Financial Basics for Startups. Freddy Law Terry Yim Inter Cultural 19 Dec 2015

Transcription

1 Financial Basics for Startups Freddy Law Terry Yim Inter Cultural 19 Dec 2015

2 Agenda: 5 parts 1. Basic Accounting Principals 2. Winning Principals on Presenting Financial Projection 3. Concepts of Revenue generation and Cost Calculation Break 1. Your Revenue and Cost 2. Projection in Business Plan

3 Who is who

4 Insider s truth about Financial Projection It s always wrong Unpredictability of startup Hard to guess the timing False precision It s always out of date Good entrepreneurs changes strategy often Lean startups pivot It s always optimistic very conservative tell story that is working

5 Scary Terms Primary Market Research Secondary Market Data Theoretical Reasoning Wishful Thinking Make it look good

6 Chance of getting to Final

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8 Chance of Winning in Final

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10 Chance of Winning in Final from today

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12 Winning Criteria in mind Innovative Concept Business Context Team Capacity Social Impact Sustainability of business

13 Accounting

14 Accountancy is the measurement, processing and communication of financial information about economic entities.

15 Accounting Principals Book Keeping Profit and Lose Account Balance Sheet

16 Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business.

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19 Record Every Transaction. No need to buy a software. Excel and an accounting intern is what you need.

20 3 most important sheets in finance: 1.Income statement (Profit and lost) 2.Balance Sheet (Asset and Liability) 3.Cash Flow statement

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23 Part 1 Done Bookkeeping Income Statement Balance Sheet Cash flow statement

24 Truth about Financial Projection

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26 3 Tips in Financial Projection 1. Assume with strong reasons 2. Present with confidence 3. Key Numbers with clarity

27 3 Key Principals in Financial Projection Presentation

28 Breakeven Concept

29 Adding numbers in breakeven analysis

30 Principal 1: When to breakeven?

31 Activities and Consultation time 1. How Much are your ASSUMED fixed cost? 2. How Much are your ASSUMED variable cost? 3. How Much are your ASSUMED Profit per Product Unit? (If you have more than one product, break it down)

32 Tell me around which Month your startup would breakeven

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37 Principal 2: Do You have an exit strategy?

38 Interaction and Consultation time 1. When is the BEST time to move on (go somewhere)? Consider purely Organizational Consider purely Personal 2. Think in Developmental Stages, graphs and numbers. 3. Brainstorm on Succession Planning.

39 Tell me which Month (under what conditions) would you exit

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41 Principal 3: How do you want to use the award money?

42 Start a Company vs Accelerate growth of a company

43 Cost of maintaining operation vs Invest in growth

44 Interaction and Consultation time 1. Paying Salary to yourself? Should you? How much is reasonable? Cash flow and payable concept? Loan to company vs investment? 2. Paying Salary to new staff? 3. Paying rent? 4. Build a web? 5. Ad on facebook?

45 Interaction and Consultation time 1. Doing marketing 2. Research on product development 3. Go training workshops 4. Hire consultants 5. Paying for Design

46 Tell me how would you do the startup with or without the award money

47 Part 2 Done Principal 1: Breakeven Point Principal 2: Exit Strategy Principal 3: Startup or Scale up

48 COST

49 VARIABLE VS FIXED

50 Variable Cost Cost of goods sold INVENTORY!!!! Transportation cost Advertising fee Financial fee Commissions Piece rate salary

51 Fixed Cost Rent Salary Utilities Fixed asset depreciation Interest expense Bad debt expense

52 COST OF GOODS SOLD VS OPERATING EXPENSES

53 Cost of Goods Sold Cost of goods sold (COGS) are the direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs. - Investopedia

54 Operating Expenses Indirect Selling Sales commission Advertising Traveling Administrative Rent Utilities Salary of back office staff

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56 FOUNDER SALARY?

57 ACCOUNT PAYABLE

58 Account payable An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. - Investopedia

59 Account payable Graph illustration (let s draw together)

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61 RESOURCEFUL

62 OFFICE?

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64 MACHINE? BACK-END SYSTEM?

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66 15 mins Networking Coffee Break HAVE FUN!! Copy right:

67 REVENUE

68 10 PRICING MODELS

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70 SOURCE OF INCOME

71 Sources of Income Interest income Marketing initiative Donation / sponsorship

72 Real Examples

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75 RUN OUR CITY

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77 WHO? HOW?

78 NO VALUE = $0

79 ACCOUNT RECEIVABLE

80 Account Receivable Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for. - Investopedia

81 Account Receivable Graph illustration

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83 Part 3 Done Variable cost vs fixed cost Cost of good sold vs operating cost Account payable and Resourceful 10 Pricing Models Different sources of income Concept of Account Receivable

84 REVENUE COST =?

85 PROFIT OR LOSS

86 GROSS PROFIT VS NET PROFIT

87 BREAKEVEN ANALYSIS

88 BREAKEVEN ANALYSIS

89 THINK AGAIN CUT COST? INCREASE REVENUE?

90 HOW TO CHOOSE KEY METRICS?

91 HOW TO VALIDATE?

92 Never ask your customers how much they are willing to pay

93 SELL!!!!

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95 Part 4 Done Gross Profit vs Net Profit Breakeven Analysis Key Metrics and Valuation

96 Part 5: Projection in Business Plan

97 3 Tips in Financial Part in Business Plan 1. Story telling in numbers 2. Understand your business

98 Financial Planning reflects 1) business strategy, milestones, scale and viability. - Thomas Hellman, Professor of Entrepreneurship and Innovation at the Saïd Business School, Oxford University (3:00 -

99 a. Business strategy (involve any cost?) b. Milestones (when to bring in revenue, how much?) c. Scale (% of your total available market) shows whether your business is viable or not

100 Financial Planning reflects 2) your business assumptions - Thomas Hellman, Professor of Entrepreneurship and Innovation at the Saïd Business School, Oxford University

101 a) How much would you spend? b) How much would you earn? c) Does it all make sense? An honest feedback for your activities.

102 Financial Planning reflects 3) to investors the business prospects and financial needs (also the entrepreneurs financial literacy and conceptual clarity) - Thomas Hellman, Professor of Entrepreneurship and Innovation at the Saïd Business School, Oxford University

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104 Part 5 Done FP reflects business strategy Business assumption Your thoughts to investors

105 Sum up Accounting basic: 3 sheets Financial Project in PPT: Breakeven, exit, spending Revenue and Cost analysis: receivable and payable, pricing model and sources of income key metrics and valuation Financial plan in business planning: business strategy, assumption and thoughts to investors.

106 Thanks!