Welcome to the quick course get rich numbers, I'm glad you're here, it means that you're serious about what it takes to start a real new business. And that you want to know more about how to begin creating a great new enterprise, small, medium or large. It also means you're in a hurry. So in this course, I'm going to quickly help you figure out how to create financial numbers that make sense. Let's get going. The course is divided into two snippets.

The first is about forecasting financial statements. So you anticipate a number of things including how much capital you're going to need. We'll talk about the income statement and the balance sheet and more. The second snippet is about how to value your company and explore the wealth that is going to be created. That's a lot of fun. Every company needs numbers.

Sole proprietors. Small Businesses need them, as well as a venture capital back startup raising millions, or an ambitious idea for becoming a billion dollar valued unicorn. The results will be able to be shown in graphs that makes sense. This one shows sales and headcount for instance. I know numbers can make people frightened, particularly accounting can sound very frightening, and frankly mysterious. But in the end, you'll find it's quite simple, easy and quick for entrepreneurs.

The purpose, among other things is to answer key questions. Certainly how much money you need, it's pretty important to know how large could the business be very important for valuations. How many people will you need to hire? And certainly how valuable could this be? Business become. The numbers we're going to focus on are called the Big Three financial statements.

We'll dive into their basics and give you some tips and tricks to apply them to your work. getting help creating those numbers is best done with a model. Try using quick up which I sell on NES I'm online.com. Loaded with real world numbers, it'll make your life very simple. Otherwise, build your own from scratch. The financial statements will be generated by you supplying sales and headcount.

Quick up will generate the profit result and tell you how much capital you're going to need. You're telling a story to investors. That plan in words and images will also be accompanied by numbers. Those numbers are not a forecast of the future. Rather, they are a plausible outcome. That's what's meant by a story in numbers.

Principally, how many zeros is going to be represented by the size of this business? Small, medium, large, huge. It's not about accuracy, and it is not a prediction. Modeling your business will allow you to make quick changes simply and easily. Extend your forecast to five years. If you need medical department approval from the FDA extended further, generally five years is adequate.

And try using quick up it is fast, it's very easy. Now let's focus on the basics in the Big Three. you've understood the purpose. Let's get into financial statements. These are the big three. We want to show you here how they're linked and apply them to your work.

The interlinking is somewhat mysterious till you've gone through it the first time and then suddenly click, I get it. The income statement should be thought of like a pump, it's moving it has action. Engineers think about it like amperage. Or think about it like a river constantly flowing. things come in, things go out. When looking at it, we ask questions such as, is the business growing, and are we winning or losing the balance sheet is like a house.

A static still photograph at a moment in time and a month, end of year. Engineers think about it like voltage. It's storage things is that imbalance and is it strong or weak? Our typical questions. The cash flow statement is a story of change. You buy things cash goes out, investors send you money, they get shares.

Cash comes in, you loan as a bank to a startup cash comes in. Cash comes from profits or losses take cash out. The cash account in the balance sheet as a result goes up or down. The interlinking is important. It's not too complicated. For instance, if you sell something, you must wait to collect the cash from the customers.

Let's say your customers buy with a credit card. The credit card company will not send you the cache for another three, four or five or six days. If you buy something with a credit card paper for your printer, you will have as much as 30 days to pay for it. If you earn a profit in the business, you store it in retained earnings where you save it. Examples of interlinking as you become more familiar with financial statements, those will make increasing sense. Income Statement is represented by sales coming in expenses going out leaving up either a profit or a loss, it could easily be called an income and outgo statement.

Starting with sales, you'll find that it's labeled often revenue or income depending on the industry. accountants will help you straighten that out. That's one reason they have a role in life. Basically, it means you either shipped a device or did the service. It does not necessarily mean you gotten cash for it. Unless you're in a cash only business.

The expenses represent all the invoices for things you purchased. If you bought them with a credit card, you'll have up to 30 days to pay for them. taxes are paid in the United States in many developed countries, 90 days in arrears. assets such as computers will become less valuable each year. The depreciation of that value is represented by an expense. Profit can have several words and measured in several ways.

It's often nicknamed earnings, but there's a special one we'll look at in a minute called gross margin and an operating profit, the more most important one for you to look at in the startup. And then the bottom line the net income that bottom line is often represented as a double bottom line, net income. Here's a simple and yet representative income statement for a startup. Sales come in. Cost of Goods Sold is what goes into the UPS truck, leaving you with a gross margin. Subtract the operating expenses for all the departments and people leftover operating profit or loss or money, interest expense, money on deposit, get some income.

Profit before taxes out go the taxes resulting in net income. The bottom line. Pretty straightforward, isn't it? I told you you'd get it. The balance sheet needs to balance thus the fulcrum or triangle there. On the left are good things.

They equal the bad things Cash that's pretty important receivables, cash that due from the customers will be converted fairly soon. Inventory are the things that go in the UPS truck, when sold, convert to receivables that convert to cash. And you need equipment to build the inventory that becomes receivable that goes into cash. I think you get the flow and the bad things you certainly have to pay for the supplies that you bought. And you have to repay the loan. And if you sell shares to an outsider, you have an obligation to them as one of the owners of the company.

