BUSI 701Artistic Entrepreneurship

Intro to Financials

Agenda

• 3 Steps to Financials

• Sources of Funding

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?

Goal of Financials1. Viability2. Start-up cost3. Return

3 Steps for Financials

1. Business model / back-of-the-napkin snapshot

2. Startup costs and projections

3. Financial statements

Step 1: Business Model• Revenue model• Pricing• Implementation/roll-out strategy• Marketing• Small changes in strategy can profoundly effect

financials

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

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

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

Cost Drivers• Salaries• Rent• COGS• Fixed vs. variable costs• Equipment• Insurance, legal, etc.

• Make sure you are in line with industry

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)

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

Recap: 3 Steps for Financials

• Business model / back-of-the-napkin snapshot

• Startup costs and projections

• Financial statements

Agenda

• 3 Steps to Financials

• Sources of Funding

Sources of Funding

• You and everyone you know

• “Skin in the game”

• “Family, friends and fools”

• Doctors

Other Sources• Revenue• Loans• Grants• Angels• Venture Capital (VC)• Private Equity• IPO

Revenue

• “Retained Earnings”

• Means $$ that you earn is used to grow business

• Generally implies slow, steady growth

slow, steady growth

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)

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

Grants

• “Free” money

• Do not undervalue the cost of time and reporting

• Students: akin to researching and applying for scholarships

Angels

• Overused and misleading term

• Don’t underestimate time in searching

• Most angels these days are VC focused (implies super-fast growth, high tech)

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

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

IPO

• Initial public offering = “going public”

• Like venture capital, selling % of company

• Once public, the market decides the price