Kress- Entrepreneurship/ small business test 2

What is the most common source of capital for startups ?

"Yone Financing" Your own

How do you calculate your operating working capital?

++Accounts Receivable ++Inventory ++Other CURRENT assets --Accounts payable --taxes payable --other CURRENT liabilities

What are the best ways to get an angel investment?

-Come with a product built and proven business model -Assemble a team with the requisite expertise and experience -create and highlight your intellectual property portfolio -prepare an executive summary and investor presentation -have a full business plan and financial model to close the deal - formalize the business structure before asking for funding -highlight existing presence on the internet and social media

What are The Four Capitals?

-Intellectual Capital -Financial Capital -Human Capital - Brand Capital

What do VCs look for?

-Potential to become a leading firm - outstanding opportunity - highly competent and committed management - founders' capital invested -sound business plan -reasonable valuation - viable exit or harvest strategy

What is a corporate venture capital ?

-investment of corporate funds in startup firms -new venture that offer synergies - or a straightforward VC type deal

Describe the Ideal Business model

-must have excellent margins - must be easy to sell - must have the four capitals - must be able to maintain an ongoing competitive advantage -must have quality customers -must have longevity of the industry -must provide for the owner's graceful exit - must avoid pitfalls

What are private equity firms?

-operate much like a venture capital firm - they often buy undervalued or under appreciated companies improve them and then sell them for a profit sort of like house flipping bit in a commercial setting - like a VC almost certainly have multiple deals going on at once

What is the point of a business plan?

-to learn the business and each other -do you really have an opportunity - prevent your heart from trumping your head -to communicate and persuade -Form order out of chaos -create a road map

What are the three key principles of a lean start up?

1. Business model canvas over business plan 2. "Get out of the building" approach called customer development 3. Agile development- quick responsive development

What are the top ten accounting principles for entrepreneurs?

1. fundamental equation 2. the balance sheet 3. a income statement details changes in retained earnings for the period 4. accounting disputes turn almost solely on valuation and timing 5.five principles 6. financial statements are estimates 7. book values rarely equal market values 8. lifeblood is cash 9. ratios are the key tool for drawing meaning from statements 10. a company's ability to finance its growth internally is a function of its ROE

What are the steps to building a financial plan?

1. sales forecast 2. costs forecast 3. income forecast and cash flow forecast 4. balance sheet

How do you present to investors?

A concise presentation should include: - what is the market opportunity - why is it compelling - how will/does the business make money? - why is this the right team at the right time - how does an investor exit the investment

What is the Business Model Canvas?

A diagram of how a company creates value for itself and its customers

What is Free Cash Flow?

A measure of performance calculated as operating cash flow minus capital expenditures --tax exposure (Tax rate X EBIT) ++Amortization/depreciation, other noncash --increase in operating working capital --capital expenditures

What is slicing the value pie?

Allocating risks and returns cash-risk-time

What is a business model?

An integrated description of a new venture's unique customer value proposition and of how the venture will configure its resources and activities to deliver that value and to earn sustainable profits.

What is the basic accounting formula?

Assets = liabilities + equity Equity= Assets - Liabilities

To create a financial plan what assumptions must be made?

Base case pessimistic case

What does Steve Blank consider three things that are important to know about the lean start up?

Business plans rarely survive first contact with customers Five-year plans are generally fiction and a waste of time Startups are not smaller versions of large companies; existing companies execute a business model; start up look for one

What are the four C's of credit?

Capacity Collateral Conditions Character

What are the elements of a vision?

Clarity- easy to understand Consistency- does not change to daily challenges Uniqueness- tailored to the specific venture purposeful - defines the enduring character of the organization

What is value creation?

Community Shareholders Customers Employees Suppliers

What are the elements of a mission statement?

Core values customers and stakeholders products competitive advantage values provided to a customer markets or industry

When does an idea become an opportunity?

Create significant value to customer Solve a current problem customer deems problem important robust market good fit with the founders and team

What are the elements of a business model?

Customer Selection Value Proposition Differentiation scope of products and activities Organizational design Value capture for profit Value for talent

What are the elements/ categories to a Business model canvas ?

Customer segments Channels Revenue Streams Key Activities Cost Structure Value proposition Customer relationships key resources key partnerships

What is a venture capital?

Early stage High potential Risk involved Looking for high rate of return ownership status : "A piece of the action"

What is the background of Venture capital?

Established in 1946- American Research and Development Through the 1970's little to moderate activity Growth in the 1980's boom in the 1990's Regional in nature Not usually for start ups many specialize in particular industries bring value other than capital

What is a projected income statement?

Expected sales and why Projected expenses and documentation operating profit other financial statements

What are the most common external borrowed startup funds?

FFF financing Family, Friends and fools

What are the four steps to building a firm?

Founding stage- vision, business model and strategy Seed Stage - initial financial capital Growth stage - growth capital required harvest stage - IPO and acquisition

What are "Deal Killers" of business plans?

