This document provides information on financial planning and control for startups. It discusses why financial planning is important for ensuring business viability and managing cash flow. It then covers how to build budgets and forecasts, including determining sales projections, costs of goods sold, operating expenses, and cash flow. The document explains key financial concepts like gross profit and break-even analysis. It also offers tips for managing cash flow in startups and making the most of small investments. Finally, it reviews topics like R&D tax credits, setting up a limited company, and incorporating via Companies House.

1. BOOTSTRAP SEMINARS 2013
Financial Planning & Control

2. Introduction
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Why Financial planning is important
Building Forecasts
Gross Profit & Breakeven
Managing cash in a start up
How much funding should you raise and when should
you raise it
• Making best use of a £3K investment/competition prize
• R&D Tax Credits
• How to set up a company

3. Why it’s important
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Ensure the business is likely to be viable
Support your investment case.
Most important ensure Cash managed – Cash is king.
By planning know in advance if cash flow problem – its
too late when bank account empty. Must be able to pay
bills as they fall due. Raising finance takes 3-6 months
minimum.
• Usually have a limited amount of cash to spend – ensure
allocated to desired activities eg marketing, development
etc
• Growing business can very often have cash flow
problems

4. BUILDING A BUDGET
FORECAST

5. Some terminology
• Profit/Loss = Sales less costs of producing those sales.
Sales
£1,000
Goods/services sold to
customer
Cost of Sales
£200
Direct costs of producing
those sales – materials,
factory labour.
Gross Profit
£800
Gross profit = 80%
Other Costs
£300
Marketing, admin, sales,
depreciation, travel,
office, R&D etc.
Profit/Loss
£500

6. Cash and Profit
• Cash Flow and Profit are usually different, eg £100K
profit doesn’t always = £100K of increased cash
balance.
• This is caused by
– Payments from customer usually on credit
– Payments to suppliers usually on credit
– Items of capital expenditure eg computers charged to
P&L over a long period
• However suggest that for initial forecasts you assume
cash and profit are the same.

7. How to build a forecast
• Investors typically want a 3-5 yr forecast but
concentrate on year 1
• Start with setting up template (See Spreadsheet)
• What are the projected sales (Revenue Model) – number
of units, price, when etc – is the business seasonal?
• When will the cash be received – cash sales , credit
sales typically paid 30-60 days after supply
• Set up costs – hardware/software development, factory
fit out , website development etc.

8. How to build a forecast
• Cost of sales – what does it cost to make/buy in the
units.
• What are the overheads – staff, rent, marketing etc
• Having identified Income + expenditure set out in a
spreadsheet by month
• Show net cash flow for mth + cash flow at month end
• Remember a forecast is a best estimate!

9. Where does the info come from?
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Personal knowledge
Competitors eg what do competitors charge
Competitor accounts
Industry statistics
Suppliers ask them what they will charge to supply when do
volume discounts kick in.
Property – ask an estate agent
Work with someone who has industry knowledge
How are going to acquire customers – salesman ,advertising,
what is the cost of acquiring customers likely to be. Resulting
forecast is a best estimate
State assumptions - particularly Sales, cost of sales,
marketing plan

10. Building a sales forecast
• Forecast unit sales and average selling price per month
• Use results of your market research
• Use past data if you have it – either for your business or
similar business
• Is business seasonal? A lot of internet businesses are
seasonal. Eg Christmas, games see drop-off in August
• If you have a new technology it can be very difficult to
predict sales levels

11. What costs do we typically incur?
Most companies
• Office costs - rent, rates Electricity, gas, cleaning,
security, coffee, postage etc (Consider serviced office
when starting up eg The Hangout)
• Marketing
• Professional Fees eg Accountancy, Tax, Payroll, Legal
• Insurance - Employers Liability legally required
Employee salaries
• Capital Expenditure - computers , office furniture

12. What costs do we typically incur?
Manufacturing business
• Capital Expenditure - Plant and machinery
• Production salaries
• Raw Materials including packaging
• Distribution
• Factory building - Lease or Buy - keep it flexible, may not
be possible if high set up costs

13. What costs do we typically incur?
Web Business
• Web site design and maintenance - in house or
outsource
• Hosting
• Domain registration
• Office Space
• Employees
• Fulfilment costs – postage, storage

14. What costs do we typically incur?
Software/ other intellectual Property
• Development Staff - Biggest cost
• Patent fees/Royalties and legal costs
• Computer hardware/software

15. Summary slide for presentations
Year 1
Year 2
Year 3
Sales
£1,000
£1,500
£3,000
Cost of Sales
£200
£300
£500
Gross Profit
£800
£1200
£2500
Other Costs
£700
£1000
£1500
Net Profit
£100
£200
£1000
Cash Balance
£50
£100
£1050
Gross Profit %
80%
80%
83.33%
Breakeven Units
100
120
140

16. GROSS PROFIT &
BREAK-EVEN

17. Gross Profit and Break Even
• Gross Profit = Selling price – Cost Price
• Gross Profit % - above expressed as a %
Bar sells drink for
£10
Cost of drink
£4
Gross Profit
£6
Gross Profit %
60%
• Break Even - How many £/units to sell each
day/week/month to cover your costs

