Leading With Impact Financial Overview

Producers: Jake VanLandingham, Joe Reddy, Mike Giampietro, Kristi Taylor, Mary Marshall

Internal Financial Documents

Balance SheetIncome Statement

Cash flow Statement

Balance Sheet

ASSETSCASH

AACCOUNTS RECEIVABLE BINVENTORY CPREPAID EXPENSES D___________________________________CURRENT ASSETS A+B+C+D = E OTHER ASSETS F FIXED ASSETS AT COST GACCUMULATED DEPRECIATION H___________________________________NET FIXED ASSETS G - H = I TOTAL ASSETS E+F+I=J___________________________________

LIABILITIES & EQUITYACCOUNTS PAYABLE KACCRUED EXPENSES LCURRENT DEBT MINCOME TAXES PAYABLE N___________________________________CURRENT LIABILITIES K+L+M+N = O LONG-TERM DEBT P CAPITAL STOCK QRETAINED EARNINGS R___________________________________SHAREHOLDER’S EQUITY Q+R = S TOTAL LIABILITIES & EQUITY O+P+S=T___________________________________

Balance Sheet Formatas of a specific date

Balance sheet is a statement of financial position that showsTotal Assets = Total Liabilities + Equity Two things to remember:(1) Balance sheet information is as of a specific date – a snapshot in time(2) By definition, the left side of this is equation must always be “in balance” with the right side

Balance Sheet – Contd.

What are Assets?Assets are everything the business owns – machines, buildings, cash, inventory – that are valuable and the value must be quantified in dollars and cents on the Balance sheet. Assets are grouped into Current Assets, Other Assets and Fixed Assets based on their liquidity – the ease of converting them into cash. Cash is the most liquid and Fixed Assets the least liquid. CURRENT ASSETS - those that can be converted into cash in less than 12 months. Current Assets are listed in order of liquidity (cash is the most liquid and Inventory is the least). Current Assets will be used to pay the bills in the near term (within the year). CURRENT ASSETS: CASH – the most liquid asset – Cash is King! Checks made to pay bills deplete Cash Assets. CURRENT ASSETS: ACCOUNTS RECEIVABLE – Money to be received from customers for a product that has shipped. Most business is done on credit where customers are given payment terms that allow them to pay within 30 or 60 days. CURRENT ASSETS: INVENTORY – includes unprocessed raw material inventory, work-in progress (partially finished products) inventory and finished good inventory. When finished goods inventory is sold it become accounts receivable and when customers pays it becomes cash. CURRENT ASSETS: PREPAID EXPENSES – are bills that the company has paid for services not yet received. Examples include prepaid insurance premium, prepayment of rent, deposits paid, any advance payments to employees etc. they are included under Current Assets because the company will not have to use cash to pay them in the near future.

OTHER ASSETS – is a catchall category that includes intangible assets such as the value of patents, trademarks, brand name etc. These are valued by the management using complex and arbitrary accounting conventions. FIXED ASSETS – (also called Property, Plant and Equipment or PP&E) are productive assets not intended for sale by the company. They will be used over and over again to manufacture the product, display it, warehouse it, transport it, etc. They are reported at the original cost of purchase. ACCUMULATED DEPRECIATION – is the sum of all the depreciation charges taken since the asset was first acquired. Depreciation is the decline in useful value of a fixed asset due to wear and tear from use and the passage of time.

NET FIXED ASSETS – equals the fixed asset purchase prices (@cost) minus the accumulated depreciation charges over the years. This is also known as the book value of an asset.

What are Liabilities?Liabilities are monetary obligations of the company, such as money owed to lenders, suppliers, employees, etc. Liabilities are grouped as debt payable within the year (Current Liabilities) and long-term debt. CURRENT LIABILITES – are bills that must be paid within one year of the date on the Balance Sheet. They are the reverse of the Current Assets and cash generated from Current Assets is sued to pay Current Liabilities as they become due. CURRENT LIABILITIES: ACCOUNTS PAYABLE – owed to the suppliers – bills payable for materials and equipment that the company bought on credit. Business-to-business transactions are usually done on credit with payment terms of 30 or 60 days. CURRENT LIABILITIES: ACCRUED EXPENSES – similar to Accounts Payable – expenses to be paid by the company for services received. Example salaries earned by employees but not yet paid, Attorney bills not yet paid, unpaid interest due to bank, etc.

