This is the third in a series of posts on the numbers you need to know when preparing your startup business plan for a shark tank or dragons’ den pitch.
The first post in the series dealt with the unit retail price, selling price, and cost of your product, and went on to explain how this information could be used to calculate the products gross margin percentage. The second post showed how the income statement can be used to find details relating to the revenue, gross profit and net income of the business.
This third post explains how the balance sheet from the financial projections template, can be used to provide additional information often requested by the panel of potential investors during a shark tank or dragons’ den pitch.
Dragons’ Den Pitch – Balance Sheet
The balance sheet shows a financial snapshot of the business at a specific point in time, usually at the end of an accounting period. A typical format is shown below.
| Cash | 3,000 |
| Accounts receivable | 20,000 |
| Inventory | 12,000 |
| Current assets | 35,000 |
| Long term assets | 45,000 |
| Total assets | 80,000 |
| Accounts payable | 16,000 |
| Other liabilities | 7,500 |
| Current liabilities | 23,500 |
| Long-term debt | 16,500 |
| Total liabilities | 40,000 |
| Capital | 15,000 |
| Retained earnings | 25,000 |
| Total equity | 40,000 |
| Total liabilities and equity | 80,000 |
The format above is simplified for illustration purposes, the actual format may vary depending on the level of detail required. Page two of our financial projections template will provide all the information you need to obtain the numbers relating to your business plan projections. If you are an established business, and have historical information, this can be be found in your annual financial statements or management accounts.
Typical Balance Sheet Questions
Questions about the balance sheet during a shark tank or dragons’ den pitch tend to relate to the current balance sheet position rather than the projected balance sheets (although these should already be available). Typically the questions might be along the following lines:
How much inventory (stock) are you holding?
Inventory refers to raw materials, work in process, and finished goods either manufactured or purchased which are held with the intention of resale. In the above example inventory is shown as 12,000. The amount held as inventory is an asset of the business.
How much are you owed by customers?
If your business sells to customers and gives them a period of credit in which to pay, then at any point in time there will be a balance outstanding from them. The amount which is owed to your business is shown in the balance sheet under the heading of accounts receivable, sometimes referred to as trade debtors or trade receivables. In the above example the amount owed by customers at the balance sheet date (30 September 2015) is 20,000 shown under the heading of accounts receivable. Accounts receivable is an asset of the business.
How much do you owe your suppliers?
Likewise, if your business receives credit terms from suppliers, at any point in time there will be a balance owing to suppliers for goods and services they have provided to the business but have not yet been paid for. The amount owing is shown in the balance sheet under the heading of accounts payable, sometimes referred to as trade creditors. In the balance sheet above, the amount owed to suppliers is 16,000 shown under the heading of accounts payable. Accounts payable is a liability of the business.
How has the business been funded to date?
There are many different types and sources of finance but generally they fall into one of two categories, debt or equity capital.
Equity capital includes capital injected by the owners, family and friends or outside investors in the business, such as angel investors, venture capital investors, and is the type of finance you are seeking from the panel of potential investors. With equity capital, a part of the ownership of the business is sold to the investors in return for the funds, and a percentage of the profits will now belong to another party. In the above example the equity funding is shown under the heading of capital as 15,000.
Debt finance includes loans from family and friends, bank loans and overdrafts, government loans, mortgages, and leasing etc. In return for providing the debt finance, the lender receives interest and fees dependent on the amount of money borrowed and the duration of the funding. In the balance sheet above the debt outstanding is shown under the heading of long term debt as 16,500, and is a liability of the business.
Further details on debt and equity funding can be found in our how to finance a business article.
Who owns the shares in the business?
Occasionally, the panel of potential investors want to know who owns the shares in the business. They are referring to the owners of the equity capital discussed above.
Suppose the 15,000 equity capital shown in the balance sheet above had been raised by issuing 1,000 shares in the business. If the shares are split between three shareholders having 700, 250, and 50 shares, then they would respectively own 70% (700/1,000), 25% (250/1,000) and 5% (50/1,000) of the business.
This post is the third in a series of posts entitled know your numbers for dragons’ den and shark tank. The next post in this series deals with the valuation placed on the business and how this is dependent on the information supplied in parts 1,2 and 3 of this series.
Posts in This Series
- Product price, cost and gross margin.
- Income statement numbers, revenue, gross profit and net income
- Startup valuation.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.