BUSI 701 Artistic Entrepreneurship Intro to Financials
Agenda • 3 Steps to Financials • Sources of Funding
Goal of Financials 1. 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 Financials 1. Viability 2. Start-up cost 3. 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 • CCBackof. Napkin. Feasibility. 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
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 ’ 80 s 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
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