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C HAPTER 7 F INANCIAL A CCOUNTING 7.0 E NTREPRENEUR ' S D IARY It seems like addition, subtraction, multiplication and division should be pretty simple. . It is, until you want to apply it to accounting and doing your tax calculations. There are so many ramifications of choosing your corporate structure on how you end up paying taxes. . For example, who in their right mind would choose to pay taxes twice on profits you make from your company? Well, if you choose a C-Corp (What is C-Corp?) for your company structure, that's just what you'll be doing! I think my accountant was probably the key professional that I interacted with during the early days of my startup. I recommend to seek seeking their advice early BEFORE you create your company structure. 7.1 G ETTING S TARTED At this point in the text, we've covered the basic steps of defining your business, developing a marketing strategy, and differentiating your business from the competition. In this chapter, we will cover the creation and use of financial accounting statements in the typical business plan, including depreci ation and taxation issues. We will stress the importance of creating these financial statements from the bottom up, by basing the figures on details on from the demand side of the equation. We will also discuss the data needed before creating the financial statements (for example, estimating the number of units sold per period). . Finally, we will briefly explain what belongs in the written business plan (see Chapter 8 ? 7 , The Writing a Business Plan, for detailed discussion) and discuss the expectations of investors. As soon as an entrepreneur starts to work on the financial statements for a new venture, it may becomes apparent that much is not known unknown How many customers can be expected? How often will they buy? What are the costs of manufacturing the products, and how will these costs change over the first few years? The answers to most of these questions for a startup business owner are simply educated guesses. . 191
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Chapter 7 - Financial Accounting Of course, it is desirable to show that a company will have profits over time, so the financial statements for a startup company are usually crafted in a way that make a way that makes s the future looks favorable. . That’s why investors often accuse startups of “smoke and mirrors” when it comes to the financial section of the business plan. . This at leads to the question of why even bother with financials? One reason is because it is about the process , not necessarily the spreadsheets themselves. Secondly, since modern n financial statements are spreadsheet-based, an advisor or venture capitalist will usually be able to adjust a few figures and correct the whole financial accounting section quite easily, as long as the fundamental principles are followed. .
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