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Welcome back

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This part of the session is about Startup Budget/Accounting

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So let’s begin with the startup budget

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Before we go into the startup budget,

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I suggest you guys to remember a very important quote

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from the startup scene

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First: Everything takes longer

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to do than you think it will

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Second: Everything costs more than you think it will

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Third: no entrepreneur thinks of everything

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So basically, you need to prepare for many options,

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in terms of the money, in terms of the plan,

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in terms of the time, something like that.

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Please keep that in your mind

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Let's look at the budget

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When you start company,

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you need to budget for one-time costs and ongoing costs.

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There are two different types of the budget

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What about one-time costs?

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One-time costs are one-off costs

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paid before your startup is set up

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So basically, once you pay

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some kind of service for the setting up,

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you don’t have to pay later

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 This is just a one-time cost, one-time done

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On the other hand, ongoing costs are recurring expenses(recurring costs)

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a business must pay on a regular basis

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Mostly, monthly fees, quarterly or yearly

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Those are ongoing costs

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So, can you distinguish one-time cost and ongoing cost?

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I’ll give an example of a one-time cost.

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 Look at this: new buildings for the businesses,

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 or new machines, vehicles, equipment, researching money

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researching fee for your target market

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initial advertisement fee, initial stock fee, initial payment toward insurance,

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or kind of initial money regarding your recruiting employees

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Those are all one-time costs

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Once you pay, you don't have to worry about them later

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What about the examples of ongoing costs?

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Rent fee: you should pay monthly for the rent fee

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Wage and salary: you should pay monthly salary to your employees

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Maintenance: you should pay the maintenance fee every month

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Loan payment: you should pay it back to the bank

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Interest: if we borrow the money from the bank

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then you should pay interest

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 Communication: you know telecommunication i mean telephone internet and the others

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What about mortgage?

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Mortgage fee(mortgage repayment):

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if you lease the car, then you pay it

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or if we purchase the apartment or purchase the office

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then you pay the mortgage

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Mostly, it's a 30-year mortgage, but you should pay monthly

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Look at more detailed examples

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For example, down payment for the property rent

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Before you rent the office,

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you put your fundable or non-fundable down payment

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This is a down payment

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Once you pay the down payment,

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 you don't have to pay another down payment

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Equipment: if you have a machine, you pay to purchase the equipment

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Once you pay everything,

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 then you don’t have to worry about paying for the equipment later

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Initial advertisement and decoration of your store,

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or any other cost related to a one-time

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What about ongoing cost?

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Ongoing cost, the best example of ongoing cost would be property rent

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You should pay monthly for your office

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Utility fee: electricity and water gas that you pay monthly

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and the monthly advertisement if you engage in advertisement

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through the facebook or google then you pay monthly

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Communication: if you have a telephone or internet,

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you pay internet fee and telephone fee monthly

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Insurance: if you have insurance, you pay a monthly insurance fee

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and also, salary monthly

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Those are all ongoing cost

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Now you understand what is one time cost and what is the ongoing cost

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Then, how do you use this concept in your startup?

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I want to help you understand the startup case.

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I made the hypothetical startups

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This startup is an AI-based kind of online tutoring service

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Think about an AI-based online tutoring service.

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The CEO, Tom, started this company, and he invited a CFO,

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a Chief Financial Officer, Greg into this company

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Tom also invited marketing manager, Rachel, into this company.

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This is the setup of the company.

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Then, they got $100,000 as an angel investment money luckily

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This is a kind of situation

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Then, they met together and discussed their budget

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 I asked Chat GPT to draw this situation as a cartoon

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Look at the first cartoon

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Here is our starting point

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Luckily we got, $100,000 from angel investment

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So we have $100,000 on hand

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What about our office cost?
Office cost zero for six months

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Why? Because Hanyang University
Startup Foundation support the office fee

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 So we can use this office for free

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What about infrastructure fee?

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Well, we don’t have to worry about cloud services

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because Naver Cloud supports startups like us.

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We applied to the Naver Cloud program,

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and thanks to Naver Cloud, the infrastructure fee was waived

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We are very lucky

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No infrastructure fee, no rent fee in the first-half year

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Then Greg continued talking about one-time costs

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He explained how much the company had already spent

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For example, the legal fee

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We already spent $2,000

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Corporate bank fee $500

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Initial logo design ＆ Website, we spent $3,000, etc

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So in total, we paid $7,200

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That $7,200 is a one-time cost

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Then, the CEO, Tom, explained the ongoing costs: the monthly costs

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For example, we hired developers

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as part-timers, and we pay them monthly.