Balance Sheet – Contd.

Balance Sheet – Contd.

CURRENT LIABILITIES: CURRENT DEBT – any notes payable and the current portion of long-term debt. If a company owes money to a bank with loan repayment term of less than 12 months, then the debt is called note payable and is a Current Liability. CURRENT LIABILITIES: INCOME TAXES PAYABLE – unpaid income taxes that the company owes the government. LONG-TERM DEBT – loan with an overall term of more than 12 months from the date of the Balance Sheet. Example – mortgage on a building. Current Liabilities + Long-term debt = Total Liabilities. CAPITAL STOCK – original money to start and any add-on money invested in the business is represented by shares of capital stock held by owners of the business. Companies issue common stock – the regular denomination of ownership and preferred stock – that have certain contractual rights (example: dividends). RETAINED EARNINGS – all profits of the company that have been retained and not paid out as dividends. SHAREHOLDER’S EQUITY – is the difference between what the company owns (total assets) and what the company owes (total liabilities). Shareholder’s equity increases when the company makes a profit (increased retained earnings) or when it sells new stock to investors (increased capital stock). Shareholder’s equity decreases when the company has a loss (decrease in retained earnings) or pays dividends to shareholders (decreases retained earnings). In summary, the balance sheet presents the financial picture of the company on one particular day, an instant in time. The balance sheet by definition must always be in balance with assets equal to the sum of liabilities and equity.

The Income Statement

The Income Statement gives one important perspective on the company – its profitability.It reports on what is sold minus what it cost minus selling and general expenses for the period equals income for the period (a month, quarter or year).Sales – Costs & Expenses = IncomeIt is also referred to as the Earnings Statement, Profit-and-Loss statement (P&L).It does not inform about when the company receives cash or how much cash it has on hand. Income Statement Formatfor the period x through y NET SALES 1COST OF GOODS SOLD 2________________________________________GROSS MARGIN 1 -2 = 3 SALES & MARKETING 4RESEARCH & DEVELOPMENT 5GENERAL & ADMINISTRATIVE 6________________________________________OPERATING EXPENSES 4+5+6=7 INCOME FROM OPERATIONS 3-7 = 8 INTEREST INCOME 9INCOME TAXES 10 NET INCOME 8+9-10=11________________________________________________________

The Income Statement – Contd.

NET SALES – recorded when the company actually ships products to customers – makes a Sale. This is the total amount the company will ultimately collect from a sale – it is list price minus any discounts offered.Sales (also called Revenue) is at the TOP of the Income Statement and is often referred to as the top line. COST OF GOODS SOLD – total cost of manufacturing the product sold (shipped). The cost to manufacture products are accumulated in Inventory until the product is Sold. Once the Sale is booked, these costs are ‘expensed’ through the Income Statement. GROSS MARGIN – the amount left over from sales after Cost of Goods (product manufacturing costs) are subtracted. Also known as Gross Profit or Manufacturing Margin. {Manufacturing Expenditures to build inventories are called Costs, all other business expenditures are called Expenses} OPERATING EXPENSES – expenditures (cash spent) that a company makes to generate income. Also known as SG&A Expenses meaning ‘Sales, General and Administrative Expenses’. Examples:Sales & Marketing ExpenseResearch & Development (R&D) ExpenseGeneral & Administrative (G&A) Expense INCOME FROM OPERATIONS – refers to what is left over after expenses and costs are subtracted from sales. Income is the difference between Sales less Costs and Expenses.Operations are all actions of a Company in making and selling products.

The Income Statement – Contd.

