An important key to any successful small/home business startup is the ability to find appropriate financing. Raising money to fund the business takes time and effort. And can turn into a very complex and frustrating process. But, if one plans properly, raising capital for the venture will be a much easier process.
Here are a few financing resources to consider in your search for funding.
Job Revenue – Don’t quit that day job just yet. Many new entrepreneurs start their home business part time while still working at a full time job. This is a good strategy. Often it takes several months or much longer before the venture will make a profit to sustain or maintain a lifestyle.
Personal Savings – Many home business owners look to finance their venture with a personal bank account. Or other personal resources such as savings bonds, stock, etc. This is risky, expensive, but effective to get the ball rolling.
Credit Cards – More people than you might think fund their startup with their credit cards. This is very risky, but a quick way to fund the business without all the red tape applying through a bank or filling out applications and playing the waiting for approval game.
Friends and Family – Many entrepreneurs like the best online casino Philippines look to friends and family when starting a new business. Often, money is loaned interest free, which is to the business owners’ best advantage.
Banks, Credit Unions – Prepare a good business proposal. The bank or credit union might takes this into consideration and loan the business startup funds. This might be a long shot because many of these financial institutions rarely fund a business unless they have a proven track record or an established business.
Garage Sales – Start cleaning out those attics, basements, closets, of all unwanted items. Gather unwanted items from friends and family members. Garage sale profits might easily fund a complete startup.
eBay Profits – Register with eBay, the online auction site. What one individual considers trash could easily be another individuals prized treasure. And why not consider starting a business selling items on eBay! Every day, thousands are proving there is considerable money to be made selling items online.
Private Investors – Many successful people look for an opportunity to give back to the community or arrange to lend financing to others who are just starting their own business. Check with local business associations or local SBA office for more information on finding funding.
Use these important tips to easily find alternative methods to find adequate funding for your new business venture. And the business will have a great start.
Cash Flow Projections for Business Plans
Where a business plan is used to seek equity funding from private equity investors or venture capitalists, care must be taken to develop a sound financial plan. Sometimes, companies seek the help of business consultants to assist in this process, especially for complex businesses.
Cash flow projections are vital to entrepreneurs. Cash flow projections allow entrepreneurs to keep an eye on the cash flow of the business to anticipate and cater to the needs of the startup today, tomorrow and five years down the road.
A company’s profit figures may be on the uptrend, but until the entrepreneur looks at free cash flow, one may not know if the company has really generated cash in a given year or not. Free cash flows represent real cash whilst net profits are masked by accounting data.
Also, cash flow projections form the core of the financial section of a business plan and help entrepreneurs in computing the valuation of a business. Knowing the value of a company allows entrepreneurs to make their companies more marketable to venture capitalists, private equity investors and other seed investors.
When developing business plans, entrepreneurs learn how to write business plans, turn to the financial analysis, first developing pro-forma income statements and balance sheets and then cash flow projections as well as cash flow projection sample sheets. Writing business plans is a science by itself. Financial statements projections for business plans derive information from two parts of the financial statements, namely the income statement and the balance sheet. Balance sheet projections, together with income statement projections, can be used to formulate cash flow projections.
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Free Cash Flow for Cash Flow Projections
Free Cash Flow (FCF) is the output of all cash flow projections for each period forecasted. This is calculated as the Company’s operating cash flow minus its capital expenditures. This essentially refers to the cash the Company is able to use after taking into account its capital expenditure needs for its expansion plans. This cash can then be utilized to generate growth for the business by the entrepreneur.
The formula for free cash flow is:
FCF = Net profit after tax + Depreciation + Amortization – Capital Expenditure – Changes in Net Working Capital
Formulating free cash flow projections entails forecasting free cash flows available to equity holders (or to debt and equity holders) over a finite forecast horizon (usually five to ten years).
Using Income Statement Projections for Cash Flow Projections
An entrepreneur should firstly forecast income statements for five years. Cash flow projections begin with net profit figures obtained from these Pro-forma income statements. Subsequently, the entrepreneur should extract the forecasted depreciation and amortization figures from the detailed income statement projections. Depreciation is a non-cash expense that reduces the value of a fixed asset over the fixed asset’s useful life. Similarly, amortization is a non-cash expense that reduces the value of an intangible asset. Both depreciation and amortization are accounting concepts and should be added back into a company’s profits because they require no immediate cash outlays.
Balance Sheet Projections for Cash Flow Projections
After extracting the net profits, depreciation and amortization figures from the pro-forma income statements, the entrepreneur should then forecast the balance sheets for five years. From these, the entrepreneur can obtain the amounts for the changes in net working capital. Working capital refers to the cash a business requires for day-to-day operations.
When there is an increase in working capital, it signifies that more cash is tied up in working capital as compared to the prior year and this is treated as a cost against free cash flow. When forecasting the changes in net working capital, the entrepreneur must take care to note that as a business grows in sales revenue and volume, more investment in assets such as inventory and accounts receivable will be needed to match the growth of the business and these must be factored into the projections as well.
The formula for networking capital is:
Net Working Capital = Current Assets – Current Liabilities
As a business grows, the entrepreneur also needs to project capital expenditure to meet the expansion needs. Capital expenditure refers to money spent to acquire fixed assets such as buildings and machinery.