The special sequence from top to bottom starts with cash to almost cash. Things that will become cash within 12 months and then the equipment and then things that are suited For long term nicknamed intangibles, such as patents on the other side, we have things that have to be paid within 12 months such as all those supplies and payables and the loans to the bank. And certainly, if you sold shares, that cash amount is in stock and the profits retained in retained earnings. Cash Flow Statement is simply a story of what comes in minus what goes out. Very simple concept. net income, cash coming in.

Last cash going out. Credit Card delayed payment, that's like a loan credit from suppliers similarly pay in six weeks something complicated have to inspect it, open it up test it. And loans from banks or shares sold to investors. retained earnings would be net income directly stored there, except that sometimes companies do send cash to shareholders. That's called a dividend. But startups don't pay dividends, nor do fast growing companies that have recently gone to an initial public offering.

Okay, those are the basics of the Big Three financial statements. Now let's look at some metrics. We'll look at what's called key ratios, what they are, why they're there, and how to apply them to your work. The purpose is to analyze the financials so that you can answer this question, how financially healthy is this company? Let's start with four very important questions. Number one, are there trends such as sales smooth or bumpy year two And why?

We'd like to see a smooth upward sloping curve, rather than a bumpy one. Does your common sense tell you the numbers seem too small or too large? If you suddenly have in year 220, or $30 million of sales, that would be a challenge. Similarly, if you've raised $5 million from angel investors, but you're showing $2 million of sales in year three, something also is wrong. Common sounds can prevail. How do your numbers compared to public companies in your industry?

That's an important but an easy comparison to do, particularly for profit margins. And finally, why is your startup different? For instance, you want to go into the retail grocers business. You show net income percentage Sales 10 times greater than the 1%, shown by typically public grocery companies. Well, you better have a pretty good reason for it. Whole Foods did and they did very well.

You can use these same ratios to forecasts financial statements for your business plan. Looking at the sales per person, for instance, will tell you a lot about the efficiency of your business. The profit margin, you should think about the most is the operating profit compared to sales. The cash flow per years tells you a lot about if you're heading toward no more outside financing needed. And finally, the multiple is sales representing the company's value is the best way to determine how great the wealth created is for your company. Potentially Looking at the income statement focus on the efficiency measured by the sales per employee that should rise every year.

Second, the growth in sales per year is tantamount to the number one thing to look for in the income statement. And finally, the profit comes in special ways that gross margin is the profit on each unit you ship or each item of service you deliver. The ongoing expenses represented by the department expenses as a percent of sales can be very helpful, for instance, but percent for your engineering or use using compared to the industry. How about marketing and selling and customer service? Also the expenses per person in the company. It's interesting to note how easy modeling can be if you have a pretty good estimate.

That's total expenses for the Department of engineering per person. All you need to do to get the total for that department is to forecast the headcount. The profit margin you should focus on is this operating profit compared to the sales. That's the one that needs to turn positive and become healthy. Yes, the bottom line eventually needs to be positive, certainly by the time you sell a business or go to the public, for an initial public offering. In the balance sheet, we would like to know how fast you're collecting your cash from your customers.

How many days of sales do you have on hand that is comparing your receivables to the selling rate per day. Similarly, in payables How fast are you paying your invoices? Then number of days in inventory is important how much is sitting in the warehouse inventory compared to the rate of selling will tell you that equipment per person, amount of debt for dollar shareholders equity are two other metrics that are important. Now, you notice it isn't 30 or 40 numbers. Those ratios are small and very helpful. In cash flow, learn with burn rate is it's a common turn looked at the most by investors who put money into a startup.

In other words, how much cash is being used to operate the business every single month. And looking at it annually, year by year in a forecast will tell you how much more capital you need to raise burn rates very important for company valuation, market capitalization of the company is basically the measure of your company's worth. It's the total stock value of the company. We usually measure it by taking the sales and multiplying it by a number such as two 412, etc. That's called the sales multiple. The reason we don't use net income very much is that the P e ratio price to earnings ratio is typically not very reliable.

Some companies go public while they're losing money. Others have very small profit margins. Sales multiple is the most useful metric to use when valuing the company. Well, here we are. That wasn't too fast was it wasn't too long either. Now you know the purpose.

You've gotten the basics straight. You know what the big three financials are? The key ratios And know how to apply it to your work. When you're done with your forecast, you will know how much money you'll need, how big the business could be and how many people you're going to need to hire. Well then go into the next snippet and measure how valuable the startup could be. Well, congratulations, you've done a very, very good job.

I know you started out afraid but look, he got this far You did really well. Super job. Remember, you can go back and review this and take your time going through it. It is simple, easy and quick, as you've learned. Remember, try to get help. A simple model in Excel, build it yourself or try quick up quick up as real world and pre loaded.

So all we have to do is head to snippet two. That's where I'm heading. I hope to see you there next week. For now