Spartina

Term Sheet Negotiation Tells | Permanent Record

Tue, 22 Nov 2011 18:26:15 GMT

Termsheet negotiation is a good indication of what is to come with an investor or entrepreneur.

The Shitake Hits the Fan | Redfin Corporate Blog

Tue, 22 Nov 2011 18:08:06 GMT

The value of a great lead investor can make a huge difference as you build your business. Learn how Glenn found a the help he needed.

6 Things Jeff Bezos Knew Back in 1997 That Made Amazon a Gorilla - Forbes

Fri, 18 Nov 2011 21:01:25 GMT

Bezos on "It's all about the long term."

A VC: Continuous Feedback

Fri, 18 Nov 2011 20:36:49 GMT

Suggestion on how to improve Board meetings. Ask what 3 things are we doing well and what 3 things could we be doing better.

Jeff Bezos Owns the Web in More Ways Than You Think | Magazine

Fri, 18 Nov 2011 20:29:50 GMT

In depth look at Jeff Bezos.

Profitably | Blog, A Tale of Two Financings

Mon, 14 Nov 2011 19:46:37 GMT

Luck and perserverance can bring home a financing round.

Apple WWDC '97 Steve Jobs

Mon, 14 Nov 2011 19:22:40 GMT

Focus is about saying NO.

What strong beliefs on culture for entrepreneurialism did Peter / Max / David have at PayPal? - Quora

Mon, 14 Nov 2011 19:20:17 GMT

Read about PayPal's early corporate culture.

A VC: How Much Money To Raise

Mon, 14 Nov 2011 19:17:24 GMT

My favorite saying is take as much money as you can at whatever price. It is an extreme, but you always need more money than you think. What matters most is who the money is from. Fred recommends another approach of raising 12-18 months and keeping dilution under 20% at each round.

Steve Jobs' 2005 Stanford Commencement Address

Sat, 12 Nov 2011 05:20:50 GMT

Jeff Bezos Talks About Amazon and Zappos

Sat, 12 Nov 2011 05:19:35 GMT

Ben Horowitz, co-founder of Andreessen Horowitz

Sat, 12 Nov 2011 05:16:57 GMT

Starting a Startup: Part 1, Formation

Sat, 12 Nov 2011 05:15:27 GMT

New California Law Discourages Independent Contractors and Sole Proprietorships by Potentially Penalizing Businesses that Use Their Services

Wed, 02 Nov 2011 16:27:16 GMT

Using independent contractors is always tricky. If you have California contractors, read up on this new law.

Summary of Sold-out "Science of Inbound Marketing" Session at Dreamforce 2011

Tue, 18 Oct 2011 15:10:33 GMT

Good slide deck on benefits of inbound marketing.

Webvanta

Wed, 27 Apr 2011 18:50:37 GMT

Practical Approach for Developing Annual Letter to Shareholders

Mon, 10 Jan 2011 21:02:52 GMT

Good template for what to include in an annual shareholder letter.

Creating a Chart of Accounts

Mon, 13 Dec 2010 19:40:22 GMT

While there are some aspects of a company’s detailed accounting records that are reasonably identical across a number of different companies, it’s ultimately impossible to create a template chart of accounts that can be applied to different startups. One could create an all-encompassing, extensive and never-ending chart of accounts to account for all the potential transactions of a startup; however, this would likely lead to confusion on the part of the bookkeeper and to inefficient monitoring of performance on the part of management. Instead, below are suggestions, by financial statement type, that a manager should consider when building his/her company’s chart of accounts.

Balance Sheet

The types of assets and liabilities of a company are limited. As such, the majority of assets and liabilities can be grouped into unique classes. The general rule of thumb is that any account that makes up 5% or more of its balance sheet classification (i.e. total assets, total liabilities) should be broken down into sub-accounts; however, this is only true for some balance sheet accounts.

Accounts receivable and accounts payable are commonly two of the largest balances on a company’s balance sheet. However, by running an aging report or check disbursements report, management can quickly and easily gain insight into the granular details of each account. Hence, the rule of thumb does not apply to these two accounts.

Non-standard receivables and payables (e.g.) that account for more than 5% of their respective asset or liability class should be broken down separately. All others can be lumped into an “other receivables” or “other payables”, so long as the aggregate amount is less than 5% of the asset class.

Accrued liabilities are another common liability account. Some accrued liabilities are universal across all companies, such as accrued payroll and accrued vacation. However, unlike accounts payable, accruals are generally best-estimates and require significant judgment on the part of the bookkeeper and, therefore, should be paid close attention by company managers.

After considering all of the above, it is important for a company controller/CFO to create any other account categories that he/she deem important to monitor on a monthly basis. An example would be deferred revenue, where cash is received upfront but a product or service has not been fully delivered to a customer. This is common with pre-paid subscription businesses.

Revenue

Due to the company’s youth, the types of revenue streams that a startup or small business can have are limited. Therefore, having a comprehensive list of different revenue streams (e.g. subscription, advertisings, product, etc.) seems reasonable, even if some of the revenue streams are irrelevant to the specific company in question. However, an individual revenue stream can, and sometimes should, be broken down into more detail for performance and measurement purposes. For example, a company may earn a lot of money through different advertising channels or a company may have monthly, bi-monthly or annual subscription streams that it wants to account for and track separately. That being said, if a company has a strong internal reporting tool that it uses to measure and assess the performance and granularity of different revenue streams, then detailed recording in the accounting books is not necessary. Refer to Quality of Data comments further below.

