BIZ301
Organisational Creativity and
Innovation
Planning for a New Venture, Managing, Funding and Running a New
Venture
Planning for a new venture
Planning for a new venture
Ref: Skilledindia.com
Ref: Skilledindia.com
Overview
Overview
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•Vision, mission and Values for entrepreneurVision, mission and Values for entrepreneur
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•Finance for entrepreneurs Finance for entrepreneurs
“People
“People change what they do less because they are given change what they do less because they are given analysis that shifts their thinking, more than because analysis that shifts their thinking, more than because they they are given a truth that influences their are given a truth that influences their feelingsfeelings” ” (Kotter, J. & (Kotter, J. & Cohen, Cohen, D. (2002). D. (2002). The Heart of ChangeThe Heart of Change, Executive Book Summaries, Executive Book Summaries
What does this mean ?
What does this mean ?
New venture :
New venture : Essentials Essentials –VisionVision, Mission and Values, Mission and Values
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•A vision is about the A vision is about the futurefuture: What do we want : What do we want to become? What are our aspirations?to become? What are our aspirations?
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•A Mission is about A Mission is about NOWNOW: What business are we : What business are we in? Why do we exist? What are we known for?in? Why do we exist? What are we known for?
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•Values Values ––what are our values? What will we do what are our values? What will we do and not do?and not do?
www.businessessentials.com.au
www.businessessentials.com.au
A New
A New ventureventureproblem !problem !
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•Small company managers are too inclined to delegate to Small company managers are too inclined to delegate to outside accountants every decision about their outside accountants every decision about their companies’ financial statements.companies’ financial statements.
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•Often new venture entrepreneurs are not financial Often new venture entrepreneurs are not financial managers managers
However
However ––entrepreneurs need to financial savvy for entrepreneurs need to financial savvy for successsuccess
Important Financial concepts
Important Financial concepts
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•Working capital Working capital
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•Capital you have available to work with todayCapital you have available to work with today
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•Revenue Revenue
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•Sales on a monthly, quarterly and yearSales on a monthly, quarterly and year––toto––date date basis for examplebasis for example
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•Gross profit Gross profit
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•Revenue less the direct costs of producing your product or serviceRevenue less the direct costs of producing your product or service
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•Expenses Expenses
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•Be prepared to adjust them to the current business environmentBe prepared to adjust them to the current business environment
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•Net profit Net profit
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•Subtract the total of your overhead expenses from your gross profit Subtract the total of your overhead expenses from your gross profit to get net profit. to get net profit.
Key
Key conceptsconcepts
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•What the company owns (assets) and what it owes What the company owns (assets) and what it owes (liabilities) is the net worth of the company. (liabilities) is the net worth of the company.
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•Assets = Liabilities + Shareholders’ EquityAssets = Liabilities + Shareholders’ Equity
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•Or, put another way:Or, put another way:
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•Assets Assets –Liabilities = Shareholders’ EquityLiabilities = Shareholders’ Equity
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•Income (profit & loss) statementIncome (profit & loss) statement
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•Measures the profitability of the businessMeasures the profitability of the business
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•Cash flow Cash flow
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•Cash coming in and going out of the businessCash coming in and going out of the business
Operating
Operating budgetbudget
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•Sales forecastsSales forecasts
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•Process of projecting future sales through historical sales figures and Process of projecting future sales through historical sales figures and the application of statistical techniquesthe application of statistical techniques
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•Expense forecastsExpense forecasts
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•Projecting purchases plus the corresponding desired beginning and Projecting purchases plus the corresponding desired beginning and ending inventoriesending inventories
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•Production forecastsProduction forecasts
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•Production budget, a material purchases budget and the Production budget, a material purchases budget and the corresponding direct corresponding direct labourlabourbudgetbudget
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•Operating expenses Operating expenses
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•Fixed, variable and mixed costsFixed, variable and mixed costs
Other financial information
Other financial information
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•CashCash–flow budget flow budget
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•Identification and timing of cash inIdentification and timing of cash in––flows fromflows from
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•Cash salesCash sales
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•Cash payments received on accountCash payments received on account
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•Loan proceedsLoan proceeds
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•Pro forma statementsPro forma statements
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•Projections of a firm’s financial position over a future Projections of a firm’s financial position over a future period period
Capital
Capital budgetingbudgeting
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•Identify the cash flows (returns) that result from an Identify the cash flows (returns) that result from an investmentinvestment
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•Equal to net operating income before deduction of payments to the Equal to net operating income before deduction of payments to the financing sources (lenders) but after the deduction of applicable taxes financing sources (lenders) but after the deduction of applicable taxes and with depreciation added backand with depreciation added back
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•Expected Returns = Expected Returns = X X (1 (1 –TT) + Depreciation) + Depreciation
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•Helps answer the question, which of several investment Helps answer the question, which of several investment projects should be selected? projects should be selected?
