4. 01EVERYONE OWNS FINANCE
accounting &
book keeping
ensure that all financial
transactions are recorded &
reported accurately
finance drive enterprise strategy with
financial insight
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. 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).
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. 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. 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. 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. 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…."
17. 04YOU MUST INVEST IN CLEAN
ACCOUNTS
clean, accurate, and timely accounts
are required for strategic planning,
ongoing management, performance
evaluation, & exit
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. 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
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. 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
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. 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. 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. 06 CASH IS KING
be equally careful of growth,
overtrading & over capitalization
business is risk, but balance is critical
when managing cash flow
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
31. 08
THROW THE BUDGET OUT THE
WINDOW, BUT DON'T STOP DOING
IT!
it is true that budgets rarely reflect
reality
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. 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
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