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Today’s Quotes
Three things they teach you at Harvard Business School:
Never run out of cash
Never run out of cash
Never run out of cash
If you don’t control your business, it will control you
Determining Financial Needs
Understand New Venture Financing Issues
Understand the difference between entrepreneurial and conventional finance
Understand how to determine capital requirements
Understand how to craft financial and fundraising strategies
If you use your resources to obtain something, you cannot use those same
resources to obtain something else. That is called fraud, and eventually leads
to a scarcity of certain cherished resources.
Everything changes!
Nothing will ever work out precisely as you plan.
That does not mean you should not plan. On the contrary, you need to better
understand the numerical dimensions of your business so you can best respond to
change as it does occur.
Numbers are neither magical, mystical, nor menacing. They merely represent
your thoughts and decisions about how your business will run.
Components of Projections
Detailed pro-forma balance sheet
Detailed pro-forma income statement
Detailed pro-forma cash flow statement
Detailed explanation of assumptions
Detailed sales forecast
Breakeven point projection
Capital equipment list
Components must be integrated
This means that they are all tied together, so that any changes made to one
component flow through to all of the other components.
Most of your numbers will be wrong
Forecasting errors
Technical errors
Reasons for technical errors
Incorrect relationships between variables
Incorrect or missing linkages
Bad formulas
Incomplete or inadequate development
Another "Never"
Never let someone else build your projections for you.
The importance of matching
Match your sources and needs of cash
Match your timing - do not fund long-term needs with short-term money
Tax Considerations
Debt
Equity
Growth Costs $
When your company begins to grow, managing your cash flow will require good
financial planning.
You need to buy or make something before you can sell it.
You need to have your overhead in place before you can provide a service.
There are two types of Growth
Planned
Unplanned
Advisors
Putting together a group of advisors and directors in the beginning will help
prepare for difficult transition periods
Growth
In many ways, business is easier when it is small
Problems get bigger as the company grows
Sometimes being smaller is more profitable than being bigger
Activity Based Costing
Look at all cost drivers
Time (hours spent, interest, etc.)
Materials and Supplies
Human resources
Growth and You
When your company grows, your job will change and you will experience a
difficult, but necessary, transition.
You cannot solve a problem by throwing money at it.
Time in relation to equity
Time works for you when you know your costs and understand your risks
Time works against you in a business that you do not understand
Waiting for your business to build wealth can sometimes be the most difficult
thing to do. Being an entrepreneur requires tremendous patience.
Trends
Trends continue until something happens to break them.
How much $ do I need?
Make a detailed cash flow projection
first project the revenue stream
project expenditures
Assess your resources
Your real cash needs
Accrual accounting vs. cash basis accounting
Stated terms vs. real terms
What you owe
What you are owed
Lead and lag times, production cycles
Part of strategy and
growing a company is deciding what you aren't going to do as much as what you
are.
What to do:
Plan monthly for 3 or 5 years
Understand your seasonality - do not just divide by 12
Relate costs to cost drivers, not revenue
If you are in trouble, plan weekly in rolling 13 week segments
update weekly, compare actual to plan and adjust assumptions or take stronger
action
What to do (cont.):
Plan your balance sheet monthly based on business drivers
assets when needed
liabilities when incurred
min / max criteria so that you simultaneously plug cash and borrowings to
make the balance sheet balance
What to do (cont.):
Make your model interactive
assumptions on their own pages
all P&Ls, balance sheets, supporting schedules, etc. 100% formula-driven.
NO HARDCODING!
Document your worksheets, use color coding, notes, etc.
What to do (cont.):
Visual presentation often aids in the thought process
Build a pyramid - top level summaries followed by successively greater levels
of detail
Understand the cash flow cycle
You cannot improve it until you understand it
What it is:
investment in fixed assets
investment in saleable and selling resources
make the sale
get paid
Cash flow is, by far, the most important financial control in a start-up
venture and almost every small business, and every entrepreneur must understand
its significance
What’s the driver?
Sales?
Inventory levels?
Payroll expense?
Accounts receivable?
Fixed assets?
Utilities expense?
Employee benefits?
Items to consider
Seasonal factors
Financial patterns
Marketing vehicles
Marketing tactics
Sales projections
Facilities
Production
Logistics
Equipment
Order fulfillment
Research & development
Other operational costs
Start-up costs
Compensation, incentives, & benefits
Taxes
Everything else
Knowing your numbers cold means hardly ever having to guess.
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Michael Goldman & Associates, L.L.C. - Consulting
& CPA Services 
