RULES OF
ENTREPRENEURIAL
ACCOUNTING & FINANCE
THE
01EVERYONE OWNS FINANCE
01EVERYONE OWNS FINANCE
mature entrepreneurs differentiate
between accounting & finance
01EVERYONE OWNS FINANCE
accounting &
book keeping
ensure that all financial
transactions are recorded &
reported accuratel...
01EVERYONE OWNS FINANCE
accounting can be delegated to a
specialist
but finance is integral to everyone’s
daily activities...
01EVERYONE OWNS FINANCE
entrepreneurs who abdicate financial
responsibility, for whatever reason, are
just lame
02YOU MUST HAVE A FINANCING
STRATEGY
02YOU MUST HAVE A FINANCING
STRATEGY
there are many sources of financing
you must decide which type of
financing to use & ...
02YOU MUST HAVE A FINANCING
STRATEGY
EQUITY
Sell equity to
founders, friends,
family, or fools
(investors). If you
do well...
03YOU MUST HAVE AN INVESTMENT
STRATEGY
03YOU MUST HAVE AN INVESTMENT
STRATEGY
smart entrepreneurs balance long &
short term investments, and have a
thoughtful ap...
03YOU MUST HAVE AN INVESTMENT
STRATEGY
your investment strategy should cover:
• Fixed Assets (Plant, Property & Equipment)...
03YOU MUST HAVE AN INVESTMENT
STRATEGY
your investment strategy should also
align to your business model
different industr...
03YOU MUST HAVE AN INVESTMENT
STRATEGY
smart entrepreneurs review financial
ratios (*) to compare against industry
benchma...
03YOU MUST HAVE AN INVESTMENT
STRATEGY
performance against ratio norms may
vary, but if they do, you better have an
explic...
04YOU MUST INVEST IN CLEAN
ACCOUNTS
04YOU MUST INVEST IN CLEAN
ACCOUNTS
clean, accurate, and timely accounts
are required for strategic planning,
ongoing mana...
04YOU MUST INVEST IN CLEAN
ACCOUNTS
while not all firms are required to
perform an annual audit of the books,
smart entrep...
04YOU MUST INVEST IN CLEAN
ACCOUNTS
and for Pete's sake:
• separate business & personal expenses
• store documentary evide...
05MANAGERS NEED FINANCIAL &
MANAGERIAL ACCOUNTS
05MANAGERS NEED FINANCIAL &
MANAGERIAL ACCOUNTS
good managers use 4 views of the accounts:
• Historical – What can we lear...
05MANAGERS NEED FINANCIAL &
MANAGERIAL ACCOUNTS
management should regularly discuss:
Income Statement (P&L) What the busin...
06CASH IS KING
06 CASH IS KING
you must always have enough money
to run the business
if you can't pay a bill that is due, the
creditor ma...
06 CASH IS KING
you must be very careful!
the balance sheet & income statement
recognize costs when incurred &
income when...
06 CASH IS KING
many profitable businesses go out of
business each year because they
temporarily run out of cash in the ba...
06 CASH IS KING
be equally careful of growth,
overtrading & over capitalization
business is risk, but balance is critical
...
07BE CLEAR ON YOUR LEVERS
07BE CLEAR ON YOUR LEVERS
you only have a few levers that impact
profitability, but each has many settings.
these should b...
08
THROW THE BUDGET OUT THE
WINDOW, BUT DON'T STOP DOING
IT!
08
THROW THE BUDGET OUT THE
WINDOW, BUT DON'T STOP DOING
IT!
it is true that budgets rarely reflect
reality
08
THROW THE BUDGET OUT THE
WINDOW, BUT DON'T STOP DOING
IT!
however, the process of budgeting is
healthy, like sit-ups
bu...
08
THROW THE BUDGET OUT THE
WINDOW, BUT DON'T STOP DOING
IT!
that said, smart entrepreneurs budget
using a rolling 12-mont...
SHARE THIS DECK
& FOLLOW ME(please-oh-please-oh-please-oh-please)
Selena Sol asks…..
http://www.slideshare.net/selenasol/p...
CLICK HERE FOR MORE!!!!
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8 rules of finance for entrepreneurs

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8 rules of finance for entrepreneurs

  1. 1. RULES OF ENTREPRENEURIAL ACCOUNTING & FINANCE THE
  2. 2. 01EVERYONE OWNS FINANCE
  3. 3. 01EVERYONE OWNS FINANCE mature entrepreneurs differentiate between accounting & finance
  4. 4. 01EVERYONE OWNS FINANCE accounting & book keeping ensure that all financial transactions are recorded & reported accurately finance drive enterprise strategy with financial insight
  5. 5. 01EVERYONE OWNS FINANCE accounting can be delegated to a specialist but finance is integral to everyone’s daily activities & decisions
  6. 6. 01EVERYONE OWNS FINANCE entrepreneurs who abdicate financial responsibility, for whatever reason, are just lame
  7. 7. 02YOU MUST HAVE A FINANCING STRATEGY
  8. 8. 02YOU MUST HAVE A FINANCING STRATEGY there are many sources of financing you must decide which type of financing to use & when to source it there are pros & cons for each type
  9. 9. 02YOU MUST HAVE A FINANCING STRATEGY EQUITY Sell equity to founders, friends, family, or fools (investors). If you do well, this is VERY expensive and means shared ownership, but it comes with no interest obligations! LOAN Borrow money from a bank (loan, overdraft, or factor), credit card, or other suckers. Expensive interest obligations can bankrupt you, but you needn’t give up equity which might be worth millions later. INCOME The cheapest way to fund growth is to reinvest profit. However, it does mean that investors must forgo dividend payments. EXOTICS Check out crowd funding, government or university grants, or business plan competitions. Not usually big money, but good for additional uses (i.e.: marketing).
