,300 10,300 94,200


7,700-6,7001,000


QUICK QUIZ

• Review the table from the previous slide.

• QUESTION: How much money will you have to start March with (money in the ‘Bank’)?

• ANSWER: 3,400 Euros!





7,700 9,700 11,100 10,500 11,900 11,300 12,300 7,600 10,900 11,900 10,500 13,100 97,000 Expenses





Miscellaneous 200 200 200 200 200 200 200 200 200 200 200 200 2,400 6,700 6,300 8,300 6,300 8,300 6,700 14,000 6,000 6,300 8,700 6,300 10,300 94,200



The entire year might look like this:JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Cash left over from prior month 0 1,000 3,400 2,800 4,200 3,600 4,600 (1,700) 1,600 4,600 3,200 4,200

RevenueSalary 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 4,400 52,800

Interest Earned 1,000 1,000 Other Income 2,000 2,000 2,000 2,000 2,000 2,000 2,000 3,600 4,000 2,000 2,000 3,600 29,200

Rental Income 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 900 900 900 900 14,000 7,700 9,700 11,100 10,500 11,900 11,300 12,300 7,600 10,900 11,900 10,500 13,100 97,000

ExpensesFood 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000

Clothing 400 400 400 1,200 Shelter 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 24,000




Miscellaneous 200 200 200 200 200 200 200 200 200 200 200 200 2,400 6,700 6,300 8,300 6,300 8,300 6,700 14,000 6,000 6,300 8,700 6,300 10,300 94,200



Quick Quiz Part I

1. Cash Inflows are called:

a. Revenue

b. Loss

c. Expenses

d. None of the above

2. Cash Outflows are called:a. Revenue

b. Loss

c. Expenses

d. None of the above

• A. Revenue

• C. Expenses


Quick Quiz – Part II

1. How much working capital is in the bank at the end of July?

2. What is the total Revenue for the year?

3. How much money is in the bank at the end of the year?

4. How much money was spent on mortgage payments during the year?

1. - 1,700 Euros

2. 97,000 Euros

3. 2,800 Euros

4. 19,200 Euros

Review the annual cash flow statement and then answer the following questions:


Advanced concept 1: Types of cash flows

• You can receive cash inflows from:– Operational activities

• Selling products• Accounts receivable• Depreciation• Deferred taxes or wages

– Investments• Other investments (such in companies, loans, other interest

generating notes)• Purchasing equipment used in producing goods or services

– Financing• Bank or shareholder loans• Dividends, repayment of loans, stock related transactions


Advanced concept 2: Free Cash Flow

• Free Cash Flow is defined as the amount of cash left over after all expenses associated with investments have been subtracted from operating expenses.

• Free Cash Flow is essentially the amount of cash available at a specific point in time that can be returned to the capital providers (investors, banks, etc.)

Entrepreneurship Overview of Cash flow Entrepreneurship Agenda Business Plan Presentation Financials...

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