Cheat Sheet: Finance Essentials for Entrepreneurs by Professor Naeem Zafar

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If you’d like a promotion or are interested in starting a company for yourself—understanding the basics
of business finance is an absolute requirement. In Professor Zafar’s special Mentorbox edition of Finance
Essentials, you’ll receive a practical crash course on what it takes to run a profitable business.

Chapter 1: Why do I need to understand Finance? (pg. 3)

 Before you invest time and resources in a company, you need to know if it’s financially viable.
 If you need an infusion of capital to start, investors will want to first see your well-researched
financial projections.
 At a minimum, you’ll need to create an Income Statement.

Chapter 2: Financial Assumptions. (pg. 9)

 Financial Assumptions will ultimately generate your projected revenue stream and expense.
 You’ll need to make financial assumptions to project: Overhead Costs, Customer Acquisition
Cost, Cost of Manufacturing, Price per Unit, Revenues, and Gross Margins.
 You must be able to defend your financial assumptions to your investors with actual research.

Chapter 3: What you’ll need to show potential investors. (pg. 23)

 You can create a financial model so that you can compute how much money you should seek
from investors
 This financial model is essential for your “what-if” analysis; in order to be able to answer
questions about the eventual capital needs of the company.

Chapter 4: Anatomy of an Income Statement. (pg. 31)

 An Income Statement will ultimately show your projected expenses and your projected revenue.
 By creating this statement, you’ll know how profitable your company can be over time.
 Calculate your Gross Margin with this equation: GM = (Price – Cost) / Price.

Chapter 5: How to construct an Income Statement in Three Easy Steps. (pg. 41)
 Step 1: Project your company’s revenue by computing what you can sell in the early years and
also by looking at comparable company’s revenue for year 4 and 5
 Calculate your Gross Profit by subtracting the cost of selling your product (or service) from
Revenue.
 Step 2: Calculate your total costs (Expenses) for each year by starting with you monthly hiring
needs and adding up their salaries. Add 25% to this monthly number to account for all taxes,
benefits and other office expenses.
 Step 3: Calculate your Net Profit by subtracting your Expenses from your Gross Profit.
 Note: It’s OK if you’re at a net loss for the first few years of your company’s existence (this is
why you are raising money from investors).

Chapter 6: Financial Ratios and Sanity Checks. (pg. 65)

 When applying for funding you’ll need to calculate a few Key Performance Indicators (KPIs).
 The most important are Break Even Point, Net Profit Margin, Gross Profit Margin, Marketing
Expenses as a percentage of Revenue, and R&D Expenses as a percentage of Revenue.

Chapter 7: Funding Milestones. (pg. 65)

 There are three major stages to funding: 1) bootstrapping (personal savings), 2) angel
investors/friends and family, 3) loan/Venture Capital funding.