Financials 101
Transcript of Financials 101
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BUSI 701Artistic Entrepreneurship
Intro to Financials
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Agenda
• 3 Steps to Financials
• Sources of Funding
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Goal of Financials1. Is venture viable?2. How much $$ will it take to get there? 3. How will we monetize and distribute the
value we create?
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Goal of Financials1. Viability2. Start-up cost3. Return
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3 Steps for Financials
1. Business model / back-of-the-napkin snapshot
2. Startup costs and projections
3. Financial statements
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Step 1: Business Model• Revenue model• Pricing• Implementation/roll-out strategy• Marketing• Small changes in strategy can profoundly effect
financials
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Example Revenue Models• Retail store• E-store• B-to-B products or services• Consulting• Recurring fees
– Membership– Software as a service– Razor/blade or printer/cartridge
• Transaction fees
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Step 1: Business Model
• Refine your businesss model and revenue model while doing research
• Start with simple spreadsheets and get more complex as you get more comfortable with your strategies
• Slight changes in strategy can totally change your financials dramatically
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Step 1: Napkin Snapshot • Very simple viability test: income - revenue• Assume that you are in full production,
things are going great• Create sub-spreadsheets for “unit economics”
and “key drivers”• This gives you a snapshot to see how
profitable it could be• CCBackofNapkinFeasibility.xls
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Cost Drivers• Salaries• Rent• COGS• Fixed vs. variable costs• Equipment• Insurance, legal, etc.
• Make sure you are in line with industry
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Step 2: Start-up Costs and Projections
• Add start-up and projections
• This gets very complex very quickly
• Better to build your own rather than use template, but they are available
• Must factor in loans and/or other financing
• CC Simple Projections.xls• TIP: rent all the big items (buying is complicated)
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Step 3: Financial Statements
• Don’t attempt these until your business model is finished!
• You will likely need a template or a CFO to get these. – Income Statement– Balance Sheet– Cashflow Statement
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Recap: 3 Steps for Financials
• Business model / back-of-the-napkin snapshot
• Startup costs and projections
• Financial statements
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Agenda
• 3 Steps to Financials
• Sources of Funding
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Sources of Funding
• You and everyone you know
• “Skin in the game”
• “Family, friends and fools”
• Doctors
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Other Sources• Revenue• Loans• Grants• Angels• Venture Capital (VC)• Private Equity• IPO
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Revenue
• “Retained Earnings”
• Means $$ that you earn is used to grow business
• Generally implies slow, steady growth
slow, steady growth
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Loans/Debt
• Generally from banks
• Must have or be purchasing assets as collateral with low LTV ratio– Real estate– Machinery/equipment– Accounts receivable
• SBA (Small Business Administration)
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Debt (con’t)
• Don’t be overly debt averse
• Debt is great tool for creating value
• Bankruptcy is also a great tool (compared to debtors prison)
• “Convertible debt” converts to equity
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Grants
• “Free” money
• Do not undervalue the cost of time and reporting
• Students: akin to researching and applying for scholarships
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Angels
• Overused and misleading term
• Don’t underestimate time in searching
• Most angels these days are VC focused (implies super-fast growth, high tech)
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Venture Capital (VC)• Equity = you are selling % of your company
• Price is negotiable, but VCs tend to hold the cards
• “Institutional” money
• Must be superfast growth
• Most expensive way to create value
• Don’t underestimate risk of losing control
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Private Equity
• “Later stage” than VC– PE are money guys, VCs are startup guys
• Back in the ’80s this was called LBO
• Akin to house flippers
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IPO
• Initial public offering = “going public”
• Like venture capital, selling % of company
• Once public, the market decides the price