Lucy and Lucy – Co-Founders of
Barfoot + Duggan
Emma Lanman – Founder of
Bridget Harris – Founder of
Tess Alshibaya – Founder of
Pitch deck checklist to secure Cash!
It takes a lot of time and effort to get an opportunity to pitch to investors. The pitch deck is a key tool to help secure their interest and recently I’ve seen a number of pitch decks which made some fundamental mistakes. So use this checklist to increase your chances of success. Before starting just a quick word of warning – make sure you do your homework on prospective investors that you’re pitching to. Not only to make sure you know what is interesting to them – their hotspots, but also to make sure that they are bonafide. You don’t want to be sharing confidential information even in a summary form like on a pitch deck with just anybody. So with that … Here are my top tips Tip 1 – Make sure it is very, very clear the pain (or problem) that you are solving and allude to the size of this pain. One of the biggest complaints from investors is not fully understanding what it is you do. Tip 2 – Again explain clearly in a jargon free way how it is that your product or service addresses this problem. Just what are the specific benefits and value the customer will derive from using your product? Tip 3 – I personally think it’s really important to get the team information upfront. Why is it that you are the right people to deliver? As I’m sure you know, fundamentally investors are going to be backing you – that’s why I feel this information needs to go high up (please be aware that with everything I’m saying here there is more than one school of thought – it’s very important that the pitch deck speaks to you as you are going to be the person presenting it). Tip 4 – Markets and marketing is a crucial part of the pitch deck. You have already alluded to the potential size of the market. Now you really need to show you understand the addressable market and your share of this. If you’re not familiar with TAMSAMSOM, have a quick Google. Tip 5 – Marketing is something that investors pay a lot of attention to. No matter how fantastic your product, how are you going to build that bridge between you and your customer so that they know about you? And what is this going to cost – you should know and be able to answer questions on what is called your ‘customer acquisition cost’ i.e. what is it going to cost to get a new customer. This is very relevant when comparing it to the lifetime of the customer and the average spend over that period. Whether you reveal all your marketing metrics e.g. conversion ratios, web traffic estimates etc in your pitch deck or not, you must have them at your fingertips and be prepared to answer detailed questions on them. Tip 6 – There is a temptation to gloss over competition believing that your product or service is unique. This is very rarely the case. Investors will expect to see a clear analysis of the competition and why you feel you have the edge. Tip 7 – The ask $. You may have verbally indicated at the start of your pitch how much money you are looking for. But what a lot of people don’t do is explain clearly what the money is going to be used for. Personally I think the pitch should also include what percentage of the company you are prepared to offer and the implied pre-and post money valuation. Tip 8 – The dreaded financials. Personally I think the worst thing you can do is include a table of steadily increasing sales and profits or even a graph. Investors never really trust spreadsheet forecasts or any thing derived from them. If you are in an early stage business the first key financial milestone is breakeven. So I suggest describing what it looks like – how much web traffic do you need or how many distributors. You can also include in financials details of the unit economics. How much does one product cost to make, what is the selling price and how much is the gross profit? Milestones can also help investors understand your story. What is it you’ve got to do by when to deliver on the plan? Getting money from investors is all about telling them a story – and making that story seem believable! The pitch deck is just one of the tools along with the executive summary and business plan. A key part of making your story believable is to make it clear – never assume any prior knowledge. Just imagine your granny is listening and reading – would she be clear what you are doing? Monster’s advice by Barfoot + Duggan
Balance Sheets – measuring business buoyancy!