Cost of Sales

Cost of sales (also known as cost of goods sold or cost of revenues) should only include costs that are incurred during or with a sales transaction. It is important to account for these costs separately from operating expenses in order to quantify the gross profit, gross margin and marginal cost of every sales transaction.

Similar to revenue, the different types of cost of sales are limited, but the granularity of these costs is extremely important to measuring and assessing the performance of a business. Examples of common cost of sales types are included further below.

Operating Expenses

The type and impact of different operating expenses vary wildly across different startups. The rule of thumb for operating expenses is that any account that makes up 5% or more of total operating expenses OR revenue should be broken down into sub-accounts.

Other Considerations & Recommendations

Tax Reporting

A chart of accounts should not be structured according to tax documents – that’s what CPAs are for ;). When businesses are analyzed for M&A purposes, it’s always inefficient when the books are structured and organized for tax purposes—a lot of time is spent re-arranging and manipulating some company chart of accounts from a tax perspective to a performance perspective. Taxes only matter once a year. Performance matters every day. A company’s books should be organized to gauge and measure performance, not to make annual tax reporting simple.

Forensic Accounting / Auditing

It is important to examine various financial documents on a monthly basis to ensure that proper controls are in place to avoid fraud. However, a chart of accounts does not need to be setup to make the process easier, for a couple of reasons: (1) company performance should be measured daily versus forensic accounting or auditing which should happen monthly, at most, and (2) the majority of the reports you would need to perform your forensic audit are not impacted by the structure or layout of the chart of accounts.

Quality of Data

Many startups use other measurement and reporting tools (mostly internally developed), other than the accounting records, to monitor the performance of the company. So long as the data is accurate and timely, this is the correct thing to do.

A company’s performance is generally broken down into four categories: revenue, cost of customer acquisition, overhead and earnings, which is just a function of the previous three. Revenue and customer acquisition are generally monitored daily; hence, why other (automated) measurement and reporting tools are commonly used for these – it’s inefficient and costly for an accountant/CFO to enter transactions daily. Overhead expenses are generally incurred only once or twice per month, which makes the accounting records more than adequate to measure and assess. At the end of the day (or month), the different reporting tools must be reconciled with one another. Accountants, bankers, lawyers, etc. are going to use company balances per the accounting records to draw conclusions on the health of a company. Therefore, while performance may be measured using a more granular, diverse reporting tool, at the end of the month, all reporting tools must be reconciled between one another. If a company’s reporting tool cannot be reconciled to the accounting records, then no acquirer, investor, etc. is going to waste time looking at the reporting tool, which will limit their ability to assess the health and performance of a company.

Cost of Sales - Examples

Common cost of sales types are noted below:

- License / royalties COGS

- Reseller commissions

- OEM / royalty Costs

- Software / hardware COGS

- Training COGS

- Billable Expense COGS

- Support & maintenance - personnel

- Professional services - personnel

- Professional services - billable expenses

- Credit card and transaction costs

- Hosting services

- Hosting software

- Manufacturing overhead

Two expenses that are commonly mistaken for cost of sales are sales commissions paid to internal sales reps, which are selling costs of the company and accounted for in operating expenses, and sales discounts, which are contra-revenue accounts that should be included in net sales.

Elevator Pitch

Thu, 04 Nov 2010 20:35:10 GMT

Getting your story down to one sentence is an art, and everyone has their own way to do it. Here's an engaging video and technique developed by funder Adea Ressi, using the old favorite game, MadLibs to help you craft the perfect one-sentence elevator pitch for your company. It makes the hard work fun!

Wesabe vs Mint: Who Won?

Tue, 19 Oct 2010 01:52:51 GMT

A must read blog entry, where entrepreneur Marc Hedlund analyzes why his company shut down, and another start-up succeeded. He points out the most important principle: A great user experience pays off.

"Mint focused on making the user do almost no work at all, by automatically editing and categorizing their data, reducing the number of fields in their signup form, and giving them immediate gratification as soon as they possibly could..."

Do More Faster: TechStars Lessons to Accelerate Your Startup

Tue, 19 Oct 2010 01:47:53 GMT

A good read for getting some tips from the Tech Star success stories.

Generating Revenue

Tue, 19 Oct 2010 01:42:58 GMT

Revenue is clearly the name of the game for internet startups. It's like air: you need it to survive. So before you start gasping, take time to read this puncy article about generating that which you so dearly need. The article breaks down your revenue into 3 broad categories: media, product, and services, and takes each one in more detail. $10million in revenue? Why not.

SAAS Metrics

Mon, 20 Sep 2010 15:39:30 GMT

Here's a great tool and article for your new web app. The article explains the 6 key metrics to track for your web application, and at the end is a spreadsheet to help you work with the numbers. SAAS as a business is the clear winner these days, and all the help you can get will pay off. Check this article out.

Crossing the Chasm

Wed, 15 Sep 2010 17:09:00 GMT

Classic that recommends targeting a niche market first to establish your beachhead.

Streamline Your Product Pitch

Mon, 30 Aug 2010 19:10:34 GMT

As always, Guy Kawasaki gets straight to the point: your investment pitch should have 10 slides, last 20 minutes and be in 30 point font. But it's good to read the article by Guy to understand his brilliant logic. If you are about to try and pitch your company to raise money, this is a valuable quick read.