- The process of financial planning consists of seven steps. List them.
- Read Step 1 on page 231. Step 1 indicates that every venture needs money (not-for-profit cooperative, profit-making corporation, startup or a well-established corporation), and therefore requires financial objectives.
- List the examples given of financial objectives for various businesses.
- What is the break-even point?
- Do Establishing Financial Objectives Handout 1 (15 marks-Application)
- Read Ways to Express Financial Objectives on page 232.
- How can financial objectives be expressed?
- What is market share?
- If a venture has 20% of the market share, what does this mean?
- What is profit margin?
- What is the profit margin formula?
- If a product costs $10 to produce and sells for $15, what is the profit margin? Express in dollar terms and as a percent.
- What is return on investment?
- What is the formula for return on investment?
- If a person invests $5000 in a venture and is paid $8000 at the end of the first year, what is their return on investment?
- Do Establishing Financial Objectives Handout 2 (10 marks-Application)
- Read Covering Costs on page 233.
- What are startup costs?
- What is included in startup costs?
- What are operating expenses?
- How should operating expenses be paid?
- Read Step 2 on page 235.
- Why is it important for an entrepreneur to do a personal budget?
- What is a dividend?
- What are personal drawings?
- What is equity?
- What is capital gain?
- Prepare a Personal Budget using spreadsheet software (use the example on page 235 as a guideline) (10 marks-Application)
- Read Step 3 on page 237.
- What does a cash flow statement project?
- When does a venture become cash rich? Cash poor?
- When can you estimate the total revenue for your venture?
- Does a cash-flow projection record revenue from a sale on credit at the time of sale or when the money from the sale is received?
- What do you need to determine to estimate expenses?
- Estimating Revenue and Expenses Handout (10 marks-Application)
- Read Step 4 on page 239.
- A simple cash-flow projection has three components. What are they?
- Explain each component.
- Look at the sample cash-flow projection on page 240.
- In April the company experienced a deficit of $5 920. How was this amount calculated?
- How does this company see itself doing at the end of this six-month period? Explain.
- Read Step 5 on page 242.
- Why is it important to calculate startup costs accurately?
- Why is careful planning essential when starting a new company?
- Read Step 6 on page 242. Preparing a personal balance sheet will help you determine how much capital can be used from personal savings and how much capital will be needed from other sources.
- Define assets. Give an example.
- Define liabilities. Give an example.
- Define net worth.
- It’s easy to overestimate your net worth. What is wrong with this?
- Personal Balance Sheet Handout.
- Read Step 7 on page 244.
- What two things does preparing an income forecast and projected balance sheet do?
- Why is risk assessment important to creditors?
- What does the income forecast estimate?
- The income forecast follows the same format as a cash-flow projection except for one thing. What is it?
- How is an income forecast different from an income statement?
- What does the projected balance sheet forecast?
- Read Ways to Raise Capital on page 237.
- What do entrepreneurs need to do to attract the interest of potential lenders or investors?
- How does the venture plan help potential investors decide whether or not to invest in the venture?
- Read Equity Financing on pages 247-250.
- What is equity financing?
- Name some sources of equity financing.
- What is an advantage for using personal savings to start a venture?
- What is love money?
- Why will a having partnership increase borrowing power?
- Where does venture capital come from?
- What kind of return do venture capitalists look for?
- How do venture capitalists determine if they will invest in a venture or not?
- What do venture capitalists usually bring to a venture?
- What are some of the conditions that come with investing in a venture?
- How is private placement different from venture capital?
- How is inviting employees to become owners beneficial to the venture?
- Can you think of a company whose employees are also owners? (Think of a commercial you may have seen many times on TV.)
- What is another often-overlooked source of capital? How can this group be a source of capital?
- Read page 251 to 254.
- What is debt financing?
- Is debt financing only used for a startup? If not, what else can it used for?
- Why do many entrepreneurs use debt financing to start up a business instead of finding a partner to share the cost?
- Is finding a lender with the lowest interest rate always the best option? Explain.
- Why do lenders usually feel more comfortable lending to entrepreneurs who have previous business experience and some expertise?
- What is a debt to equity ratio? What ratio do lenders usually look for? What does this ratio mean?
- What are the Six Cs of Credit? What does each one mean?
- What are chartered banks?
- Define line of credit, term loan and mortgage. What does each of these allow an entrepreneur to do?
- What is the difference between credit unions and caisses populaires?
- What is one difference between a chartered bank and a credit union?
- A number of government agencies provide support to entrepreneurs. Name four ways they do this.
- Do Keeping Financial Records Handout (10 marks-Application)
Instead of handouts:
Pg. 232 #5 - use spreadsheet software, make a fourth column for Revenue (use a formula to calculate) and make a fifth column for Profit (use a formula to calculate)
Pg. 233 #1 to 4
Prepare a Personal Budget using spreadsheet software. Use pg. 235 as a guide. You do not have to use every item on pg. 235. Just choose the ones that will pertain to you
Pg. 238 #1 to 3