Eleven Essentials to Fiscal Excellence for Entrepreneurs
When you’re an entrepreneur, you’re passionate about many things. Your products. Your clients. Your website. And, of course, you like to make money. However, it’s unlikely that you’re passionate about your financial management. It IS important, of course, and the sooner you get your head wrapped around fiscal excellence, the longer your business can have a chance of survival.
I put together this keynote presentation for last night’s most_excellent “Finance for Startups” event put together by Startup Canada, Startup Calgary, the Bank of Montreal and Air Miles for Business. Enjoy!
Eleven Essentials To Fiscal Excellence for Entrepreneurs
- 1. ELEVEN ESSENTIALS TO FISCAL EXCELLENCE FOR ENTREPRENEURS Stephen King @stephdokin © 2014 Stephdokin Inc. All rights reserved. Duplication or distribution is encouraged, with proper attribution.
- I am not THAT Stephen King I’m this one
- 30 years of “Shipping Bits” and great teams Computer Scientist + Marketing + Creative + Entrepreneur
- Established 2008 Established 2012 Entrepreneur-in-Residence Co-Founder Founder
- Or a guitar hero? Do you want to be a guitar player?
- A business without revenue is just a hobby. Money is the reason we get to continue to do what we do.
- Essential 1 Adapt to Embrace change. Change creates challenge. Without challenge, there is no opportunity for success. Where does change come from? Industry. Technology. Economic. Political. Biological. Government. Cultural. Geographical. What change occurred? How does it impact your customer? How do you take advantage of it? My Samsung S5 is 2,500,000% faster than my old Atari 400
- Essential 2 Know who you do it for “Are you talking to me?” Who is your customer? Understand your customer personas, organizational roles and what drives their buying and usage behaviour. B2C? B2B? Both? What was your customer doing before you? What alternatives are there? Why should they choose you?
- 3 Essential Know what you do Only two types of businesses. Which are you? 1) Vitamin: Create opportunity for your customers 2) Pain pill: Reduce time or expenses for your customers
- Value Selling* Price is important. Value is more important. * “Solution selling is dead. Long live value selling.” Stephdokin’s ½ day Value Selling Workshop for your sales & marketing teams.
- Value Messaging Aligning your Brand Message to the Value you provide • Feature statement: “Our spinach is full of iron.” • Benefit statement: “Spinach makes you stronger.” • Value statement: “Spinach lets you kick Bluto’s ass, makes you a hero and gets you the girl.” Feature statements are about “us.” Primary brand messaging should have customer Benefit and Value statements that are about “you.” Thanks to: http://www.disruptiveadvertising.com/conversion-rate-optimization/features-vs-benefits-a-cartoon-case-study/
- $0.50 Coffee From: Feature statements about “What we offer”
- To: $5 Coffee Customer Value and Benefit statements, supported by our Feature statements.
- $1.50 Salt
- $30 Salt
- 17 $0.50 Coffee
- $5 Coffee 18
- How much can you charge for it? THE MOST IMPORTANT QUESTION TO ANSWER What cash transaction will occur so that your company can make revenue? Essential
- Essential How BIG is the 5 revenue opportunity? How many potential customers? What % can you REALLY address? What is you realistic market share %?
- You can’t control revenue, you CAN control expenses. Your formula for success? Income – Expenses = Profitability
- Essential Do you really need to hire that person? There are 2 major decisions we make that can quickly escalate staff costs: the products we launch and the marketing channels we manage.
- Essential The importance of sales and marketing “It will take twice as long to make half as much revenue.” #haha Digital marketing is a product unto itself; it must be designed and developed. And measured. Use an operational dashboard!
- Essential Cash Flow is King Income – Expenses ( $$$ per Transaction X # of Customers ) – ( Salaries + Marketing + Operating Costs ) We need money to RUN the business, to WORK ON the business to make it better, to SAVE for a rainy day and deliver an ROI for shareholders.
- Essential How much funding do you need?
- Essential How much funding do you need?* Income – Expenses Operating Cash Flow Forecast FY2014-15 FY2015-16 FY2016-17 FY2017-18 FY2018-19 FY2019-20 ( $$$ per Transaction X # of Customers ) – ( Salaries + Marketing + Operating Costs ) Revenue (Direct SaaS) 18,672 273,038 1,071,737 1,958,062 2,633,285 3,723,879 Revenue (Professional Channel & Institutions) 123,636 561,772 816,285 1,985,062 3,779,015 6,419,944 142,308 834,810 1,888,021 3,943,124 6,412,300 10,143,824 Cost of sales 1,423 8,348 18,880 39,431 64,123 101,438 Gross margin 140,885 826,462 1,869,141 3,903,693 6,348,177 10,042,385 Salaries and benefits 527,296 897,396 1,292,527 1,577,565 1,755,142 1,971,191 Professional fees 51,000 54,000 60,750 68,344 76,887 86,498 Marketing costs 336,500 446,000 503,688 542,648 586,408 635,561 Operating costs 33,015 46,272 69,348 107,290 154,674 222,639 IT hardware and software 6,660 28,680 18,100 15,550 16,250 18,450 Profit sharing bonus – – 12,835 104,318 340,106 290,001 Cash flow before taxes (813,586) (645,885) (88,106) 1,487,978 3,418,709 6,818,046 Income Tax – – – 416,634 957,239 1,909,053 Cash flow from operations (813,586) (645,885) (88,106) 1,071,344 2,461,471 4,908,993 A $1.55M investment for 40% of this company could be worth $15.7M in year 6 (A 10x return on investment based on a valuation of 8x multiple of $4.9M Cash Flow in 2020) CAGR (Compound Annual Growth Rate) = 47.09% * Those who fail to plan, plan to fail. Build and maintain a financial forecast.
- Essential Is 47.09% good? – Expenses Compare to these 4 year CAGRs and Risk Profile (Year 0 of investment shows the companies had already established revenue when getting funding from RCCF) From: River Cities Capital Funds RCCF 2011 SaaS Operating Metrics & Valuation Benchmarking Study http://rccf.com/wp-content/ uploads/2012/12/2011-SaaS-Operating- Metrics-Valuation- Benchmarking-Study1.pdf
- Essential What does it take to become fundable?* Better ROI (Return on Investment) than alternatives available to the investor. The lowest RISK imaginable. * The best source of funding? Revenue from customers!
- “Gotchyas” Essential Avoid these • If you’re raising money, raise more than you need. • Don’t let your share cap table become updated or in dispute. • Don’t let your accounting slide; get it set up and faithfully attend to it monthly. • Don’t mix personal and business expenses. Separate bank accounts and credit cards. • Don’t fool around with Government compliance! (GST, Federal and provincial corporate tax. Employee EI and CPP payroll remittances. Personal tax.) File on time. Pay on time. Pay in full.
- Essential Be lucky 11 “I am a great believer in luck, and I find the harder I work the more I have of it.” ~ Thomas Jefferson
- Enjoy these “Eleven Essentials” at slideshare.com/stebankag What will you create? Stephen King President, Stephdokin.com CEO, TCELab.com EIR, AcceleratorYYC.ca @stephdokin @TCELab firstname.lastname@example.org Thanks! Questions? Thoughts?