What do the income statement and balance sheet measure or track over time? Please be specific making 3 observations for each.
Access the Small Business Administration Web site at http://www.sba.gov and find information on estimating start-up costs, preparing financial statements, and conducting breakeven analysis.2. Identify first round financing sources. If you were starting a business which one might you choose and why?
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first classmates post：A.M.
Financing the Entrepreneurial 3353
Discussion # 4
Balance sheets and income statements are essential documentation for an organization. The organization’s balance sheet is where you can view transactions for a certain amount of time. On a balance sheet, total assets are going to equal total liabilities in addition to owner equity.
(Entrepreneurial Finance Part 2: Chapter 4 p. 133). Assets on a balance sheet are current assets that consist of cash, accounts receivable, and inventory. They are converted into revenue. Liabilities and equity on a balance sheet are payments owed by an organization that has to be paid in a certain amount of time.
Bank loans, accrued wages, operating expenses, equipment leases, etc. Owner equity is a certain amount of capital that an owner has contributed to the organization. Owner equity comprises three accounts: stockholder equity, common stock account, and additional paid-in capital account. Stockholder equity is the absolute value of the organization. According to Melicher (2014), the common stock account usually is the book value of ownership in the corporation.
In comparison, an additional paid-in capital account has a book value of interest when the common stock has par value.
An income statement reports an organization’s revenue generated and accumulated expenses over a certain amount of time, usually monthly, quarterly, or yearly. Without an income statement, an organization will have no idea how much capital they spend, how much money the organization generated from revenue, or how much the creditor owes them. (Entrepreneurial Finance Part 2: Chapter 4 p. 137).
Three major components of an income statement are the cost of goods sold, earnings before interest and taxes, and net income. The cost of goods sold can be easily identified by how much labor is used to produce a certain amount of goods to be sold. Earnings before interest and taxes are a component of an income statement that explains the operating income. The profit after all expense income has been subtracted from the net sales.
The net income is a statement that shows all of the organization’s deductions from a specific period. The net sales, operating expenses, financing cost, taxes, and all other deductions (Entrepreneurial Finance Part 2: Chapter 4 p. 138).
Estimating the startup cost for a venture is an essential part of the process. No matter how you choose to fund the venture, personal wealth, venture capitalist, bank loans, you have to identify that immediate cost to start the process that leads to you gaining a return on your investment. Many expenses are associated with the price. Fees for licenses, marketing, lawyers, and accountant fees have to be paid.
The financial statements for a startup venture will detail all the transactions from assets, liabilities, and owner’s equity to the current cost of goods sold, expenses, revenue generated through a certain amount of time, depreciation, and earn interest before taxes. How to apply (n.d).
Break-even analysis for new ventures is helpful in many ways. You will be able to see how you spend your money but also have it accumulated for you. It gives you a clear picture of where you need to generate to cover expenses, cost of production. The break-even point is when total cost and total revenue are equal, meaning there is no loss or gain for your small business. Calculate your startup costs. (n.d.).
First-round financing consists of personal income raised from family or your pocket. The traditional ways like venture capitalists, commercial banks, and government assistance programs are the mandatory ways to finance a venture. Starting my own business, I will use a combination of two. I will start with government assistance programs and also seek venture capital.
The method of the government assistance plan will be ideal for me because, with these programs, you can receive amounts in grants that don’t have to be paid back. These programs take the pressure out of paying back money before you have a chance to accumulate any actual revenue. America’s seed fund is one company that is likely to help entrepreneurs with finance if they are about to transform your idea into a cash cow. Our goals are to foster innovation and help create businesses and jobs in the United States, and companies seed funded by our program have since gone on to tremendous success How to apply (n.d).
Leach, J. C., & Melicher, R. W. (2014). Entrepreneurial Finance. Cengage Learning.
Calculate your startup costs. (n.d.). https://www.sba.gov/business-guide/plan-your-business/calculate-your-startup-costs.
“How to Apply.” Apply | NSF SBIR, seedfund.nsf.gov/apply/?utm_source=google&utm_medium=cpc&utm_campaign=psc&utm_term=keyword&utm_content=now_open.
second classmates post：Good evening,
The income statement accounts for the company’s sales or revenues, which is received from providing a product or service to customers. The company’s expenses, which are typically their costs of doing business, for example employee wages, rent, and product materials. The balance sheet accounts for the company’s assets, liabilities and equity. Assets can include things such as cash, inventory, equipment and accounts receivable. Liabilities can include accounts payable and loan (notes) payables.
Equity includes common stock which is money invested into the company usually by owners or angel investors. Both of these financial statements are important for the business owner to see how the company is performing, they are also used to acquire bank loans, investment capital or government funding. (Entrepreneurial finance Chapter 4 p. 131-132)
According to SBA.gov, most businesses fall into three categories which is brick and mortar,, online, and service. Understanding which category your business falls into is very helpful when estimating start-up costs.
The website provides a rough list of common start-up costs you’ll likely have, regardless of what category you are in. These include office space, equipment, supplies, licenses/permits, advertising, website creation. This is a very helpful list to have as an entrepreneur because it’s pretty much the basics of your business’ needs. As an entrepreneur, it may be easy to forget about some of these basic costs and to-do tasks, so that’s why this list is so nice.
The website also offers a calculator to get an estimate of what it will cost to start your business, as well as a counselor to aid you in the process. (Calculate your startup costs, www.sba.gov)
Concerning the preparation of financial statements, what I found on the SBA website is help with developing the business balance sheet and they also explain what it is and what it tracks.
There is encouragement to use their cost-benefit analysis tool in order to make decisions regarding things such as purchasing an asset vs. not purchasing the asset, for example. There is also help to choose an accounting method (accrual or cash method for recording purchases) as well as getting accounting help to manage their accounts receivable, payables etc. There are also financial planning tips as well as a link to consult a counselor. Proper financial preparation can aid in the success of your business and provide confidence for those who may invest in your business. (Manage your finances www.sba.gov)
I could not find a break-even analysis tool on the SBA website but both the start up costs and manage your finances tabs could be helpful to figure out budget costs for your company to do business and how much sales need to be generated to cover those costs.
First round financing sources include venture capitalists, commercial banks, the U.S. Small Business Administration, state and local government assistant programs and suppliers. (Entrepreneurial Finance Part 2: Chapter 3 p. 122) If I were starting a business after I pool together funds from myself, friends and family, I would turn to government assistance because I believe there are many programs put in place for minorities, women, etc. and they are not as focused on how much of a risk I am to them.
Calculate your startup costs. (n.d.). Retrieved May 19, 2021, from https://www.sba.gov/business-guide/plan-your-business/calculate-your-startup-costs#section-header-0 (Links to an external site.)
Manage your finances. (n.d.). Retrieved May 20, 2021, from https://www.sba.gov/business-guide/manage-your-business/manage-your-finances
Leach, J. C., & Melicher, R. W. (2021). Entrepreneurial finance. Cengage Learning.
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Discipline: financing the entrepreneurial