If you are trying to get a loan or raise equity finance, one of the first things you will be asked for is a Balance Sheet. However, 80% of people in business have no idea what a balance sheet is. Even Deborah Meaden got it wrong recently on Dragons’ Den when she started explaining how sales would appear in your balance sheet. They don’t! If investors and lenders want to see the Balance Sheet, it makes sense that you at least have an idea of why they want to see it to increase your chances of successfully getting funding. In just three steps I’m going to explain where the balance sheet fits in, what’s in it and what it reveals about your current financial buoyancy. Before we start, here’s a “health” warning – what we are about to cover in one article takes trainee accountants years to get to grips with. So my learning objective for you is just to get a warm feeling… Step 1: Context When you are running a business there are just three things you need to keep track of: income and expenses, cash flow, and what the business owns and owes. Income and expenses are shown in the Profit and Loss report (known as the P&L) and this report shows the profitability and viability of the business i.e. is the business selling more than the costs. The Cash Flow is in a report helpfully called the Cash Flow. This report typically has months along the top, and then sections for money in, money out and the expected balance at the bank. The Cash Flow shows if you are about to run out of cash! Hence it should go at least 9-12 months into the future to give you enough warning if you do need more funding. Bear in mind, money folk hate last minute requests for funding. Finally, what the business owns and owes (the assets and liabilities) are shown in a report called the Balance Sheet. To understand why this report can help keep your business buoyant, lets look at how the balance sheet is laid out. Step 2: Balance Sheet layout The balance sheet would typically be laid out with the following sections: • Fixed Assets – this is equipment that the business owns. • Current Assets – items owned that are expected to turn into cash within the next 12 months e.g. Cash at bank, stocks of raw materials, work in progress and money owed by customers (aka debtors). • Current Liabilities – items that are owed and need paying within the next 12 months e.g. Money owed to suppliers (Trade creditors) and money owed for VAT. • Net Current Assets – this is a sub-total of current assets less current liabilities. • Long term liabilities – items that are owed and which are not due to be repaid in the next 12 months e.g. loans or leasing arrangements. • Shareholders Equity (or ownership) – money owed to the owners (Shareholders), being money that has been invested by them in the business for shares and any unpaid profit. Step 3: What the Balance Sheet shows The Balance Sheet shows three key things at a particular date i.e. the Balance Sheet date. These are: • The Net Current Assets figure shows whether the business can meet its short term liabilities – has the business got enough “readies” aka liquidity to meet the short term bills. • The Long Term Liabilities shows whether the business has over borrowed. Crudely, banks will look at this figure and compare it with what is owed to the owners to assess any increase. Investors will look here to see if the level of borrowing is reasonable. They wont invest if their cash is then used to service or repay borrowings. • And then finally if you look in Current Assets and Current Liabilities you will see the key components of working capital – working capital is money owed by customers (debtors), plus money tied up in stock less what is owed to suppliers (creditors). You will not find these numbers in the Cash Flow or P&L. In summary, the Balance Sheet shows the financial risks facing the business at a particular date – does it have enough liquidity to meet its short term bills (that was the Net Current Assets figure). Has it borrowed too much, and how much cash is tied up in working capital. In short hand you can think of the Balance Sheet showing how buoyant your business is – right now without any bull. So next time you get asked for a balance sheet you will know why. With thanks to Ben Fernmoor who came up with the idea of business buoyancy at my recent British Library workshop. Inevitably, I have taken short cuts in this article – for more support on Balance Sheets, get a Numbers Coach training bundle.
Why humour helps Cash Flow – with thanks to the Royal Marines
The Royal Marines Hasler Company is the naval service Recovery Centre. The objective of the centre is to administer a bespoke recovery pathway for every soldier and to provide effective assistance and support for the soldiers and their families. For many soldiers trying to get a civilian job is not going to be an option and starting a business may be the only way they can create a viable economic future. The objective of the workshop was to give the soldiers confidence to consider doing a business start up. This was the second time that I had spent a day with the unit and based on my experience from the first visit completely redesigned the workshop. What was clear from my first visit was that despite having seen active service, the prospect of starting a business filled them with dread. The key thing was to give them the confidence to consider this option. The workshop was broken down into three sections: 1. Obstacles to overcome. 2. Business navigation i.e. the numbers. 3. Organisation and management. This article will focus on the first one – the obstacles to overcome. Three key obstacles were identified: • Idea generation. • Do I have the right skills. • Raising enough money. The workshop included a very relevant case study, which featured a company called Van Girls. I had met the founder when she came on my workshop ‘Get Cash Flow Confident’. Emma’s background before starting the business was within the Services (Fire Service). She had seen first hand poor removal service and believed she could do better. As we shall see later this is a classic way of coming up with a good business idea. So lets look at the obstacles. Idea generation Finding ideas to start a business is probably similar to finding a partner – when you’re not looking there are lots of them and as soon as you start looking you can’t find one for dust. So if you’re struggling with your idea or rather struggling to find an idea, there are four key sources of ideas. (This is taken from a great book by John Mullins called the New Business Road Test.) First there is the blue-sky business idea – the Dyson approach. In practice there are very very few businesses which are based on a completely new and original area. And usually this requires a huge amount of time and cash. The second source of ideas is finding a pain or a need that no one else is solving. – something which you want or find painful and no one is addressing this need. A small example of this would be the Cambridge Satchel Company which was started because the owner couldn’t find any traditional