18. Why is this important?
• Gross Profit drives the amount you need to sell to
breakeven – increased margin means you need to sell
less to breakeven – e.g. a bar
Selling Price
£10
£10
Cost Price
£6
£5
Gross Profit
£4
£5
Gross Profit %
40%
50%
Daily Costs
£500
£500
No of drinks to sell to
break even each day
125 drinks
100 drinks

19. MANAGING CASH FLOW
IN A START-UP

20. Managing the cash in a start-up
• Cash is always tight in the start-up phase
– Initial start up capital is expensive so rarely have lots of
surplus cash
– Launch delayed
– Unexpected costs
– Customers pay late
– Suppliers wont give credit

21. Managing the cash in a start-up
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How can the cash be stretched out
Defer salaries – founders work for free
Try and get things for free – use your network
Credit from suppliers
Find a way of generating revenue quickly – proof of
concept, test customers, discounts for early adoption or
early payment.

22. HOW TO MAKE BEST
USE OF A £3K
INVESTMENT

23. How much cash to raise?
• Your forecast will indicate how much cash you estimate
you will need to reach profitability.
• Raising finance is expensive – how much of the
company do you have to sell to raise the money ?
• If your forecast indicates that you need £2M to reach
profitability it is very unlikely that you will be able to raise
this in one financing round
• Company Valuations and attractiveness to potential
investors are related to the risk of the investment.

24. How much cash to raise?
• In early stage companies some of the key risks are
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Will the technology/product/service work
How much will the product cost to develop/service launch
Can the business overcome some regulatory issues eg planning
permission
Will anyone buy the product/service
What will the sales price be
Aim to raise sufficient funds (plus a contingency) at
each round to eliminate risks with the result you
achieve a better valuation and a greater chance of
raising the next round. Ensure this is reflected in
your forecast.

25. How to make best use of £3K
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Use it to mitigate some of the risks
Build a proof of concept
Find early customer(s)
Carry out detailed market research
Sort out regulatory issues eg get necessary licences
If specific risks with the technology attempt to resolve
them

26. R&D TAX CREDITS

27. R&D Tax Credits
• Tax refund from HMRC for R&D Costs
• You do not need to have previously paid tax
• Get refund of approx 25% of Salary, Employers national
insurance and consumables used in the R&D process eg
cost of building a prototype.
• Contractor cost refund is approx 16%
• Claimed when you file your annual tax return. Supporting
narrative is required
• Refund is usually paid within 4-10 weeks of submitting
the claim
• Suggest you use a firm of accountants that understands
R&D tax credits – not of all of them do.

28. SETTING UP A LIMITED
COMPANY

29. Company
• Key Advantages
– Shareholders and directors have limited liability - (worst
is loose investment)
– Separate legal entity from directors/ shareholders so
directors not personally liable for debts – (except in
cases of negligence/fraud/Wrongful trading)
– Raise finance by issuing shares
• (Wrongful trading – if directors knowingly make a
financial commitment that they know the company cant
pay for they can be personally liable)

30. Types of Company
• XYZ Limited (Private Limited Company)
– Most common for small/medium business not listed on
stock exchange.
– This is what you will use
• XYZ PLC (Public Limited Company)
– Companies listed on a stock exchange
– More onerous reporting/shareholder protection than
Limited Company

31. How to incorporate a Company
• Companies House
– Cardiff based government agency that is the Registrar of
Companies.
– Companies file specific details that are available on the
public record.
– www.companieshouse.gov.uk

32. How to incorporate a Company
• To incorporate a company
– Use a lawyer or Company formation agent
– Or do it yourself on Companies House Website – cost
£15
– It is a straight forward process
– Directors/shareholders/Articles can all be changed later
by filing appropriate forms so don't worry if you get initial
details wrong

33. DIY Incorporation
Website Address
https://ewf.companieshouse.gov.uk//runpage?page=welco
me
You will need
– Company name and registered office address ( Company name must
be unique check first not used at Co House Webcheck
http://wck2.companieshouse.gov.uk//wcframe?name=accessCompanyI
nfo)
– NB worth checking if web domain for proposed name is available
– Director and Secretary – name, address, date of birth (need at least 1
director, no longer requirement for secretary)
– Shareholder name, address, no of shares, amount paying per share
– £15 Payment

34. Articles of Association
• Company rule book
• must be filed at Companies House
• Standard Articles are available – suggest you use these
for initial incorporation
• It is likely that investors will require special terms
• Approved by shareholders

35. Articles usually contain
• The issuing of shares – what authority board has
• Different rights attached to different classes of shares
• The appointments of directors - which shows whether a shareholder
dominates or shares equality with all contributors
• Directors meetings - the quorum and percentage of vote
• Management decisions – Investor, Board or Management (reserved
matters)
• Transferability of shares – Permitted transfers
• Special voting rights of a Chairman, and his/her mode of election
• The dividend policy - a percentage of profits to be declared when
there is profit or otherwise
• Winding up - the conditions, notice to members
• Founders Eg Founders share buy back provisions
• First right of refusal on issue of new shares (Pre emption rights)

36. THANK YOU
Q&A