Lesson 10.3: Options for Funding

Introduction

• Understanding stock and company ownership.
• Purpose of selling stock by companies.
• Lesson focus: Options for funding in entrepreneurship.
• Breakdown of topic relevance in exams.

Key Topics Covered

1. Five Funding Strategies
   • Bootstrapping Techniques
   • Personal Assets
   • Equity Financing
   • Debt Financing
   • Planning for Business Costs

Bootstrapping Techniques

• Definition: Operating on minimal cash, cutting unnecessary expenses.
• Techniques:
  • Using free resources (e.g., Score mentoring service).
  • Utilizing personal assets (e.g., home office use).
  • Negotiation with vendors.
  • Monitoring and cutting personal expenses.
  • Bartering goods/services.

Startup Capital

• Equity Financing:

  • Selling ownership in the company.
  • Family, friends, and business partners as potential investors.
  • Angel investors: Wealthy individuals with industry experience.
  • Venture Capitalists (VCs): Professional groups investing for high equity stakes.

• Debt Financing:

  • Loans that need repayment with interest.
  • Secured vs. Unsecured loans.
  • Sources: Banks, credit unions, peer-to-peer lending, SBA-assisted loans, 401(k) borrowing, family/friends.
  • Trade credit: Business-to-business credit lines.

Steps for Starting a Business

1. Planning Financials

   • Startup costs vs. Operating expenses.
   • Fixed vs. Variable expenses.
   • Importance of the rule of two: Expect twice the cost and time.

2. Budgeting

   • Budget for owner cash withdrawals.
   • Importance of setting competitive yet profitable pricing.

3. Sales Forecasting and Break-even Analysis

   • Sales forecasting in units and dollars.
   • Rule of two in sales forecasting.
   • Calculating break-even point: Intersection of total costs and sales on a graph.
   • Marginal Benefit vs. Marginal Cost: Balancing production increase against sales potential.

Conclusion

• Testing knowledge with quiz questions.
• Summary of funding options for entrepreneurship.

Additional Resources

• Sources and further reading materials provided for deeper understanding.