Entrepreneurial Finance

Contents\nPreface\nAcknowledgements\nPart\r1: INTRODUCTION\n	1.1: THE PURPOSE OF ACCOUNTS AND FINANCIAL MANAGEMENT\n		Business Survival Rates\n		Reasons That Businesses Fail\n		Accounting and Finance: What Is It All About?\n	1.2: SETTING THE SCENE\n		The Concept of Double Entry\n			Types of Accounts\n		Financial Statements\n		The Accounting Equation\n		Cash Versus Accrual Accounting\n		The Basic Principles of Accounting\nPart \r2: PROFIT & LOSS\n	2.1: THE PROFIT & LOSS STATEMENT\n		The Vital Importance of the Profit & Loss Statement\n			The Profit & Loss Statement Is for a Period of Time\n				Simple Profit & Loss Statement\n		The Five Levels of Profit\n			Confusing Terminology\n		Taxation and the Profit & Loss Statement\n			Value Added Tax (vat)\n		Level 1 – Gross Profit\n		Level 2 – ebitda\n			Operating Expenses\n				Why Exclude Depreciation/Amortisation?\n				Let’s Commit Some Fraud!\n			Controversies and Weakness of ebitda\n		Level 3 – Operating Profit\n			What Question Might You Now Want to Ask?\n			Introducing Return on Capital Employed\n		Level 4 – Profit Before Tax\n			Why Is It the Most Comprehensive Profit Definition?\n		Level 5 – Profit After Tax\n			Corporation Tax\n		Examples of Profit & Loss Statements\n			Burberry Group Plc\n		Netflix, Inc.\n		The Five Levels of Profit Summary\n	2.2: THE IMPORTANCE OF GROSS PROFIT\n		Gross Profit and the Cost of Sales Calculation\n			Café Example\n			Service Businesses\n			Software as a Service (SaaS) Businesses\n			Allocating Some Fixed Costs to Cost of Sales\n		Calculating Cost of Sales for the Profit & Loss Statement\n			Valuation of Stock\n		Gross Profit by Product Line\n		Tracking Gross Margin\n			What Could Cause the Gross Margin to Decline?\n	2.3: PRODUCT PRICING STRUCTURES\n		Pricing Structures\n			Simple Margin Structure\n			More Complex Pricing Structure\n			Raising Prices to Customers\n		Margins and Mark-ups\n			Product Mark-up Definition\n	2.4: ACCRUAL ACCOUNTING\n		The Revenue Recognition Principle\n			Deferred Income\n				Balance Sheet Implications\n			Accrued Income\n				Balance Sheet Implications\n		The Matching Principle\n			Prepayments & Accruals\n	2.5: DEPRECIATION\n		Depreciation and the Profit & Loss Statement\n			How Depreciation Impacts the Different Financial Statements\n		Depreciation and Corporation Tax\n		Amortisation\n		Straight Line Depreciation\n			Reducing Balance Depreciation\n			Other Methods of Depreciation\n		Depreciation Is Only an Estimate\n		Disposal of Assets\n		Effect of Extending Depreciation Periods Beyond Useful Life\n	2.6: BREAK-EVEN ANALYSIS\n		What Is the Break-Even Point?\n			Why Knowing the Break-Even Point Is Useful\n		The Different Types of Costs in a Business\n			Fixed Costs\n			Variable Costs\n		Drawing Break-Even Charts\n		Examples of Profit- and Loss-Making Businesses\n			Business Making a Profit\n			Business Making a Loss\n			Business with a High Gross Margin\n			Business with a Low Gross Margin\n		The Break-Even Point Formula\n			Break-Even Point in Terms of Number of Customers\n			Inclusion of Depreciation and Interest Costs in Fixed Costs\n			Variable Costs and the Break-Even Formula\n			Service Businesses with 100% Gross Margin\n			Corporation Tax and the Break-Even Formula\n		Break-Even Analysis Using Excel\n		Margin of Safety Concept\n			Businesses in Difficult Sales Environments\n			Experience of Cook Trading\n			What Can We Learn from Cook Trading’s Experience?