High Growth Technology Group
Managing your money
TeachFirst Innovation Booster
23 November 2013
Ju-Vern See, KPMG
Patrick Imbach, KPMG
The road ahead
Incorporation …
Also register with
HMRC for
corporation tax
You get traction…
Budget and forecast
your business
Business experiences rapid growth
You incur
expenses…
•Keep all receipts
and invoices
•Accounting system
• Outsource or DIY
Main rate
23%
File accounts
with
Companies
House
File tax return
with HMRC.
Small profits
rate 20%
Register
for VAT?
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
1
What are we going to go through today
Accounting overview
■ General accounting principles and policies
■ Example of financial statements
■ Outsourcing vs doing it yourself
■ What accounting software to use
Financial planning
■ Why prepare a cash flow forecast
■ How to build a financial model
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
2
What are we going to go through today
Accounting overview
■ General accounting principles and policies
■ Example of financial statements
■ Outsourcing vs doing it yourself
■ What accounting software to use
■
■
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
3
Accounting principles
Accounting
policies
Matching principle
Accrual principle
There is a set of accounting principles about how to accounts for certain revenue and expense
transactions and how to value and present assets and liabilities
Expenses to be matched to when income is
generated (e.g. depreciation) .
Bought an iMac for £1200 which you expect to last 2
years. Using depreciation, you get to spread the
costs of the £1200 across 2 years which means only
£50 would be charged to your monthly profit and
loss accounts. You now have £1200 less cash, but
only £50 of loss.
Record income and expense over the period of the You hired a freelance developer in September who
transaction (cash may change hands at a different you estimate worked 10 hours in the month for £100
time)
hourly wage. At the end of the month, you haven’t
received an invoice from her but you still have to
make an entry in your accounts as it relates to
September.
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
4
Financial Statements
Income Statement/ Profit and Loss Account
■ Measures profitability across a period of time
■ Income – Expenses = Profit or loss
■ Profit is not your cash balance
Balance Sheet
■ Measures your financial health at a point in time
■ Assets – what you own, Liabilities – what you owe
■ Equity – what’s left over
■ Assets = Liabilities + Equity
Cash Flow
■ Track your cash movement
■ Reconciles your profit to your cash balance
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
5
Example – Income Statement/Profit & Loss Account
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
6
Example – Balance sheet
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
7
Outsourcing vs. Do it yourself
What needs to be done
Do it yourself
Frequency
Pros
Cons
■ Allows you to understand your
financials better
■ Time consuming
Bookkeeping
• Posting transactions
• Billing
Daily/Weekly
■ Cheaper
• chasing outstanding debtors
Prepare management information
Monthly/Quarterly
■ Many resources to help you out
■ May be caught unaware with
deadlines
■ You need to learn the different
accounting and tax laws
• Profit and loss
• Balance sheet
• Cash flow forecast
Submitting quarterly VAT returns
Outsourcing
Quarterly
Pros
Cons
Annually
■ Allows you to focus on your
product/ service
■ More expensive
Corporation tax calculations
Annually
■ Provide you with other insights
and an independent view
Claiming tax reliefs (R&D, Patent Box)
One off
■ A network of specialist advisors in
other professions e.g. Lawyers
Preparation of statutory financial statements
■ May not have the relevant
experience
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
8
How to choose an accounting software
Accounting software out there …
■ Easy to use cloud based – Xero, FreeAgent, Kashflow, Quickbooks Online
■ Support functions – Crunch
■ Desktop – Sage, Quickbooks
What to consider …
■ Different functionality – invoicing, timesheets, multi currency
■ Costs of software
■ Number of transactions
■ Do you need external advice
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
9
What are we going to go through today
■
■
■
■
Financial planning
■ Why prepare a cash flow forecast
■ How to build a financial model
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
10
Example – Cash flow forecast
Year 1
Year 2
Year 3
Sales
Sales Channel 1
Sales Channel 2
Sales Channel 3
Total sales
50,000
50,000
50,000
150,000
100,000
100,000
100,000
300,000
200,000
200,000
200,000
600,000
Total cost of sales
-50,000
-100,000
-150,000
-150,000
-1,000
-20,000
-1,000
-172,000
-150,000
-1,000
-20,000
-1,000
-172,000
-200,000
-1,000
-20,000
-1,000
-222,000
10,000
0
-15,000
CapEx
Computer equipment
Furniture
Total CapEx
-10,000
-5,000
-15,000
-5,000
0
-5,000
0
0
0
Cash
Opening balance
Net cash movements
Closing balance
60,000
-77,000
-17,000
-17,000
23,000
6,000
6,000
213,000
219,000
Salaries
Office supplies
Rent
Communication
Total operating expenses
Tax
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
11
Why prepare a financial forecast
Feasibility analysis
■ Develop business model including revenue model (e.g. is the business financially viable?)
■ Think through the assumptions (e.g. growth rate)
■ Identify resource/ capital need
■ Identify risks
Document to raise funds
■ Demonstrate potential to investors & lenders
Management tool
■ Management report: Milestones & Accountability
■ Measure and benchmark key metrics
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
12
How to build a financial model
Plan
• List all assumptions
• Working capital, revenue growth, user numbers
• Consider your corporate structure – debt or equity?
Build
•
•
•
•
Separate – keep input and output in different tabs
Consistency – adds professionalism and validity
Integrity – keep in line with accounting standards
Simplicity – avoid complicated functions and macros
Test
• Get someone else to go through your model
• Analyse every cell
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
13
An introduction to the High Growth Technology Group
What we do
We are bringing the expertise and experience of KPMG to support the next wave of world
class technology companies grow and succeed …
Integrating you into our
internal and external
networks
Making sure you are
ready for funding
Ensuring your operations
are fit for international
expansion
Helping ensure your
compliance to tax
regulations
Back office finance
functions of book-keeping
and tax compliance
Ensuring you obtain the
tax incentives available
to you as an innovative
business
Making sure you can
attract and retain the
right staff
Ensuring your business
has processes fit for
growth
… via the High Growth Technology Group
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
14
An introduction to the High Growth Technology Group
Who we are
The team is dedicated to early stage and high growth technology companies in the UK
Based in Shoreditch, East
London
A dedicated team focused on
this sector
Patrick Imbach
Ju-Vern See
Patrick is our financial expert,
helping companies with
everything from accounts to
business plans and funding
Our resident techie with a passion for startups and all things coding.
e : [email protected]
t : 020 7311 2440
In: PatrickImbach
T: @patrickimbach
e: [email protected]
t : 07522 331142
In:JuVern
T: @juvern
A single point of contact into
KPMG
A range of skills and
experience
Contact us
O : 64 Great Eastern Street, EC2A 3QR
W : www.kpmgtechgrowth.co.uk
T : @kpmgtechgrowth
Reporting directly to the board
of
KPMG UK
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
15
Contact us
O : 64 Great Eastern Street, EC2A 3QR
W : www.kpmgtechgrowth.co.uk
T : @kpmgtechgrowth
The information contained herein is of a general nature and is not intended to
address the circumstances of any particular individual or entity. Although we
endeavour to provide accurate and timely information, there can be no
guarantee that such information is accurate as of the date it is received or that
it will continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a thorough
examination of the particular situation.
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG
Europe LLP and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative, a Swiss entity. All rights
reserved.
The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
Produced by Create Graphics