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Introduction to Venture Financials

Introduction to Venture Financials. Topics. Importance of Financial Statements Structure of a Financial Report Balance Sheet Profit and Loss Statement Cash Flow Statement Specific Issues relating to Start ups Funding options available to startups. Importance of Financial Statements.

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Introduction to Venture Financials

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  1. Introduction toVenture Financials

  2. Topics • Importance of Financial Statements • Structure of a Financial Report • Balance Sheet • Profit and Loss Statement • Cash Flow Statement • Specific Issues relating to Start ups • Funding options available to startups

  3. Importance of Financial Statements • Measures how business is doing • Business decisions are made based on financials • Prospective investors use them to assess viability of investing in business • If you’ve borrowed money, then lenders will regularly want to review them • Required for compliance .e.g tax • Financials form an integral part of any credible business plan

  4. Structure of a Financial Report • Directors Report • Directors Declaration • Balance Sheet • Profit and Loss Statement • Cash Flow Statement • Notes to the financial statements • Auditors Report (if required)

  5. Balance Sheet • A balance sheet is a snapshot of a company’s financial position at a moment of time • It represents a summary of a company’s assets and liabilities • What is an Asset • anything that is tangible or intangible owned by the company and capable of producing value in the future. • What is a Liability • obligations of the company arising from past transactions or events.

  6. Balance Sheet (Cont.) • If total assets minus total liabilities > 0, it means that the shareholders have positive shareholders equity • If total assets minus total liabilities <0 means that shareholders have a deficit

  7. Balance Sheet (Cont.) • Assets and liabilities are split between current and non current • Current means asset can be converted to cash within one year or in the case of liabilities is due and payable within one year • A common measurement used when reviewing a balance sheet is a current ratio = current assets / current liabilities. It is an indicator of a company’s liquidity. • The higher this ratio the more likely that the company will be able to meet its obligations • A low ratio is potentially a danger signal that company may note be able to pay its debts

  8. Typical Balance Sheet for Public Company

  9. Profit & Loss (P&L) • A P&L is a statement of the financial performance of a company for a period of time. • Put differently, its a collation of total revenue generated less all expenses incurred for a period of time • The important thing to remember about an income statement is that it represents a period of time. This contrasts with a balance sheet, which represents a single moment in time. • Some key expenses explained • Depreciation • Amortisation • Impairment • Provisions • A key measurement of the profitability of a company is its earnings per share which is calculated as: • Net Profit / Number of shares in issue

  10. Typical structure of a P&L

  11. Example • Start business and put $10k of your own money into company • You also borrow $5k from family

  12. Example (Cont.) • You buy a laptop for $1k that you estimate will last for 2 years

  13. Example (Cont.) You now start doing activities in your business. In month 1 the following is done: • You hire an employee and pay them $2k • You pay a lawyer $3k to register a trademark • You earn $80 interest on cash in bank

  14. Cash Flow Statement • Cash flow is a statement of the movement in the cash flows of a company for a period of time. • Structure of cash flow statement

  15. Start Up Tech company Specific Issues • Most start up tech companies show large losses in their P&L. Why? • Obvious reason is that they don’t have revenue! • Other reason is that in most cases, all R&D expenditures and other one off infrastructure spend is written off • Often initial expenditures are large due to use of consultants, travel and other inefficiencies in commercialising the business! • Balance sheet is often not a true reflection of the assets of the company because in most cases the real asset of intellectual property is not shown • Therefore for a start up tech company, historical financial statements on their own have limited value in attracting investors, accessing grants etc.

  16. Specific Alternative Funding Options for Australian Tech Companies

  17. Specific Alternative Funding Options for Australian Tech Companies (Cont.)

  18. Q&A

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