Financial management for technology start ups : how to power growth, track performance and drive innovation

249 Pages·2022·9.764 MB·English

by  Alnoor Bhimani

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PRAISE FOR FINANCIAL MANAGEMENT
FOR TECHNOLOGY START-UPS
A great resource for founders looking to understand the key financial
measures that impact their businesses, with many worked examples
and cases directly relevant to the real challenges start-ups face. An
essential addition to any founder’s toolkit.
Kamran Malik, Partner, Ernst & Young, UK
An invaluable resource on the essentials of financial management for
established and aspiring entrepreneurs alike.
Mark Maloney, Director, LSE Careers, UK
A smart, jargonless book that shows how accounting numbers can be
used to propel a tech start-up to success.
Srikant M Datar, Professor, Harvard Business School
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Financial Management
for Technology Start-ups
How to power growth, track performance
and drive innovation
SECOND EDITION
Alnoor Bhimani
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Publisher’s note
Every possible effort has been made to ensure that the information contained in this book is
accurate at the time of going to press, and the publishers and authors cannot accept
responsibility for any errors or omissions, however caused. No responsibility for loss or
damage occasioned to any person acting, or refraining from action, as a result of the material
in this publication can be accepted by the editor, the publisher or the author.
First published in Great Britain and the United States in 2017 by Kogan Page Limited
Second edition published in 2022
Apart from any fair dealing for the purposes of research or private study, or criticism or review, as
permitted under the Copyright, Designs and Patents Act 1988, this publication may only be
reproduced, stored or transmitted, in any form or by any means, with the prior permission in
writing of the publishers, or in the case of reprographic reproduction in accordance with the terms
and licences issued by the CLA. Enquiries concerning reproduction outside these terms should be
sent to the publishers at the undermentioned addresses:
2nd Floor, 45 Gee Street 8 W 38th Street, Suite 902 4737/23 Ansari Road
London New York, NY 10018 Daryaganj
EC1V 3RS USA New Delhi 110002
United Kingdom India
www.koganpage.com
Kogan Page books are printed on paper from sustainable forests.
© Alnoor Bhimani, 2017, 2022
The right of Alnoor Bhimani to be identified as the author of this work has been asserted by him in
accordance with the Copyright, Designs and Patents Act 1988.
ISBNs
Hardback 978 1 3986 0308 0
Paperback 978 1 3986 0306 6
Ebook 978 1 3986 0307 3
British Library Cataloguing-in-Publication Data
A CIP record for this book is available from the British Library.
Library of Congress Control Number
2021948478
Typeset by Integra Software Services, Pondicherry
Print production managed by Jellyfish
Printed and bound by CPI Group (UK) Ltd, Croydon CR0 4YY
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For Farah
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CONTENTS
About the author xi
Preface xiii
List of abbreviations xvii
Acknowledgements xix
01 Now is the time 1
Why bother with financial management? 2
The new business of business 4
Like never before 7
Chapter summary 14
Review questions 15
Further reading 15
References 15
02 Tech start-ups: why they’re different 17
Growth in a tech world 18
Risk and potential 36
Chapter summary 42
Review questions 42
Further reading 42
References 42
03 Start-up contribution analysis 44
The start-up financial control loop 45
Financial control in three steps 47
Achieving profitability 54
Contribution margin in a ‘winner takes all’ world 59
Chapter summary 67
viii Contents
Review questions 67
Further reading 68
References 68
04 Start-up financial analysis 69
The three statements that count 70
The balance sheet 70
The income statement 84
The statement of cash flows 92
Chapter summary 100
Review questions 100
Further reading 101
References 101
05 Start-up progress analysis 102
What type of ownership structure is best? 102
The auditor’s opinion 105
Equity issues 112
Assessing progress using financials 118
Chapter summary 142
Review questions 142
Further reading 142
References 143
06 The importance of being liquid 144
The cash budget 145
Financing your start-up with debt 152
Debt financing 154
Chapter summary 159
Review questions 159
Further reading 160
References 160
CONTENTS ix
07 What’s it worth to you? 161
Equity financing 162
Venture capital valuation 165
Term sheets: look before you take the money 174
What about crowdfunding? 180
Chapter summary 183
Review questions 183
Further reading 183
References 184
08 Tracking your start-up’s growth 185
Are your returns what they should be? 186
How does a tech firm cost its products? 188
Chapter summary 211
Review questions 212
Further reading 212
References 213
Glossary 214
Resources 219
Index 220