\n				Move Quickly\n				Explore Other Opportunities\n		Limitations of Break-Even Theory\n			Relevance of Volume as a Measure\n			Fixed Costs Usually Rise in Jumps\n			The Total Cost Line May Be Curved\n	2.7: THE STOCK MARKET & PROFITABILITY\n		The Drivers of Share Prices\n		Earnings Per Share\n			P/E Ratio\n			Quality of Earnings\nPart\r3: THE BALANCE SHEET\n	3.1: THE BALANCE SHEET STATEMENT\n		The Balance Sheet Is on a Particular Day\n			The Balance Sheet Formula\n		Debits and Credits\n	3.2: A TOUR OF THE BALANCE SHEET\n		Non-current Assets\n			How Non-current Assets from the Balance Sheet Impact the Profit & Loss Statement\n				Depreciation Example\n			Treatment of Property in UK Accounts\n			How Non-current Assets from the Balance Sheet Impact the Cash Flow Statement\n			Intangible Assets\n		Current Assets\n			Stock (Inventory)\n			How Stock from the Balance Sheet Impacts the Profit & Loss Statement\n			How Stock from the Balance Sheet Impacts the Cash Flow Statement\n			Debtors (Receivables)\n			Cash\n		Current and Long-Term Liabilities\n			Time Period Differentiation Between Current & Long-Term Liabilities\n			Current Liabilities (Payables)\n			Future Interest Payments Are Not Included\n			Accruals\n			Deferred Income\n			Long-Term Liabilities\n		Capital and Reserves\n			Called Up Share Capital\n			Share Premium\n			Share Capital Can Be Tiny\n			Revaluation Reserve\n			Impairment Losses\n			Retained Earnings\n			Retained Earnings Are Cumulative\n			Conversion of Retained Earnings to Share Capital\n			Retained Earnings and Dividends\n		Further Examples of How Transactions Affect the Balance Sheet\n	3.3: ANALYSING THE BALANCE SHEET\n		Tulip Greeting Cards’ Profit & Loss Statement\n		Profitability and the Balance Sheet\n		Return on Equity\n		Return on Capital Employed\n			Cash and Capital Employed Calculation\n			Confusion Between Capital Employed and Net Assets\n			Significance of Return on Capital Employed\n				Tulip Greeting Cards Example\n			Why Operating Profit is Used in Return on Capital Employed Calculation\n		Liquidity Ratios\n		The Current Ratio\n		The Quick Ratio\n		Gearing Ratios\n		Debt to Equity Ratio\n		Debt to Capital Ratio\n		Interest Cover Ratio\n			Operational Gearing\n	3.4: BALANCE SHEET EXAMPLES\n		easyJet’s Balance Sheet\n		Vulpine Performance Limited\n		Profitability\n		Funding\n		Liquidity\n		Burn Rate and Runways\n	3.5: RETURNING TO THE BALANCE SHEET FORMULA\n		The Differing Balance Sheet Values\n		The Differing Perspectives\nPart \r4: CASH FLOW MANAGEMENT & FORECASTING\n	4.1: THE CASH FLOW STATEMENT\n		Presenting Cash Flow\n		The Direct Method\n		The Indirect Method\n			Debits & Credits\n	4.2: THE CASH CONVERSION CYCLE\n		The Stock Period\n			Measuring the Stock Period\n		The Debtor Period\n			Measuring the Debtor Period\n		Creditor Period\n			Measuring the Creditor Period\n		Calculating the Cash Conversion Cycle\n			The Cash Conversion Cycle Formula\n		Businesses with a Positive Cash Conversion Cycle\n		Free Cash Flow\n		Free Cash Flow and Capital Investment Appraisal\n	4.3: IMPROVING CASH FLOW\n		Start with the Business Concept!