2 27 14 Chapter 9 Analyzing Start up Financials Start up Resources include People Physical assets Financing Resource Mix one secret in constructing this resource mix is to maintain flexibility by acquiring and owning only those resources that cannot be obtained by any other means because ownership reduces flexibility and mobility Bootstrapping Minimizing owned resources to keep low overhead Bed borrow or lease resources whenever possible Many new ventures fail because of poor decisions about resource management To succeed entrepreneurs must create innovative combinations of resources to generate competitive advantage and wealth delay payment or make payment contingent upon your success Make lists of the tasks equipment and people needed in order to develop financial projections Pricing Strategies strategy Product pricing is a part of both the marketing strategy and the financial How a product or service is priced is a function of a company s goals if goal is to increase market share prices may need to be lowered Customer goals also influence the entrepreneurs pricing strategies Premium pricing high price reflects unique product service and a significant competitive advantage Price skimming start with high price drop price as competitors enter market Demand based Pricing finds out what customers are willing to pay at different demand levels and price accordingly Captive Product Pricing when the product service has complements charge a low price for the base product ex printer and premium for consumables ex ink cartridges Psychological Pricing create complex pricing structure by combining multiple products and services into one package Product bundle Pricing in a channel with many intermediaries its important to ensure that the final price to the consumer is tolerable given all the mark ups along the value chain Geographical Pricing different pricing used based on price tolerances in different geographical locations Hilton Head vs Hawaii vs Ohio First Year don t expect a straight line trajectory for sales or costs Develop estimates for financials Start with narrative assumptions pg 186 Estimate new product service demand Plan to go into limited production first Preparing the Pro Forma Income Statement Income Statement Ex Rad Skateboards R Us Sales and other revenue Cost of Goods Sold Gross Profit approximate Contribution Margin Other expenses Net Income or profit Cash Flow Statement Expected cash coming in Expected cash going out Working Capital current assets minus current liabilities Gross Profit sales minus cost of goods sold Gross Margin gross profit divided by sales Profit sales minus cost of goods sold and other expenses Profit Margin net income divided by sales Return on Investment net income divided by equity Breakeven Analysis Variable costs vary directly with production Fixed costs do not vary unless there are huge changes in production Contribution Margin sales price minus variable cost to produce Remember Bootstrapping Working capital Gross profit Premium pricing Captive pricing
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