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•Three common methods used in capital budgeting Three common methods used in capital budgeting
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•Payback methodPayback method
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•Net present value (NPV) method Net present value (NPV) method
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•Internal rate of return (IRR) methodInternal rate of return (IRR) method
Methods of capital budgeting
Methods of capital budgeting
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•Payback methodPayback method
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•Length of time required to ‘pay back’ the original investmentLength of time required to ‘pay back’ the original investment
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•Net present value Net present value
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•Assumes that a dollar today is worth more than a dollar in the Assumes that a dollar today is worth more than a dollar in the future depending on the cost of capital future depending on the cost of capital
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•The cost of capital is the rate used to adjust future cash flows to The cost of capital is the rate used to adjust future cash flows to determine their value in present period terms determine their value in present period terms
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•Internal rate of returnInternal rate of return
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•Similar to NPV, but future cash flows are discounted at a rate that Similar to NPV, but future cash flows are discounted at a rate that makes the net present value of the project equal to zero makes the net present value of the project equal to zero
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•Essentially a percentage figure that relates to the money put in and Essentially a percentage figure that relates to the money put in and cash flows that will come out cash flows that will come out
Break
Break––even even analysis analysis
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•Used to assess expected product profitabilityUsed to assess expected product profitability
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•Helps determine how many units must be sold in order to break Helps determine how many units must be sold in order to break even at a particular selling priceeven at a particular selling price
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•Contribution margin approach Contribution margin approach
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•Percentage of each sale that remains after the variable costs are subtractedPercentage of each sale that remains after the variable costs are subtracted
Ratio
Ratio analysis analysis
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•Show relationships among financial statement Show relationships among financial statement accounts accounts
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•Vertical analysis Vertical analysis
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•Looks ‘up and down’ a company’s statements to find Looks ‘up and down’ a company’s statements to find signs of strengths and weaknessessigns of strengths and weaknesses
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•Horizontal analysis Horizontal analysis
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•Looks at financial statements and ratios over timeLooks at financial statements and ratios over time
Raising capital
Raising capital
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•Where do you go to raise capital for your new venture ?Where do you go to raise capital for your new venture ?
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•What do investors want to see in your new venture?What do investors want to see in your new venture?
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•How will you deliver value to the investors?How will you deliver value to the investors?
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•Why have investors ?Why have investors ?
SME Business Systems
SME Business Systems
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•OFFICE OFFICE –EXCELEXCEL
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•Small Business Accounting e.g. MYOB, Intuit Small Business Accounting e.g. MYOB, Intuit Quicken/QuickBooksQuicken/QuickBooks
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•SME/SMB ERP/CRM systemsSME/SMB ERP/CRM systems
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•Accounting/FinanceAccounting/Finance
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•Customer Database and Information ManagementCustomer Database and Information Management
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•Business Specific ModulesBusiness Specific Modules
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•Online/Web 2.0 Systems?Online/Web 2.0 Systems?
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