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How much? $2,500 per month

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Also, we use marketing tools such as Notion and Canva: $300 per month

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It's a monthly subscription fee.

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Also, we need minimum living expenses

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for Rachel and Tom, $1,000 each

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So in total, that’s $2,000, which is monthly salary

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And we use communication or team collaboration tools

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such as Slack, Zoom, etc.

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We subscribe to them and pay $100 monthly

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So, how much in total? We pay $4,900 per month

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Then we can easily calculate the runway

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Runway means how many months are left with our current cashes

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In this case, we had $100,000 on hand as cash,

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but we already paid $7,200

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So, we need to calculate the remaining money monthly

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We divide the remaining money by our monthly cost, $4,900

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How many months are left?18.9 months with this money

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This is how we use ongoing costs and one-time costs

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Then suddenly, the CMO, Rachel, jumped into the discussion

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and added something

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 She said, 'Wow, our target is clear

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From a marketing point of view, our target is private academies

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Private academies are the decision makers"

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Here is our go-to-market plan, GTM

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We can conduct outreach throughout LinkedIn or email

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We'll engage in email marketing or LinkedIn marketing

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Also, we can prepare a B2B demo day,

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targeting 10 local private academies

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And we can launch a pilot program with 1-2 medium-sized private academies

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Then, CEO Tom was surprised about this the marketing plan

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"In order to make this happen, we need to prepare the money

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But we didn’t prepared the marketing cost for LinkedIn or Demoday Pilot

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How much are you planning to go into monthly?"

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It can be monthly marketing fee for Demoday Pilot or LinkedIn marketing

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Then Rachel says, "I think at least $5,000 will go into monthly marketing"

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So they should calculate the runway again

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Why? Because their monthly spending has increased, the monthly ongoing increased

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So, they quickly calculated again

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CEO Tom, quickly recalculated

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The ongoing cost should be updated

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Everything is the same, but there’s a missing $100,

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the $100 for tools like Zoom or Slack, do you remember that?

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Anyway, putting all the numbers together, we add $500 for marketing

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It's not initial marketing

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It's ongoing marketing monthly

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So, in total, how much?

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Our ongoing costs add up to $5,000

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We add up $5,000 to previous ongoing cost, $4,900

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Putting it together, our ongoing cost changes to $9,900

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Later, we need to calculate runway again

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Based on this calculation, we just have 9.4 months left

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Our runway drops to just 9.4 months

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Previously, we had long runway left

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but now, we got just 9.4 months

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This is how we use ongoing costs and one-time costs

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I will give you some summary of the terms

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One-time cost is one-off cost for the initial setup

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Again, ongoing cost is any recurring cost a business must pay regular basis:

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monthly, annually or quarterly

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And what about runway?

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Runway is the number of months the company can survive with current money

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Burn rate means how much you spend each month

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In this case, the previous burn rate was just $4,900,

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but right now, we added $5,000 as a monthly marketing fee

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so our burn rate increased from $4,900 to $9,900

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Then, we calculated our runway again

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Now you understand how to use one-time costs and ongoing costs as a startup

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Don’t underestimate the importance of ongoing and one-time costs.

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Let's move to another topic, which is "Accounting"

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Accounting is the language of the businesses

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What do you mean by that?

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You talk about accounting both inside and outside the business

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Because it is a language

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Basically, accounting is tracking your money in the businesses

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But you are startup, and you don’t have any records to be tracked

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So you don’t have to worry about past performance

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Instead, you will be concerned with future performance

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In startup case, accounting is about the future

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It is the language for your future

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Please understand it in this way

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So, why is accounting important?

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Accounting proves what your business did financially in the past

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But in your case, you express and explain your performance based on future accounting

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Also, accounting shows how much your business is worth in the future and in the startup

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Bank, creditors, development agencies and investors require your accounting reports

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Also, accounting provides easy-to-understand plans for your operations

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You can't know how your business is doing without accounting

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In the business area, there are only two reasons exist why accounting matters

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Accounting provides succinct and clear information

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that is useful to you and your stakeholders,

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such as your co-founders or your investors

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And also, you need to meet legal or contractual requirements

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That's why you need to prepare for accounting report

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In order to prepare accounting report,

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as a startup owner(startup founder)

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you need to understand the basic concepts of accounting

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So, that's why I'm talking about the accounting report now

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Well, there are basically two important, useful, and commonly used accounting reports

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One is the balance sheet, and the other one is the income statement

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Don't worry about it

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Although you are not majoring in business, it is pretty easy to understand

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What is the balance sheet?