leather school satchels. Next there is a pain or a need and you believe that you can satisfy better than anybody else. Van Girls is a perfect example of this. Emma believed she could provide a much better service using a team based predominantly on women, taking greater care of packing and removals. Finally a great source of ideas is to import something that you have seen working well in another country. A good example of this is Go Ape which as it happens was set up by a former soldier Tristan Mayhew who had seen high wire activity centres in France. He brought the idea to the UK and after a lot of hard work that business now operates something like 25 centres and turns over in excess of £20 million pounds. Do I have the right skills? I mentioned at the beginning how I was surprised that the Marines viewed the prospect of starting a business with apprehension. The big change I made in the presentation this time was to highlight how their skills and experience as Marines was more than a sufficient qualification to start a business. You can see this clearly when you look at the Royal Marines ethos which comprises: • courage • unity/teamwork • determination • adaptability • selflessness • humility • gentleness • professional standards • fortitude • commando humour Clearly teamwork and determination are crucial when running a business. But when things are going wrong and cash is looking tight I am sure a good dose of “commando humour” is what’s required to keep the spirits up! Raising enough money There is a big misconception that the first thing you need to do is raise a big heap of money before starting a business. One of the reasons I chose Van Girls as an example in my workshop was that Emma set the business up with a very modest amount of money – literally enough to put down a small deposit on a very very old transit van. So what are the options for funding a business start up? First you need to be clear about the difference between debt or loan finance and equity finance. A business loan is very similar to any other kind of loan. You will need to make monthly repayments of principle and interest and inevitably you will be required to give some kind of personal guarantee. However you will not be selling any of your business. Equity finance is what goes on in Dragons Den where an investor puts money into a business in exchange for shares. There are no monthly payments and no interest – the investor makes their money when they come to sell the shares. And because they’re sharing risk (which is why it is called equity – they are equal with you) they are looking for a considerably higher return, typically at least 5 to 10 times the money. And then there is the new development or comparatively new development of crowdfunding. You can get loan finance and equity finance through crowdfunding platforms, but you can also get product funding i.e. advanced sales – literally before your product has even been built. For example, two entrepreneurs came to my workshop wanting to set up a craft brewery and I suggested that they look at Kickstarter. They successfully raised money for buying brewing equipment – I put in £50 – what did I get? A T-shirt, a bottle of beer with my name on and a lash up in Shoreditch. Well, two lash ups. So as you can see you can use crowdfunding to get money from your customers before you have had to actually produce your product. But it would be a mistake to underestimate the amount of work that is still required for fund raising even with crowd funding. Finding an idea, assessing your personal skill and getting the funding are some of the big challenges to starting and running a business. When it comes to assessing your skills – in my travels running workshops, I have met so many entrepreneurs (and they are all very very different). Successful businesses are run by introverts, extroverts, thinkers, party goers, sports fans, book fans – but there is one consistent theme – they have all had bad times. And that’s where a good dose of Commando Humour comes to the rescue!
“Thank you for your brilliant jam packed day on finance at LCC. Believe it or not I came home and began sorting things out straight away, as tired as I was. Much to be done! As I mentioned to you I work at the Royal British Society of Sculptors as the Education Projects Manager and organise professional development seminars for sculptors on various aspects around making a living. It would be wonderful if you could lead the seminar on finance coming up.”
“Thank you very much to the connection to your film. It is really very good and I agree with you about the necessity for training people to understand this stuff by taking the mystery out of it. To be honest there are a lot of people who are already supposed to be in business who could use a simple refresher on many of these points.”
“I really enjoy your classes. You cover the important topics that we need to learn step by step, and like Weronika said you add a human touch to what would otherwise be numbers numbers and numbers.”
“This enterprise and financial management in cultural production has been an enjoyable and high level learning experience and I feel that the method and techniques related to finance, I learned on the unit helped me to make this business plan much better than if I had tried to develop such a project without the theory.“
“I looked through your videos – they look good and the principle behind it is definitely useful, and I think there could even be an idea of EMCA students viewing them before starting the EMCA finance unit, so could be a great way of getting up to speed.”
“I thought the course was fabulous because I actually understood the basic principles of cash flow, balance sheet and profit and loss. The course was taught in a less formal way than one would in a financial training course which made it easier to understand to learn. Overall, I really liked the course, I found it very helpful and it’s been really great of you to upload all the documents, excel models after each class. I really learned a lot and enjoyed it!”
“You must make commercial decisions based on what you know you can afford. Follow Johnny’s clear and practical, simple to follow advice to help you thoroughly understand how business finances work.”
“I greatly value your clear thinking on the board.”
“Thanks Johnny! It really was most helpful, thanks for squeezing me in. You have given me a clearer understanding of managing my business’s finances.”
British Library Business & IP Centre’s Open Evening series
‘KNOWING YOUR NUMBERS – WHAT INVESTORS EXPECT TO SEE AND EXPECT YOU TO KNOW’ This event was delivered as part of the British Library Business & IP Centre’s Open Evening series, the Numbers Coach will guided participants through the key numbers to be on top of if looking to secure business investment.
British Library Business & IP Centre 10th anniversary start up day
The Numbers Coach gives 1:1 advice at the British Library Business & IP Centre 10th anniversary start up day
London College of Fashion
Johnny demystifies the numbers for students at LCF.