MEI608 Study Guide
Unit 5: Financial Statements and Entrepreneurial Finance Planning
5a. Categorize the common financial statements of a business plan
- Why do entrepreneurs need to develop financial statements for their business plans?
- What is the difference between assets, liabilities, and owner's equity?
- What funding strategies can start-ups use?
Three main strategies can be used for funding an entrepreneurial venture: seed funding, which comes from personal savings and small investments; early funding, which can consist of private equity, venture capitalists, or angel investors; and mature growth funding, where an IPO and self-sustaining funding may take place.
Entrepreneurs may focus on debt financing, where the lender does not take a stake in the company, or equity financing, where the lender becomes part owner of the company.
As an entrepreneur, it is important to understand some accounting basics, even if you hire a bookkeeper. The basic accounting equation is assets = liabilities + equity. Assets can be things such as cash, whereas liabilities are debt, and equity is the owner's claim on the assets of the business, which is basically the difference between what they have and what they owe. In terms of the business plan, most investors will want to see an income statement, balance sheet, and statement of cash flows to show their ability to sustain the business.
To review, see:
5b. Create budget forecasts using best practices for a new business
- What are startup costs?
- What are the tools that can be used to forecast sales?
Forecasting is an important aspect of the business plan. Entrepreneurs will want to forecast sales and cash flow to show the potential success of the business. To forecast sales, people can use historical data to look for growth trends and where there might be months showing declines in sales. Of course, the past is not always a predictor of sales, so as customer bases and businesses change, the forecasts must change, too.
Entrepreneurs also use budgets to determine how much they expect to spend, and it also helps them determine what their startup costs might be. Startup costs can include things like equipment, supplies, communications, licenses and permits, inventory, and marketing.
To review, see:
Unit 5 Vocabulary
This vocabulary list includes terms you will need to know to successfully complete the final exam.
- accounting equation
- early funding
- mature growth funding
- seed funding