At the beginning of your project, you are going to mainly study the market and the potential uses of your technology. You are then going to reinforce the intellectual property and develop then test the offer corresponding to the priority need you have found. Next you are going to market this offer and improve it gradually to achieve an increasing clientele. From a financial point of view, this is going to require investments, recruitment, rental of office base and various commercial costs, technical and administrative. Additionally and as a matter of fact, the dilemma of an entrepreneur is often to know what he is going to be able to develop with the means available to him at the start and from when he will have to raise the funds in order to finish what he has started. We join here the very pragmatic thesis of our colleagues Saras Sarasvathyre and Philippe Silberzahn, according to whom the creation of an innovative company is more an business of effectuation than of pure planning. The entrepreneurs compare their ideas with other people and restructure their project as it is progressing. My intention is not to give you a lecture on financing but we still have to review the main financing needs in order to prevent you from forgetting or making miscalculations. The approach I am going to introduce to you applies to the whole team of creators and company directors. The nature of the financing needs and the resources to pay for them are going to, however, vary considerably according to your industries, of the stage of development of your company and of your business model. The main financing needs of a company is relevant to the investments, a variation of the need for working capital, the ability to self-finance when it is negative, the refunds of loans and of public advances, the possible payment of dividends. It goes without saying that these need are deeply linked to the objectives and to the plan of action that you and your associates would have preset. We will be touch on this point in the session relative to the business plan. If we explain in detail the differents types de needs, we can see that the investments relate to the patent registration, the purchase of equipment, the works and fitting, of computing material, furniture or even vehicles. Next comes the variation of the need for working capital. The need for working capital, or BFR, is mainly a result of your stock and finance gaps between the cash receipts from customers and the payment of your suppliers. The BFR is often under estimated, even totally overshadowed, by the entrepreneurs whereas it can be significant for the companies whose customers pay late and for whom the growh will devour important capital. On the contrary, some entrepreneurs manage to make their clients pay in advance, in this case they take advantage of a negative BFR and of a large capital when the margins are also there. Remember at this stage that you should still be paid as soon as possible to avoid having to constantly juggle with a very tense capital. Let's move on to the ability to self-finance. It is indeed a need when it is negative, which is often the case for a new innovative company. CAF measures the potential flow of the capital generated by your current activity. The flow that you would notice if there was gap in revenues and expenditures. The main charges which have an impact on your ability to self-finance are sales cost, made of purchases of materials and products, and product costs, the expenditure of development research, it is mainly about salary costs of your R&D team and and the subcontracting of certain works. The commercial costs are essentially salary costs of your marketing and sales teams as well as advertising and promotional expenditures. Administrative costs, these charges relate to the salaries of the head office and the administrative teams as well as the rents, the fees and other general expenses. The financial expenses, concerning the interests on the loans that you have possible taken. The fourth category of financing needs relate to the refund of loans and public advances, it is the primary one which is recorded in the balance sheet and not the financial costs which have just reduced the net earnings. Thus, a loan of 100 000 euros over five years will come to, for example, an annual payment of 20 000 euros as well as financial costs on the remaining balance to pay. When your company foresees advances which are refundable at a 0% rate, granted for example by BPI France, the refund of these public advances is also to be taken into account according to the planned schedule. The entrepreneurs whose activity doesn't release enough cash are often taken by surprise by these repayment terms which are difficult to renegotiate. The fifth and last category of financing needs relate to the dividends. These dividends are paid out of the net benefit of the exercice or out of the company reserves. The dividends are therefore irrelevant as long as the company is overdrawn and they are rarely paid in the case of growing companies, which reinvest the whole of their benefits to develop in the shortest time possible. We have just seen that you have to not only finance investments, development research costs, marketing costs but also gaps in payments. Therefore you have to raise enough money to survive the development steps which separate you from your self-financing. We will see in the part relating to the main sources of funding how an entrepreneur can combine different resources to distribute evenly his financing plan and to finance the development of his innovation. A small exercise in way of conclusion : If your customers payment is delayed by over three months, small one, all you will need to do is to put into practice the same payment delays with your own providers, small two, you risk to come across finance problems even if you make profits. Thirdly, you will still be able to rely on your bank to finance these gaps and fourthly, you will obtain better payment delays if you lower your prices. The right answer is the second suggestion as such payment delays are the classic symptoms of a need of high working capital which can cause a company serious financing problems, even when it is profitable.
