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Financing a New Venture

Part-1: Financial Statements


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Basic Financial Statements
Projections based on strategy and resources
Income Statement
Balance Sheet
Cash Flow Statement

Also known as Pro Forma Statements

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Income Statement
Income Statement (P&L Statement)
Compares income against expenses over a certain period
of time to show companys profit or loss

Calculation Procedure:
+ Revenue (sales, etc.)
- Cost (of goods sold)
= Gross Profit
- Operating & other expenses
= Net Income (profit or loss)
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Example: Income Statement

[For the year ended DECEMBER 31, 2013] Rs. Rs.
Revenues:
SALES 496,397
Expenses:
ADVERTISING 6,300
BANK & CREDIT CARD FEES 144
BOOKKEEPING 3,350
EMPLOYEES 88,000
ENTERTAINMENT 5,550
INSURANCE 750
LEGAL & PROFESSIONAL SERVICES 1,575
LICENSES 632
PRINTING, POSTAGE & STATIONERY 320
EQUIPMENT RENTAL 3,000
RENTAL 74,400
UTILITIES 491
TOTAL EXPENSES (194,512)
NET INCOME 301,885
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Balance Sheet
Balance Sheet
A snapshot of a ventures financial position
An estimate of a ventures worth on a given date
Based on the following accounting equation:
Assets = Liabilities + Equity
Assets
Current (cash, accounts receivable, inventory)
Long-Term (tangible, intangible)
Liabilities: Current, Long-Term
Equity: Value of Owners Investment

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Example: Balance Sheet

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Cash Flow
The most important asset of a small business
Business venture must have cash it needs in time to operate otherwise
bankruptcy!
Cash Flow Cycle
Time lag between paying suppliers for merchandise or materials and
receiving payment from customers
A measure of a companys liquidity and its ability to pay bills and
financial obligations on time
Cash Management
Forecasting, collecting, disbursing, and investing the cash that a
company needs in order to operate smoothly

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Cash Flow Cycle
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Cash
Production/Cash Purchases
Accounts Payable
Inventory
Cash Sales
Accounts Receivable
Cash burn!
The Big 3 in Cash Flow
Accounts Receivable
Biggest source of delays in cash flow
Paperwork must be completed
Policies must be clearly explained
Accounts Payable
Verify invoices/bills
Look for favorable terms
Use of credit cards?
Inventory
Surplus implies loss of cash
Quick turnover is good

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Example: Cash Flow Statement
Jan Feb Mar Apr May Jun Jul
Orders 100,000 100,000 100,000 150,000 50,000 200,000 120,000
Cash Receipts
Downpayment (25%) 25000 25000 25000 37500 12500 50000 30000
Month 2 (60%) 60000 60000 60000 90000 30000 120000
Month 4 (15%) 15000 15000 15000 22500
Total Cash Receipts 25000 85000 85000 112500 117500 95000 172500
Cash Disbursements
Salaries 20000 40000 60000 60000 60000 60000 80000
Rent 8000 8000 8000 8000 8000 8000 8000
Utilities 1000 2000 3000 3000 3000 3000 4000
PC purchase 20000 20000 20000 20000
Air conditioner 40000
Repayment 24000 0 15000 0 0
Total Cash Disbursements 49000 70000 115000 71000 126000 71000 112000
End of Month Balance
Cash (beginning of month) 15000 15000 30000 15000 56500 48000 72000
+Cash Receipts 25000 85000 85000 112500 117500 95000 172500
-Cash Disbursements 49000 70000 115000 71000 126000 71000 112000
Cash (end of month) -9,000 30,000 0 56,500 48,000 72,000 132,500
Borrowing (payment 2nd month) 24000 0 15000 0 0 0 0
Cash [end of month - after borrowing] 15,000 30,000 15,000 56,500 48,000 72,000 132,500