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Basic Finances for the Lean Startup
The document outlines essential financial tracking tools for businesses, including the balance sheet, income statement, and cash flow projections, which help measure assets, liabilities, and overall financial health. It emphasizes the importance of understanding cash flow statements and includes guidelines for presenting hypotheses and assumptions when evaluating business ideas. Ultimately, it seeks to guide entrepreneurs in deciding whether their business concept is viable for further development.
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Basic Finances for the Lean Startup
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- 2. Accounting How we trackprogress How we communicate How we make decisions
- 3. Your Dashboard How much money doI have? How much money do I need? How much money am I making? How much money am I spending? How much money am I keeping?
- 4. Profit is notsufficient but it is absolutely essential
- 5. You are trackingtwo things Assets •What you have Liabilities •What you owe
- 6. Three main dashboards Balance Sheet IncomeStatement Cash Flow Projections
- 7. The Balance Sheet= GPS Current Position Cash Accounts Receivable Inventory and Equipment Equipment ASSETS (WHAT YOU HAVE) LIABILITIES (WHAT YOU OWE) Short-Term Liabilities Accounts Payable TOTAL LIABILITIES EQUITY (WHAT YOU INVEST) Owner’s Equity Retained Earnings TOTAL EQUITY Long-Term Liabilities TOTAL ASSETS TOTAL LIABILITIES + EQUITY Other Assets TOTAL ASSETS MUST EQUAL TOTAL LIABILITIES+EQUITY
- 8. The Income Statement= Odometer SALES Less: Cost of Goods Sold NET SALES EXPENSES INCOME STATEMENT FOR THE PERIOD 1 JANUARY TO 31 DECEMBER EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AMORTIZATION (EBITDA) Salaries Rent Marketing TOTAL EXPENSES Interest, Taxes, Depreciation, Amortization NET INCOME $100,000 $45,000 $55,000 $30,000 $10,000 $5,000 $45,000 $10,000 $3,000 $7,000
- 9. Cash Flow Projections= Speedometer Number of units sold / customers Total Billings CASH OUT Capital Expenses CASH IN Inventory and Supplies Operational Expenses Salaries Rent and Utilities Marketing Development Total Expenses NET CASH FLOW MONTH 1 MONTH 1 MONTH 1 MONTH 1 MONTH 1 MONTH 1 YEAR 1
- 10. Telling Your Story •Numbers Tell A Story • Your Assumptions and Hypothesis give CONTEXT • List all your Assumptions and Hypothesis • “We assume that a customer will purchase on average 1.5 pairs” • “We assume that a customer will come back three times a year” • “We assume that a designer costs _____”
- 11. For a startup at the DEFINITION stage •Can your business make money? Focus on the Cash Flow Statement • 6 months month-by-month • Then cumulative for the first year SHOW • All your hypothesis • All your assumptions LIST
- 12. Include in yourFinal Presentation A Cash Flow Projection (1 year) A list of your main hypothesis and assumptions Don’t go too much in detail Bottom line decision Do you believe that this idea is worth developing to the next stage?