Wk 4 - Apply: Summative Assessment: Cash Management and Minimizing Risk

Working capital is the money or funds which sustains the day-to-day running of your business. As you progress with your business set up you will assess the best way to raise working capital and the factors that affect it and employ techniques to minimize risk using working capital.

Consider this scenario and answer the questions provided in this worksheet. Complete Part 1 of this worksheet in Week 3 and turn it in with Part 2 in Week 4.

Imagine you are working to open a new business selling household items.

Part 1:

Answer the following questions in 175- to 350- words to determine how to minimize risk using working capital. Enter your response on a new line.

Determine the collateral you have that may help you secure a loan from a bank, credit union or other sources of debt financing (home, car, equipment, land, stock, assets of a cosigner, etc.)

Identify a source of debt financing that may be available to you (friends, family members, credit cards, trade credit, banks, credit unions, private lenders, etc.). Describe the type of loan (term loan, promissory note, line of credit, SBA, etc.), the amount of money that might be available, the possible interest on the loan, and the security that might be required.

Identify a potential partner or firm that might provide equity financing for your new business. What types of businesses do they like to invest in? How much money do they typically invest in each deal? At what stages of the business do they generally invest? Why would they be a good partner for your business?

Part 2:

Answer the following questions in 350- to 525- words to determine how to minimize risk using working capital. Enter your response on a new line.

Suppose you make beautiful coffee tables out of juniper trees. Your materials cost for each table is $135. You pay your craftsman $25 per hour and it takes him 5 hours to complete one table. If you sell these tables for $689, what is your Cost of Goods Sold Percentage?

What is the Gross Profit Margin on the coffee tables described in question 1 above?

Suppose your company sells a 3 pack of lenses that attach to smart phones to improve the quality of pictures people take. You pay $29.95 for each 3 pack and sell them for $59.95. What is your Cost of Goods Sold Percentage for this item?

Suppose you sell 8,000 of the 3 pack of lenses described in question 3 above in one year. You cost on each 3 pack is $29.95 and you sell them for $59.95. If your operating expenses for the year total $144,080, what are your Net Income and Net Profit Margin Percentage?

Suppose an investor gave you $150,000 to start your business. You gave this investor 50 percent of your company for this investment. Your revenue year one was $479,600; your cost of goods sold was $239,600; and your total operating expenses were $144,080. What ROI will your investor receive this year for his 50 percent ownership in the company?

Think of a potential product you might buy or create to sell in your store. Describe this product and estimate how many you think you can reasonably sell your first year in business.

Estimate the cost to make or buy the product you have described in the question above. What will you sell this product for? Based on your sales price, what do you estimate the Gross Profit Margin will be for this product?

Estimate your operating costs for the first year of your new business.