Ongoing financial requirements …

December 11, 2009 § 1 Comment

Annual balance sheet of a State-owned farm, dr...

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We need to know the financial requirements so we know how much we will need to operate with a profit, and we need to know how to raise the required funds. That only seems easy. How to accurately express that in numbers is not obvious. And I don’t have a financial background. Neither do any of the people I know that have their own businesses.

Traps detection

We’re all serial entrepreneurs, so to speak. We are marketers, programmers, scientists. We know about numbers. Other “types” of numbers. We are wizards of symbolic numbers, binary and hex numbers, statistical and physically measured numbers … The frame of reference for assessing financial numbers is strange to us. To me.

I do not feel comfortable pulling numbers out of a hat, or worse, out of thin air. Trying not to fall into that trap, I tend to want to come up with numbers that are available to me and then get creative to “get there”. But what I really need are numbers reflecting what I really need to get there fast. I do have enough experience to know that financial ratios are important. But using an existing model and simply crunching some numbers as if that fits does not result in true costs either. I know that. So then I get stuck and procrastinate …

… OR I get smart and build a new model

I am not a marketing or sales person, but I am the only person in my company, and I am to make the deals that keep my company going. That includes developing personal relationships with colleagues at events and during other trips, and maybe, by meeting/visiting people from institutes and/or organisations that provide grants. And that all costs money, time, and energy that I cannot spend on something else.

And I do have access to and understand:

  • What the tasks are that need to be done. For example for agile organisational sculpting, research of key elements, development of service, (narrative) building, marketing sessions, other promotion, sales, (preporatory and after) support, …
  • What the time is I need for each.
  • The price of skilled services for those tasks I cannot do myself or someone else can do better, faster, cheaper.
  • The rest of my operating expenses.

I can use that data as a basis for assumptions to start some simple pro forma financials.

Pro forma financials

  • Income/expense statement ~ sales minus cost of sales, expenses like promotion, insurance, research not tied to a customer contract, administration, taxes, and the like
  • Balance sheet ~ cash, receivables, assets, short term debts, payables, liabilities, long term debts and liabilities.
  • Cash flow ~ cash flow from (other) income, cash flow from operations, cash used in investments, free cash flow, cumulative cash flow, financing raised/repaid

And I can keep reworking those as I move forward. No Big Design Up Front. Shrewdly agile.

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