NET SALES – recorded when the company actually ships products to customers – makes a Sale. This is the total amount the company will ultimately collect from a sale – it is list price minus any discounts offered.Sales (also called Revenue) is at the TOP of the Income Statement and is often referred to as the top line. COST OF GOODS SOLD – total cost of manufacturing the product sold (shipped). The cost to manufacture products are accumulated in Inventory until the product is Sold. Once the Sale is booked, these costs are ‘expensed’ through the Income Statement. GROSS MARGIN – the amount left over from sales after Cost of Goods (product manufacturing costs) are subtracted. Also known as Gross Profit or Manufacturing Margin. {Manufacturing Expenditures to build inventories are called Costs, all other business expenditures are called Expenses} OPERATING EXPENSES – expenditures (cash spent) that a company makes to generate income. Also known as SG&A Expenses meaning ‘Sales, General and Administrative Expenses’. Examples:Sales & Marketing ExpenseResearch & Development (R&D) ExpenseGeneral & Administrative (G&A) Expense INCOME FROM OPERATIONS – refers to what is left over after expenses and costs are subtracted from sales. Income is the difference between Sales less Costs and Expenses.Operations are all actions of a Company in making and selling products.

The Income Statement – Contd.

INTEREST INCOME – receiving interest on cash balances in the company’s bank account (a non-operating income). INCOME TAXES – taxes paid on Income from operations and interest. NET INCOME – Income from Operations plus Interest Income minus Income Taxes. Income (also called Profits) is at the BOTTOM of the Income Statement and is often referred to as the bottom line. There are two major methods of running a company’s books – Cash Basis or Accrual Basis. Cash Basis is the simplest – just like a checkbook- Income is measured when cash is received and expenses are measured when cash is spent. In Accrual Basis, regardless of the physical flow of cash, income and expenses are measured when transactions occur – example sales and costs are recorded when goods are shipped, not when customer pays.

The Cash flow Statement tracks the movement of cash through the business over a period of time. It is similar to a check register – recording all the company’s transactions that use cash (checks) or supply cash (deposits).

It shows the cash on hand at the start of a period plus cash received in the period minus cash spent in the period equals cash on hand at the end of the period.

Cash Flow Statement Formatfor the period x through y BEGINNING CASH BALANCE a CASH RECEIPTS bCASH DISBURSEMENTS c_________________________________________________CASH FROM OPERATIONS b - c = d FIXED ASSET PURCHASES eNET BORROWINGS fINCOME TAX PAID gSALE OF STOCK h ENDING CASH BALANCE a+d-e+f-g+h= i_____________________________________________

The Cash Flow Statement

CASH RECEIPTS – are inflows of money coming from operating the business. Cash comes into the company by (1) Operating activities such as receiving payment from customers and (2) Financing activities such as selling stock or borrowing money. CASH DISBURSEMENTS – are outflows of money used in operating the business. Cash goes out of the company by (1) Operating activities such as paying suppliers and employees, (2) Financial activities such as paying interest and principal on debt or paying dividends to shareholders, (3) Making Major capital investments such as purchasing equipment, and (4) Paying income taxes. CASH FROM OPERATIONS – cash from normal day-to-day business activities (making and selling product). Cash receipts (money in) minus Cash Disbursements (money out) equals Cash from Operations. FIXED ASSET PURCHASES – money spent to buy property, plant and equipment (PP&E). NET BORROWINGS – is the difference between any new borrowings in a period and the amount paid back in the period.INCOME TAXES PAID – check issued to the government and thus actuallu paying the taxes due; not just owing taxes. SALE OF STOCK – company the amount of cash in hand when it sells stock to investors. ENDING CASH BALANCE – equals the beginning cash balance (at the start of the period) plus or minus all cash transactions that occurred during the period.

