Live @ Seminar 5: Basic Finance for Business Plans
Sean’s slides available here.
To begin, a couple notes of business. Firstly, round 2 deadline is May 21. Second, next week, FundFindr, will set up a “pitch station”, where you can record your pitch for their website for investors to see. Practice and refine your pitches!
Tonight’s speaker is Sean Hodgins of QCDocs discussing Basic Finance for Business Plans.
Annual financial statements should include the following: balance sheet income statement, cash flow statement, supporting notes. Find a company similar to yours and read their public financial statements. Reliable data is important, and multiple scenarios should be considered. List key assumptions.
Key Terms:
- P&L: Profit and Loss statement.
- EBITDA: Earnings before Interest, Taxes, Depreciation, and Amortization.
- Cash burn: EBITDA plus capital purchases = rate of cash expenditure
- Runway: Amount of cash until you run out.
- Pre/Post-money Valuation
Key Programs:
- SR & ED: Scientific Research and Experimental Development (refundable tax credits)
- EBC: Eligible Business Corporations (30% refund to investors)
- NRC-IRAP: National Research Council-Industrial Research Council (up to 75% of R&D staff costs)
- Telefilm
Keep it simple. Numbers are instrumental in telling the story. Costs should focus on R
Elements of a business model: Who’s going to buy what you’re selling? What price? How does it compare to competitors? When do the sales happen? Customer acquisition costs? Customer support costs? Alternatively, you have the “Eyeballs Model” of bringing visitors to a site, valuing visits over revenue.
Case Study: QCDocs Systems. Streamlines bookkeeping through Software as a Service. The opportunity was in small businesses of under 100 employees. Sean goes through a number of tables that they used to map out the business model, highly recommended that you check out the slides.
Investors put numbers under major scrutiny. If they’re wrong, credibility suffers. It’s important to have someone with financial expertise on your team.
Question: Is what you’ve show us sufficient, do you need more detail?
Answer: If the pitch is good, and the numbers make sense, it should work. If they say “do more financial analysis”, it’s a nice way of saying they aren’t convinced of the value.
Question: How did you estimate the number of customers in that model?
Answer: Analysed how many sales people could be hired, how many sales they could do.
Question: Did your estimates anticipate that VCs double them?
Answer: Yes. They will often question your costs as too low.
Question: Heard of someone having to produce 10,000 pages of documents to prove the risk, hwo do you deal with this?
Answer: Software packages help organize and produce this information.
Question: Between here and California, have you seen common threads in businesses that have been successful?
Answer: Raising capital is easier in California, but BC offers more government incentives. The US has bigger incentives for Angel investors.
Question: NRC R&D credit: at what stage do you have to be?
Answer: Concept stage is good enough. You can’t pay yourself, you have to be paying employees and provin a viable business opportunity.