Here I am never mind the problem A coke for every kid in china just look at our paper profits our team walks on water everything is wonderful

Describe Value capture for profit

How does the firm capture some of the total value for profit?

What are the core principles for entrepreneurial finance?

More cash is preferred to less cash cash sooner is preferred to cash later less risky cash is preferred to more risky cash

How do you calculate ROI?

Net income / investment

How SHOULDN'T you present to investors?

Our numbers are conservative Sign our NDA There's no competition Which of my two ideas do you like better I'll have to get back to you on that

What is the purpose of a financial plan?

Plan provides estimate of potential of venture based on assumptions about revenues and costs

What is the difference between a primary and secondary value?

Primary value is the original value that first attracts to customer. Secondary is the 2nd value that the company adds; ex. Walgreen's Primary: Access or Product Secounday: Access or Product

What are the Values offered to Customers?

Product- performance Price- fair, reasonable Access- convenient Service- ordering Experience - fun, emotional

What is included in a financial plan?

Projected (Pro Forma) income statement Balance sheet cash flow statement

How do you calculate break even point?

Sales= Variable cost + Fixed Cost

what are the investment stages?

Seed/start up stage - complete team, plan Development stage - prototype ready for launch Growth stage - VCs and Corporate VC Competitive or maturity stage - capital from public equity markets

What is Vision?

Statement of purpose that defines the destiny of the firm; describes a specific desired outcome and promotes action

What is Value Proposition?

States who the customer is and describes the value offered to the customer

What is Net Present Value?

The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project

What is Discount rate?

The interest rate changed to commercial banks and other depository institutions for loans received from the FRB's discount window.

What are the central issues in entrepreneurial finance?

Value creation slicing the value pie covering risk

What are Angel investors?

Wealthy individuals, usually successful entrepreneur well educated with substantial business experience individual or part of a group smaller investments then VCs more likely to invest in start ups than a VC Add value

Describe scope of products and activities

What do we do and what do we outsource?

Describe Organizational design

What is the organizational architecture of the firm?

Describe Customer selection

Who is the customer? Is our offering relevant to the customer

Describe Value for Talent

Why will good people choose to work here?

what are the common sources of start up funds?

YONE FFF Banks Angel investors Venture Capital

What is discounted cash flow?

a Valuation method used to estimate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them to arrive at a present value which is used to evaluate the potential for investment. IF the value arrived at through DCF analysis is higher than the current cost of the investment the opportunity may be a good one.

What is factoring?

a form of accounts receivable financing where the receivables are sold at a discounted value to a factor.

What is definition of a Lean Startup?

a temporary organization designed to search for a repeatable and scalable business model

What are some differences between entrepreneurial and corporate finance?

cash flow and cash are king and queen time and timing capital markets less efficient strategies for raising capital downside consequences

How do you calculate the working capital?

current assets -- current Liabilities

The lean start up changes business because?

customer development- interact with potential customers minimum viable product pivoting

what is covering the risk?

debt: time control Equity: Staged commitments

Describe differentiation

do we have a sustainable competitive advantage

what is one interpretation of the lean start up method of starting a business?

dream it draw it design it make it better (MVP) make it better make it better etc.

List other sources of capital

grants - money you dont have to pay back not that prevalent SBIR from SBA crowd funding kickstarter

what is the traditional new product development process?

idea generation idea screening business analysis product development test marketing commercialization

What kind of deal will Angels make ?

invest between $50,000 and $1,000,000,000 could be more 2012 average- $341,800 potential sales $2-$20 million in 5-10 years Sales and profit growth 10%-20% per year maybe high- tech w/o prototype Looking for high levels of free cash flow

What is the Base case?

most likely out come

Who develops the plan?

reasons not to hire an outside professional to prepare the plan consequences of different strategies and tactics can be considered... this benefits you if you are raising funds you must know the plan inside and out

What are the three elements of a successful business plan?

statement of problem and solution a battery of cold hard evidence candor about risks, gaps and other assumptions that might be proved wrong

what are common types of financing involving the use of a bank?

straight ass bank loan SBA loan (7a loan) lines of credit equipment loans

What are sources of Debt financing?

suppliers (Trade credit) Finance companies factors leasing companies

What is trade credit?

the ability to buy goods and services and have 30-90 days to pay for them represents 30-40% of current liabilities

How does factoring work?

the factor buys the client receibales outright with or without recourse as soon as the client creates them by shipment of goods to customers cash is made available to the client as soon as proof of delivery is provided is provided or on the average due date of the invoices

Why is a business plan necessary?

to stop the madness to learn the business and each other to know if you really have an opportunity

What is the break even point?

total sales is equal to the total costs no profit is gained or lost

Describe Value proposition

what are the unique benefits?

What is the sensitivity analysis?

what if

What are your five key points of a business plan?

what is your business going to provide? Who is your target market? Who are the key competitors? How will you make money? Who will do what when?

What are some key factors/ habits of commercial finance companies?

will not make loans to compaines unless they consider them viable risks sometimes lend money to companies that do not have positive cash flow more expensive/prepayment penalties

What is pessimistic case?

worst case