Learn the importance of FINANCIAL MODELLING to a startup, how it is different from financial forecasting and how entrepreneurs can use financial modelling to assess their startup's performance.
Professor Hans - "Financial Modeling"
KEY Financial terms
Here are a few key financial terms that you should understand and be able to talk about FINANCE.
Finance is looking forward at what will happen with all things to do with money.
Accounting is looking back at what happened with your money cash flow.
Cash flow measures all sources and uses of cash over time. The cash flow can be your friend if you pay attention to it or your enemy if you ignore it.
SOURCE AND USE:
SOURCE is where money comes from and a USE is how you spend that money.
BUGDET of the money that you have to spend, how much money must be spent to achieve a desired outcome.
BURN RATE that's how much money is spent over a period of time. The burn typically fluctuates in the beginning but at some point in time it should stabilize runway. Think of runway as a fuel tank, the burn consumes the cash. That's the fuel that's in the tank. To express runway use in months, how many months worth of money do you have before you run out?
SGA (Sales General Administrative) essentially all it costs for running your company.
P&L that's Profit and Loss. A summary of revenue (the money made) the costs and the expenses.
MDF (Market Development Fund) that's the money you have in your budget for preparing and executing business in a market.
SPIF (Sales Promotion Incentive Fund) that's the percentage of your MDF that is dedicated to motivating the point of sale or POS. This could be a promotion for a retail salesperson to sell your product over the competition.
TE (Traveling Expenses) or TS (Travel and Subsistence) the only difference is which version of english you speak the meaning is the same money spent on planes, trains, automobiles, hotels, restaurants, etc.
REVENUE that moment in time when someone gives you money for your product or services.
BREAKEVEN that's when you bring in as much money as went out. So you are not losing money but you are not yet profitable that's breaking-even.
PROFITABILITY that's the moment in time when you have money left over after paying for everything pro forma.
PRO FORMA financials for example are educated guesses.
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