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Semelhante a Entrepreneurship Ch 10 PPT Financial Strategy.ppt (20)
Entrepreneurship Ch 10 PPT Financial Strategy.ppt
- 2. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
2
Financing
Ways to obtain capital for a business:
1. Obtain gifts & grants
2. Borrow money (debt)
3. Exchange a share of the business for
money (equity)
- 3. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
3
Ways to Secure Growth Funding
Finance with earnings
Finance with equity
Finance with debt
- 4. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
4
How Often Do Small
Businesses Fail?
Myth: 4 out of 5 small businesses fail in the
first 5 years of operation.
Truth: over half of new small firms survive for
8 or more years. (according to Dun &
Bradstreet study)
A small business is a high risk-high return
investment.
- 5. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
5
Gifts & Grants
Don’t stake your business on these
Gifts
Cash, free facilities & equipment, unpaid labor
from friends & family, & forgiveness of debts
Tax abatements & tax credits
Grants
Primarily for research & commercialization
Difficult to get for low-tech, start-ups
Gifts & grants do not require repayment
- 6. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
6
How Can You Compensate
Investors in Your Business?
1. Debt—Borrow money & promise to
pay it back over a set period of time
at a set rate of interest. Investor
receives interest.
2. Equity—Sell a percentage (share) of
ownership in your business for money.
Investor receives share of profits.
- 7. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
7
Debt Financing
Available in many forms
Commercial loans
Personal loans
Leases
Bonds
- 8. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
8
Debt Financing: Pros and Cons
Pros:
Lender has no say in operation of business
Loan payments are predictable
Lenders do not share business profits
Cons:
If loan payments are not made, lender can force
business into bankruptcy
If business is not incorporated & defaults, lender can
take house & other possessions of owner
Loan payments increase fixed costs, lower profit
- 9. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
9
Equity Financing: Pros and Cons
Pros:
If business does not make profit, investor does not
get paid
Equity investors want business to succeed, will share
contacts & advice
Cons:
Entrepreneur can lose control of business to equity
investors
Equity investor takes more risk, wants higher return
Entrepreneur must share profits with equity investors
- 10. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
10
The 5 “Cs” of Credit
1. Collateral
2. Character
3. Capacity
4. Capital
5. Conditions
- 11. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
11
Community Development
Financial Institutions (CDFIs)
Community Development Banks
Community Development Credit Unions
Community Development Loan Funds
Community Development Venture
Capital Funds
- 12. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
12
Other Non-Bank Sources
Friends & family
Venture capitalists
Angels
Insurance companies
Vendors
Federally supported investment companies (SBICS,
MESBICS, New Market Venture Companies)
Rural programs
Youth financing
Bootstrap financing
- 13. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
13
Creative Financing Options
Microenterprise Loans:
Up to $35,000, often supported by federal
government or not-for-profit agencies
Loan made based alternative credit criteria & may
require training, counseling, &/or a business plan
May be the only option for debt financing outside of
family & friends & personal credit cards for many
entrepreneurs
Often a social impact goal involved for the lender
- 14. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
14
More Creative Financing
Angel Financing:
Private investors seeking equity
Typically $100,000–$500,000 range
Bootstrap Financing:
Hire as few employees as possible.
Lease rather than buy equipment.
Use personal savings.
Work from home, borrow office space (business
incubators).
Put profits back into business.
- 15. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
15
3 Categories of Financial
Investment
1. Stocks—shares of companies (equity)
2. Bonds—loans to companies or government entities
(debt)
3. Cash—investments that can be liquidated (turned
into cash) within 24 hours (savings accounts,
treasury bills)
The higher the reward an investment offers, the
greater the risk.
- 16. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
16
Stocks
Shares of stock represent a percentage
ownership in a corporation.
Public corporations sell stock to the
general public to raise capital.
Prices of stocks reflect investors’
opinions about business performance &
value.
Traded on stock exchanges.
- 17. Entrepreneurship, 2nd Edition
Mariotti and Glackin and NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
17
Bonds
Interest bearing certificates that
corporations & governments issue to
raise capital.
Lower risk & return expected than with
stocks.
A form of debt financing with a
guaranteed rate of return to investors.
Trade at premiums or discounts.