3. Your Credit Score
FICO Credit Score, is named after the
company that developed it Fair Isaac &
Company.
Is a number between 300 and 850. The
higher the number the better your financial
situation.
This is a snapshot of your credit and
reduces decision making for lenders.
4. FICO Score a/k/a Credit Score
Payment Amount
History Owed
35% 30%
Length of
Types of Credit
Credit in Use History
15%
10%
New Credit
10%
5. Personal Financial Statement
Commonly referred to as a personal
balance sheet or statement of net worth. It
is a complete listing of all assets owned
and liabilities owed.
Itemizes Assets and Liabilities (obligations
and resources of $)
6. Personal Financial Statement
Assets Dollar Amount
Cash: Checking $5,200
Cash: Savings $300,000
Notes & Contracts $7,500
Life Insurance $10,000
Personal Property $35,000
Real Estate $0
Other $0
Total Assets $357,700
Liabilites Dollar Amount
Current Debt $90,000
Notes Payable $5,000
Taxes Payable
Real Estate Mortgages $120,000
Total Liabilities $215,000
Net Worth $142,700
8. Resources for Pricing
Trade Associations
Business to Business Inquiries
Rent investigation – asking potential
neighbors searching online
9. Price Creation
Competitive Analysis
Secret Shopping
Online Shopping
Industry Trends
Documentation of demand for product &
service
10. Price Creation
Direct Labor: labor used to produce products and
services. These are directly attributed to customer
activity
Indirect Labor: labor used to provide supporting
services to the business. These support business
functions that are not directly chargeable to the
customer.
Direct Materials: Materials used in the final
product or service purchased by customers.
These materials are charged directly to the
customer’s account.
11. Price Creation
Overhead Expenses:
OE are absorbed by the business and factored into
the selling price as a percentage of direct labor costs.
They include indirect costs such as accounting,
advertising, depreciation, legal fees, utilities, rent,
repairs, taxes, telephone, interest, etc.
Overhead Rate Equation:
YearlyOverhead Expenses/Yearly Billable Direct
Labor Dollars
$3,500/ (800x$8)= 55%
12. Breakeven Analysis
A breakeven analysis is used to
determine how much sales volume your
business needs to start making a profit.
The breakeven analysis is especially
useful when you're developing a pricing
strategy, either as part of a marketing plan
or a business plan.
13. Break Even Analysis
Fixed Costs/(Rev. per unit – Variable costs per
unit)
Fixed Costs are costs that must be paid whether
or not any units are produced. These costs are
fixed over a period of time.
Variable Costs are costs that vary directly with
the number of products produced. For instance,
the cost of the materials needed to produce the
units isn’t always the same.
14. Break Even Example
EXAMPLE:
Fixed costs for producing 100,000 widgets is $30,000 a
year. Your variable costs are $2.20 materials, $4.00
labor, and $.80 overhead for a total of $7.00
Say you sell the widget for $12.00 each. This is the
equation:
$30,000/($12-$7) =6,000 units.
This is the number of widgets that have to be sold at
$12.00 before your business will start to make a profit.
15. Example of Costs Listed
Sales
Factor
$120 Product 1
$85 Service 1
Cost of Goods Sold
$30 Product 1
$22 Service 1
Fixed costs
$2,000 /month Rent
$600 /month Utilities
$1,200 /year Insurance
$1,000 /month Advertising
8% /year Interest on loan(s)
$100,000 Loan(s)
Variable Costs
$2,000 /month Employees
$0 /month Owner's draw
30% EmplBenefits
17. Startup & Project Costs
Description Amount
How much will
Building $75,000 it take to open
Land $20,000 your doors?
Remodeling $30,000
Fixtures & Equipment $8,500
Inventory $25,000
Advertising $1,800
Loan Fees $6,000
Working Capital $25,000
Total $191,300
18. Sources of Revenue
Description Loan Owner $ Total
Inventory $15,000 $10,000 $25,000
Furniture & $8,500 $8,500
Equipment
Land & Building $95,000 $95,000
Remodeling $30,000 $30,000
Working Capital $25,000 $25,000
Organizational $7,800 $7,800
Cost
Total 156,300 35,000 $191,300
19. Profit and Loss, Balance Sheet and Cash Flow Statements
Balance Sheet – Present
The value of a company at a certain point in time.
Statement of Assets and Liabilities.
Cash Flow – Future
Statement showing cash generation (inflow)
and cash usage (outflow)
Profit and Loss Statement – History
Measures and reports Profit generated during a certain period.
Profit/Loss is an opinion, based on Accounting Principles.
20. Cash Flow
Cash inflow and outflow from operations
Use assumptions from market research and industry
averages
Realistic seasonal sales by the month
Method of payment for services
Inventory purchasing
Use several different ways to project sales
Can the business sustain in slow periods
21. Cash Flow
Month 1 Month 2 Month 3
Cash on Hand $25,000 $23,000 $24,000
Plus Revenues $12,000 $19,000 $22,000
Available Cash $37,000 $42,000 $46,000
Less Expenses $14,000 $18,000 $20,000
End of Month $23,000 $24,000 $26,000
Must Consider: reasonable assumptions, seasonality, aging of
Accounts receivable.
22. Profit & Loss Statement
measures a company's sales and
expenses during a specified period of
time. The function of a P & L statement is
to total all sources of revenue and subtract
all expenses related to the revenue. It
shows a company's financial progress
during the time period being examined.
23. Profit & Loss Statement (income)
Year 1
Gross Sales $300,000
Less COGS $218,000
Gross Profit $82,000
Less Operating Exp. $58,000
Profit before Tax $24,000
COGs= Cost of Good Sold
24. Balance Sheet
Purpose to provide a snapshot of a business’s financial
position at a given point in time.
Illustrates what the business owns, what it owes and
what the business’s net worth is at a given time.
Total assets should equal the sum of the total liabilities
an the net worth.
Key elements: current assets (cash accounts receivable,
inventory), fixed assets (property, plant and equipment),
intangible assets (patents), liabilities and owners equity,
current liabilities (accounts payable & long term debt)
Total Assets + Total Liabilities + Total Capital &
Liabilities
25. Balance Sheet
Assets Shareholder’s Equity and Liabilities
Fixed Assets Equity
+ Inventory Share Capital
+ Accounts Receivable + Other Restricted Equity
+ Cash and Cash equivalent + Net Profit for the Year
= Total Assets + Retained Earnings
= Total Equity
Liabilities
Long Term Loans
+ Short Term Loans
+ Accounts Payable
= Total Shareholder’s Equity and Liabilities
Total Assets = Total Shareholder’s equity and liabilities
26. Balance Sheet Example
Assets Liabilities and Owners' Equity
Cash $6,600 Liabilities
Accounts Receivable $6,200 Notes Payable $30,000
Accounts Payable
Total liabilities $30,000
Tools and equipment $25,000 Owners' equity
Capital Stock $7,000
Retained Earnings $800
Total owners' equity $7,800
Total $37,800 Total $37,800
27. Your Next Steps
Research your business and production
costs.
Develop your overhead and breakeven
analysis.
Prepare Startup Cost
Prepare Cash Flow & Profit & Loss