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Let's move on to the balance sheet first

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Balance sheet is a statement of what your business owns

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and what it owes to others is kind of debt

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What you have right now is what you own

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What you own is called an asset

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The second component is what it owes to others, which is debt

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The third is how much value the owners have invested in it, which is your equity

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Do you understand that?

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It's a little bit complicated

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Well, again, the balance sheet, as an accounting report, is a snapshot

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You take a picture right now, and so the balance sheet provides a current situation,

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and how it looks like

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The balance sheet presents just three things, three components

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The first one, your asset, what you own

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Second one is debt

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How much you owe to others, is debt

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Third one is your real value

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how much is your real value, that is equity

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Another important thing that you should remember

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is balance sheet equation

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There is a principle about the balance sheet

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Your balance sheet should include the information about three information

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asset, liability, and equity

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Asset is the same as liability + equity

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I will show you the example

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Look at this table

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Let's say you started the company with $100,000

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This is your seed money

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You started a company with $100,000

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With that money,

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you purchased your working tools, such as PCs or the others

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How much? $50,000

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You already spent $50,000 in order to  purchase working tool

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Now, $50,000 left as a cash

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So you put this $50,000 cash in your company

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Anyway, what you have right now is $50,000 in cash,

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and some kind of working tool valued at $50,000

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In total, how much? $100,000

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Although $100,000 is not all cash right now,

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the value of your company,

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value of what you have, is the same $100,000

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Later, we ask you, where did this $100,000 come from?

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Well, half of the money came from my money,

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and the other half came from the bank

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The half of them, $50,000, came from bank

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We say it's debt

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Half of them came from your pocket money

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So, your money, $50,000, we call it equity

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Look at these two parts

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What you have right now is $100,000(cash and tools together)

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 That's your asset

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Asset should be equal to debt + equity

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How much is your debt? $50,000

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How much is your equity? $50,000

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Put together, it's $100,000

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This $100,000 and that $100,000 are the same

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This is the equation of the balance sheet

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When you write down your balance sheet, you should keep this principle

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When investors look at your balance sheet,

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they immediately understand what happened in your situation

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So that's why we use this balance sheet

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Now we understand how to use it

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Don’t worry about it, even if you don’t understand it right now

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Because II'll give you hypothetical situation that help you to understand

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how we use the balance sheet

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What is asset?

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Asset is something the business owns

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What is the liability?

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It's a legal obligation that you pay back later

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if you borrow the money from the bank,

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probably you should pay back later: in a year or two

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This is debt

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And what is the equity?

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Equity is your money, your value

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or if you invite investors, their money would be the equity

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Well, this is the same

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This total asset is the same as debt + equity

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It's the same thing

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This is also the same thing, but the format is a little bit different

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This is 2012, 2011 and probably, we have 2013

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Anyway, we can understand how this company has changed

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For example, the company's asset increased from $172,000 to $235,000

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So the company is growing

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If you see the dept, the debt has decreased

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Debt has decreased from $147,000 to $132,000

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Equity increased

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Equity increased from $25,000 to $103,000

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There's equity changes

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From this balance sheet, we understand what happened inside the company yearly

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Let's move on to the second important financial report, which is income statement

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It is very important

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What is income statement?

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Income statement is the statement that lists your revenue and costs

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If you know your revenue and cost, then we can easily calculate your profit

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How to calculate profit?

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Profit can be calculated by revenue - cost

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Revenue is the money that you made,

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the cost, the money that you spent

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Basically, the money you made should exceed the money you spent

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Then you can get a positive profit

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If it's opposite, you get a negative profit

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This is the typical format of the income statement

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For example, you got total $259,500 revenue.

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Total expense(total cost) is $176,200

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So your net income(profit) is $83,300

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How to calculate it?

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It's pretty simple, $259,500 - $176,200

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You can get $83,300

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Remember, the profit is revenue - cost

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This is another format of the income statement

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I think it's pretty much similar

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In this case, we divide costs into 2 group

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Operating costs and the other costs, taxes.

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Anyway we got same profit

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The total revenue is $170,800, and the total cost, we divided very specifically,

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We got $83,300 as a profit

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Now, you understand how to interpret the income statement

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with financial report

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Don’t worry if you don’t get it yet

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We’ll show you how to use

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the balance sheet as an income statement in a startup

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in the next session