\n		Our Top 10 Ways in Which You Can Improve Your Cash Flow\n		Moody Sewage Example\n	4.4: THE CASH FLOW FORECAST\n		The Importance of Cash Flow Planning\n		The Cash Flow Forecast\n			Timeframe for a Cash Flow Forecast\n			The Cash Flow Forecast Is the Product of a Financial Model\n	4.5: BUILDING A FINANCIAL MODEL\n		Your Starting Point\n			Carl’s Café\n			Davis Design\n		The Financial Modelling Process\n		General Principles of Financial Models\n			Rule 1: k.I.S.S. – Keep It Simple, Stupid!\n			Rule 2: Your Forecast Is Wrong\n			Rule 3: You’re Damned Either Way\n			Make Your Model Easy to Use\n			Treatment of Inflation\n		Assumptions in the Financial Model\n			Fixed and Variable Assumptions\n			More Complex Sales Assumptions for a Multi-product Business\n			More Complex Sales Assumptions for a Consultancy-Type Business\n		The Profit & Loss Forecast\n		The Cash Flow Forecast\n			Cash Flow from Operations\n			Cash Flow from Investing Activities\n			Cash Flow from Financing Activities\n			Generating the Forecast Bank Balance\n			The Indirect Method as an Alternative\n		The Balance Sheet Forecast\n			The Difference Check Line\n		Summary and Graphs\n			Ratios\n			Graphs\n			Some Final Thoughts About Financial Modelling\nPart \r5: FINANCIAL CAPITAL\n	5.1: SOURCES OF CAPITAL\n		Equity Versus Debt\n		Grants and Tax Credits\n		Are You Ready for Funding?\n		Advantage of Self-Funding\n	5.2: DEBT FUNDING\n		Term Loans\n			Typical Features of a Term Loan\n			Personal Guarantees\n		Overdrafts\n			Typical Features of an Overdraft Facility\n		Directors’ Loans\n	5.3: UNDERSTANDING SHARE CAPITAL\n		Different Types of Share Capital\n			Ordinary Shares\n			Preference Shares\n		The Different Equity Rounds\n			Issues of Share Dilution and Control\n			Up Rounds and Down Rounds\n		Convertible Notes\n		Enterprise Investment Scheme (EIS)\n			Example for Investor\n			Convertible Notes and EIS/SEIS\n	5.4: SOURCES OF NEW EQUITY FUNDING\n		‘Friends, Family and Fools’\n		Business Angels\n			Most Important Investment Criteria to Angels\n			Cost of Angel Funding\n			Double Dutch Case Study\n		Crowdfunding\n		Private Equity and Venture Capital\n			Venture Capital Funds\n			Corporate Venture Capital\n			Accelerator Programmes\n			Envio Case Study\n		Other Venture Funding\n			Family Offices\n			Sovereign Wealth Funds\n		Stock Markets\n	5.5: THE EQUITY FUNDING PROCESS EXPLAINED\n		The Process in Outline\n		The Term Sheet\n		Economics of the Term Sheet\n			Price\n			Warrants\n			Liquidation Preference\n			Liquidation Preference with Multiples and Caps\n			Pay-to-Play\n			Vesting\n			Option Pool\n			Anti-dilution\n			Vungle Case Study\n		Control Terms in the Term Sheet\n			The Board of D irectors\n			Shares\n			Management Reporting\n			Dividends\n			Confidentiality and Non-compete\n			Consent on Key Decisions/Events\n			Drag and Tag\n			Deal Exclusivity\n		Other Key Documents\n			The Cap Table\n			Articles of Association\n			The Shareholders’ Agreement\n		The Contractual Process\n			Due Diligence\n			Investor Agreement, or Sale and Purchase Agreement\n			Amendments to Articles of Association and Shareholders’ Agreement\n			Warranties and Indemnities\nPart \r6: CAPITAL INVESTMENT APPRAISAL\n	6.1: INTRODUCING CAPITAL INVESTMENT APPRAISAL\n		The Interrelationship Between Risk, Return and Time\n			Risk and Return\n			Return and Time\n			Risk, Return and Time All Together\n		Overview of Appraisal Methods\n			Payback Method\n			Net Present Value (NPV) Method\n			Internal Rate of Return (IRR) Method\n		Choice of Metric to Use in Appraisal\n		Opportunity Cost Concept\n	6.2: THE PAYBACK METHOD\n		Example: Investment in Machinery\n	6.3: NET PRESENT VALUE\n		The Net Present Value Concept\n		The Net Present Value Calculation\n		Calculating the Net Present Value (NPV)\n		An Important Note About the Way Excel ‘Thinks’\n		What If the npv Is Zero?