  10. 10. 03YOU MUST HAVE AN INVESTMENT STRATEGY
  11. 11. 03YOU MUST HAVE AN INVESTMENT STRATEGY smart entrepreneurs balance long & short term investments, and have a thoughtful approach to build, buy, or rent
  12. 12. 03YOU MUST HAVE AN INVESTMENT STRATEGY your investment strategy should cover: • Fixed Assets (Plant, Property & Equipment) aka non- current assets. These are long-term investments that enhance productivity • Intangible Assets (i.e.: IP & your brand) • Long-term & short-term investments (i.e.: inventory, raw materials, accounts receivable, & treasury) • Operating Expense (i.e.: salary or debt repayment) • Dividends
  13. 13. 03YOU MUST HAVE AN INVESTMENT STRATEGY your investment strategy should also align to your business model different industries spend differently for example, manufacturers spend more on Fixed Assets than do software firms
  14. 14. 03YOU MUST HAVE AN INVESTMENT STRATEGY smart entrepreneurs review financial ratios (*) to compare against industry benchmarks (i.e.: Fixed Assets / Total Assets or Inventory Turnover Rate) * Your accountant can generate the ratios for you and the industry, but management must choose which ratios to use and must interpret the meaning of variance
  15. 15. 03YOU MUST HAVE AN INVESTMENT STRATEGY performance against ratio norms may vary, but if they do, you better have an explicit, strategy-based reason "We're a software firm with higher than usual fixed assets. But it's OK because in our business model…."
  16. 16. 04YOU MUST INVEST IN CLEAN ACCOUNTS
  17. 17. 04YOU MUST INVEST IN CLEAN ACCOUNTS clean, accurate, and timely accounts are required for strategic planning, ongoing management, performance evaluation, & exit
  18. 18. 04YOU MUST INVEST IN CLEAN ACCOUNTS while not all firms are required to perform an annual audit of the books, smart entrepreneurs do it anyway everyone makes mistakes and can benefit from a double check from time to time
  19. 19. 04YOU MUST INVEST IN CLEAN ACCOUNTS and for Pete's sake: • separate business & personal expenses • store documentary evidence for every freakin' single transaction you ever make (i.e.: payment vouchers, payroll slips, receipts, signed contracts, bank statements & invoices) • invest in good accounting software and/or a good accountant • don't screw with the tax man
  20. 20. 05MANAGERS NEED FINANCIAL & MANAGERIAL ACCOUNTS
  21. 21. 05MANAGERS NEED FINANCIAL & MANAGERIAL ACCOUNTS good managers use 4 views of the accounts: • Historical – What can we learn from past trends? • Short-term – How do we respond to the immediate requirements of the next few months? • Mid-Term – What must we do now to maximize performance 12 months out? • Strategic – How can finance strategy help us achieve our strategic goals or undermine them if we don't act?
  22. 22. 05MANAGERS NEED FINANCIAL & MANAGERIAL ACCOUNTS management should regularly discuss: Income Statement (P&L) What the business earned & spent over a given period Balance Sheet What a business owns and owes on a specific date Cash Flow Statement Sources & uses of a firm's cash over a given period Management Ratios The health of a business relative to benchmarks or historical values at a point in time or over a given period Sales Pipeline What revenue we expect & when for the next period (i.e.: 1-24 months) Cash Balance How much do we have in our bank each day and our forecasted daily balance for the next 1-6 months Accounts Receivable & Payable What do we owe & how much is owed to us for the next 1-6 months Payroll Plan Headcount costs for the next 1-12 months
  23. 23. 06CASH IS KING
  24. 24. 06 CASH IS KING you must always have enough money to run the business if you can't pay a bill that is due, the creditor may force you into bankruptcy even if you've got money on the way
  25. 25. 06 CASH IS KING you must be very careful! the balance sheet & income statement recognize costs when incurred & income when earned, not when actual money flows in / out of the bank * Be aware of depreciation & amortization, so it does not trick you. Alternatively, consider skipping these during the start-up years to make things simpler.
  26. 26. 06 CASH IS KING many profitable businesses go out of business each year because they temporarily run out of cash in the bank to pay their bills (cash flow crisis)
  27. 27. 06 CASH IS KING be equally careful of growth, overtrading & over capitalization business is risk, but balance is critical when managing cash flow
  28. 28. 07BE CLEAR ON YOUR LEVERS
  29. 29. 07BE CLEAR ON YOUR LEVERS you only have a few levers that impact profitability, but each has many settings. these should be explicit and synergistic as part of your financial strategy • Price • Volume • Variable Cost (varies with volume) • Fixed Cost
  30. 30. 08 THROW THE BUDGET OUT THE WINDOW, BUT DON'T STOP DOING IT!
  31. 31. 08 THROW THE BUDGET OUT THE WINDOW, BUT DON'T STOP DOING IT! it is true that budgets rarely reflect reality
  32. 32. 08 THROW THE BUDGET OUT THE WINDOW, BUT DON'T STOP DOING IT! however, the process of budgeting is healthy, like sit-ups budgeting forces everyone to think about the business as a whole, prioritize, and make decisions about trade-offs
  33. 33. 08 THROW THE BUDGET OUT THE WINDOW, BUT DON'T STOP DOING IT! that said, smart entrepreneurs budget using a rolling 12-month cycle rather than one-off annually rolling budgets become iterative, drive performance, and become part of the day-to-day
  34. 34. SHARE THIS DECK & FOLLOW ME(please-oh-please-oh-please-oh-please) Selena Sol asks….. http://www.slideshare.net/selenasol/presentations stay up to date with my future slideshare posts http://www.linkedin.com/pub/eric-tachibana/0/33/b53
  35. 35. CLICK HERE FOR MORE!!!!
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