Back to Basics: Financial Fundamentals for Startups

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Back to Basics: Financial Fundamentals for Startups taught by Dan Allred from Silicon Valley Bank at Intelligent.ly in Boston. This deck covers basic accounting principles, income statements, balance sheets, cash flow, company financial statements and more.

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  • Back to Basics: Financial Fundamentals for Startups

    1. 1. presents Back to Basics: Financial Fundamentals For Startups
    2. 2. Financial Fundamentals: Money 101 March 17th 2014 Smith Anderson Silicon Valley Bank (617) 796-6958 Smanderson@svb.com Twitter: @SmithTown561 Glen Mello Silicon Valley Bank (617) 630-4188 gmello@svb.com !
    3. 3. Startup financial matters are often confusing…
    4. 4. It’s a lot like 
 learning a language
    5. 5. You need to learn key phrases yourself...
    6. 6. …and rely on translators for the rest.
    7. 7. AGENDA • Key financial metrics • Financial statements • When & how to leverage CFOs & others • Q & A
    8. 8. TOP LINE REV / SALES • Gross Sales or Revenue regardless of cost, liabilities etc.. – Used to discuss growth of the business over time. – Important, however there is more to the story.
    9. 9. Revenue – COGS – expenses ! • Net Profit (or Net Loss) – interest, – taxes, – Depreciation – Amortization expenses ! • EBITDA: Earnings Before Interest,Taxes, Depreciation & Amortization BOTTOM LINE
    10. 10. BOOKINGS • The financial value of business that you have under contract ! • i.e.“we booked a deal with Amazon for $240k over 2 years” ! • Not a financial statement item—“dashboard” item. ! • Total ContractValue (TCV) vs. Annual ContractValue (ACV)
    11. 11. REVENUE • The accounting value of a sale during a specific time period • a.k.a: “rev rec”,“recognized revenue”,“scored revenue” ! • Sale à revenue when the product has been delivered and payment terms are defined and agreed to. • Cash upfront – Deferred Revenue (Liability) • Bookings > Delivery > Revenue > Collection > A/R
    12. 12. COGs • Cost of good sold ! • Production costs: direct product costs, hosting, etc. ! • Execution costs: commissions, revenue share, etc.
    13. 13. • Revenue - COGS = Gross Profit (a hard dollar number) ! ! • Gross Profit / Revenue = Gross Margin (a percentage) GROSS MARGIN
    14. 14. Costs to run your business • Sales & Marketing expenses • Research & Development expenses • General & Administrative expenses EXPENSES
    15. 15. Sources • Trade Receivables (A/R) • Deferred Revenue (D/R) • Debt • Equity Uses • Trade Payables (A/P) • Salaries/Wages Payable • Debt SOURCES & USES OF CASH
    16. 16. • Cash divided by cash burn ! • Cash burn does not necessarily equal EBITDA – depends on timing of cash receipts vs. bookings vs. revenue RUNWAY
    17. 17. Events that drive value in the company: ! • Commercial milestones: distribution agreements, customers, bookings, revenue, etc. ! • Market milestones: users, working business model, etc. ! • Technical milestones: proof of concept, working prototype, etc. MILESTONES
    18. 18. • One Page: Communicate progress to key stakeholders (investors, employees, etc.) ! • Time-based representation of how company is tracking against key financial goals (perhaps other time-bound goals as well) ! • Not a financial statement DASHBOARDS
    19. 19. • Questions to ask yourself: – What drives value in the business (bookings, gross margin, technical progress, distribution deals)? – What resources do you need to drive this value (people, time, money, etc.)? ! • Your dashboard will: – Track the value you are building in the business. – Track the resources you are consuming as you build value. BUILDYOUR DASHBOARD
    20. 20. • Income Statement – A movie – Tells the financial story of a company over a span of time ! • Balance Sheet – A picture – Indicates the financial health of a company at a point in time FINANCIAL STATEMENTS
    21. 21. Over a period of time: • Revenue (“top line”) • Minus COGS • Equals Gross Profit • Minus Expenses • Equals EBITDA (“bottom line”) INCOME STATEMENT
    22. 22. Assets • Cash • Receivables (A/R) • Inventory • Fixed Assets • Goodwill & Intangible Assets Liabilities • Salaries, wages • Payables (A/P) • Deferred Revenue (D/R) • Debt Assets = Liabilities plus Equity BALANCE SHEET Equity • Paid-in Capital • Retained Earnings (Loss)
    23. 23. • As much as you are comfortable doing… ! • At a minimum: – Articulate how value is built in your business in financial terms. – Speak to financial resources required to build value in your business. – Represent this in terms of time and progress (i.e. dashboards), using financial language that is readily understood or simply conveyed by you. WHAT SHOULD A FOUNDER DO?
    24. 24. • Prepare forward looking financial statements (budgets, projections, etc.) ! • Close the books every month and prepare historical financial statements ! • Manage billing & collecting ! • Manage revenue recognition & educate stakeholders (including you) on complexities ! • Reality check your expense assumptions. WHAT SHOULD HIRED CFOs DO?
    25. 25. Q & A • Don’t be SHY
    26. 26. WANT TO LEARN HOW TO FILL YOUR PIGGY BANK? SVB BOSTON—FREE 1:1 SESSION http://learn.intelligent.ly/svb-office-hours
    27. 27. Financial Fundamentals: Money 101 March 17th 2014 Smith Anderson Silicon Valley Bank (617) 796-6958 Smanderson@svb.com Twitter: @SmithTown561 Glen Mello Silicon Valley Bank (617) 630-4188 gmello@svb.com !
    28. 28. presents INSTRUCTOR Course Name Learn the skills you need to win, from people who’ve done it before visit

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