\n		Confusion Between Present Value and Net Present Value\n		An Enhanced Version of npv\n	6.4: INTERNAL RATE OF RETURN\n		Calculating the IRR\n		The Hurdle Rate\n		Modified Internal Rate of Return\n	6.5: ESTABLISHING THE DISCOUNT RATE\n		Factors Which Will Influence the Discount (or Hurdle) Rate\n		The Cost of Debt Funding\n		The Cost of Equity Funding\n		Establishing the Discount Rate for Combination of Debt and Equity Funding\n		Impact of Gearing on the Weighted Average Cost of Capital\n		When a Higher Discount Rate Leads to a Higher NPV\n	6.6: APPLICATIONS OF CAPITAL INVESTMENT APPRAISAL\n		Payback Method Limitations\n		IRR Method Limitations\n			Scale of Investment\n			Duration of Investments\n			Bias Towards Earlier Returns\n			Other Issues\n		Npv Method Is Most Reliable\n		A Word About Inflation\n		Powerful Uses of Discounted Cash Flow Modelling\n			Company and Share Price Valuations\n			Evaluating an Angel Investment – Vulpine Performance Ltd\n			Vulpine’s History of Poor Performance\n			What Actually Happened to Vulpine\n			What Can We Learn from Vulpine?\n		Uses in Negotiation\n			Key Lessons from Frame Express\nPart \r7: RUNNING A FINANCIALLY INTELLIGENT BUSINESS\n	7.1: A FINANCIALLY INTELLIGENT BUSINESS\n		Good or Bad Performance?\n			Tesco’s Result in 2012\n			Setting the Benchmark\n		Benchmarking Beyond the Profit & Loss Statement\n	7.2: THE ANNUAL BUDGETING PROCESS\n		The Difference between Budgets and Targets\n			Love Taste Company Example\n		Fixing the Budget for the Year Ahead\n		The Rolling Forecast\n			The Cash Flow Forecast\n		Looking Beyond the Year-End\n		Circumstances When the Budget Can Be Changed\n		The Annual Budgeting Process Steps\n		Internal Management Process\n			Sales Revenue Plan\n			Cost Structure Responsibilities\n		Avoid Creating an Excel Beast\n	7.3: MANAGEMENT ACCOUNTS\n		Accounts Unfit for Purpose\n		The Ideal Template for Management Accounts\n			Moody Sewage Example\n			Gartenart Swimming Ponds Example\n	7.4: TRAILING 12 MONTH GRAPHS\n		What Is a T12M Graph?\n		Your Business has Just Shrunk!\n			T12Ms for Major Customers\n		T12Ms for Individual Product Lines\n			T12Ms and Departmental Costs\n		Looking at the Actual t12m Cost in Pounds\n		Looking at t12m Cost as a Percentage of Sales\n		Plotting Both Simultaneously\n			Dealing with Uneven Seasonality\n			Creating Your Own t12ms\n			Creating Your Own Profitability Map\n			Using Profitability Mapping with t12ms\n	7.5: LOOKING TO THE FUTURE\n		Housing Starts and Completions in the us\n			Tracking Your Forward Order Book\n			Five Star Financial Intelligence\nAPPENDICES\n	APPENDIX 1: THE GROSS PROFIT CALCULATION IN A SERVICE BUSINESS\n		Solution 1 – Aggregate Revenues and Costs\n		Solution 2 – Treat Each Job as a Cost Centre\n	APPENDIX 2: FINANCIAL RATIOS\n		Introduction\n		Five Easy Categories of Ratios\n		Example Financial Statements\n	APPENDIX 3: CREATING A CAPITAL INVESTMENT APPRAISAL MODEL IN EXCEL\n		Net Present Value (NPV)\n		Internal Rate of Return (IRR)\n		Important Note\nGlossary\nIndex