The Cash Flow Statement

NET SALES – recorded when the company actually ships products to customers – makes a Sale. This is the total amount the company will ultimately collect from a sale – it is list price minus any discounts offered.Sales (also called Revenue) is at the TOP of the Income Statement and is often referred to as the top line. COST OF GOODS SOLD – total cost of manufacturing the product sold (shipped). The cost to manufacture products are accumulated in Inventory until the product is Sold. Once the Sale is booked, these costs are ‘expensed’ through the Income Statement. GROSS MARGIN – the amount left over from sales after Cost of Goods (product manufacturing costs) are subtracted. Also known as Gross Profit or Manufacturing Margin. {Manufacturing Expenditures to build inventories are called Costs, all other business expenditures are called Expenses} OPERATING EXPENSES – expenditures (cash spent) that a company makes to generate income. Also known as SG&A Expenses meaning ‘Sales, General and Administrative Expenses’. Examples:Sales & Marketing ExpenseResearch & Development (R&D) ExpenseGeneral & Administrative (G&A) Expense INCOME FROM OPERATIONS – refers to what is left over after expenses and costs are subtracted from sales. Income is the difference between Sales less Costs and Expenses.Operations are all actions of a Company in making and selling products.

External Financial Documents

Capitalization TableRestricted Stock AgreementPromissory NoteSubscription AgreementTerm Sheet

Capitalization Table

The table provides an analysis of the founders' and investors' percentage of ownership, equity dilution, and value of equity in each round of investment

In essence, a capitalization table demonstrates the snapshot of a capital structure (financing of assets) of an enterprise

The cap table is widely used by entrepreneurs, to model and to analyze such events as ownership dilution, issuing employee restricted stock or stock options and issuing new securities.

After several rounds of financing a company, its cap table may be highly complex

Restricted Stock Agreement

Restrictions. ‘The Restricted Stock and any interest therein, may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, during the Restricted Period. Any attempt to dispose of any Restricted Stock in contravention of the above restriction shall be null and void and without effect. ‘

"Restricted stock" is generally common stock that is subject to repurchase or forfeiture based upon certain contractual conditions being met. Most often, these conditions are that the stockholder continue to be an employee or officer of the corporation that issues the stock.

Founders use restricted stock to ensure that each of the other founders continues to contribute to the corporation. Imagine, for instance, that a corporation is split between five founders. After the first six months of the bootstrapped venture, one of the founders decides he can no longer survive on Ramen noodles and live in his mother-in-law’s living room. He decides to find a paying job and leaves the company and the other founders. Three years later, the company has gone through a couple of venture capital rounds and the other four founders have built its worth up to the tens of millions of dollars. The founder that bailed in the early stages is now a millionaire from the risk taking and efforts of the other four founders he bailed on. Rather than allowing this result, founders will restrict each others' stock and subject themselves to a vesting schedule, so that a departing founder's stock can be repurchased by the company.

The Promissory Notea negotiable instrument, wherein one party (the maker or issuer) makes an unconditional promise in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms.

The terms of a note usually include the principal amount, the interest rate if any, the parties, the date, the terms of repayment (which could include interest) and the maturity date. Sometimes, provisions are included concerning the payee's rights in the event of a default, which may include foreclosure of the maker's assets.

The Term SheetA non-binding agreement setting forth the basic terms and conditions under which an investment will be made. A term sheet serves as a template to develop more detailed legal documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is then drawn up a.k.a. the Subscription Agreement.

Thanks!!!!“Borrowing money from a friend is like having sex. It just completely changes the relationship." - George in The Puffy Shirt

“The man with the briefcase can steal more money than the man with the gun.” -Mario Puzo, The Godfather

Subscription Agreement

A subscription agreement is a popular form of soliciting funding for smaller businesses and start-ups. When entrepreneurs do not have the resources to go public or work with venture capitalists, they often seek out individual investors. This is a binding contract that exchanges a one-time trade of money for a specific number of shares in a company.

Subscription agreements differ depending on the situation, but each one generally contains the names of the parties to the agreement, the number of shares and their price as well as the expectations of the parties involved.

Warranties are included and represent stated expectations on the return of the investment, such as a particular percentage of income or a predetermined lump sum on a certain date. Many subscription agreements also require a great deal of information from the investor, thus helping the entrepreneur. Requesting an investor's financial status and investing history helps determine if an individual is likely to be able to provide payment.