Hello. Today we're doing the accounts. In this second part of the course How to Start Your Business, we're at the drafting of the business plan and today we're looking at the main part. The economic part. The most important thing is to summarise financially what we've done so far. This economic plan will allow us to reach our two main goals here: define the necessary investment and profitability of the project, and limit the risk that we must assume to see where the project is at. We'll iterate the process various times. First we'll do this looking at investment and financial levels, we'll see what sales we have, we'll see if it gives us profitability to pay this funding, and that will allow us to combine different economic concepts. One of the first things to do is terminology. We all have sayings that aren't normally appropriate for the specific content of many words we mention here. For example, someone might say: "I've sent you money via bank transfer". They shouldn't say that, they should say "I've paid into your account". Investment, funding, expense, payment, profit are all different... We use all these words inaccurately most of the time. We should use them accurately. Investment is when we buy something, machinery, and payment is when we pay for that machinery. An expense doesn't mean we've actually paid it. It is paid when we actually go to the bank. When we receive money in it's possibly because we've made a sale. Eventually we'll receive the payment. These different concepts are sometimes confused and they don't allow us to be accurate with definitions and explanations. We should realise that when we say funding it means it's the way of paying in the money we'll need for the investment we want to make. All these words will allow us to reach the end of economic and financial viability. They are two completely different concepts that we'll see with the iteration of the different accounting statuses that we'll study. The investment plan shows a shopping list that we did when we did the production plan. Everything we need to carry out our service offer, infrastructure, facilities, vehicles, tables, chairs..., everything that stays in the company, everything we require for our production, is in this investment plan. As you can see, the initial investment plan gathers all the required resources that we need to invest to carry out the company's activity and is detailed in monetary quantities. And when shall we pay it? When will they occur? When can we carry out this investment? We need to answer the question: What investments are we doing? Here there's little room for error. I already suggested, in the production plan, to request quotes. We need to look carefully at the features. We shouldn't buy something we don't need nor buy something just because we want to have it. We shouldn't buy something that doesn't have the features required for production. Here's a small example with the translation company we're using. We'll need furniture, a PC and small office facilities. Next to it we can include the service life. Why do we need that? The service life will give us the amortization capacity we have. How long will this asset be useful for and, therefore, how should we enter this asset in the various costs. We already did this in the cost analysis in one of the other modules, but we'll do it again. We need to answer the question: what investments do we need to do? On the other hand we have the funding plan. If we have investments we need to see how to fund them. What funding do we need?, would be the questions we should ask ourselves, where will this funding come from? What conditions are attached to this funding and how that affects the company This is the way it will be funded, the way in which we can access the economic capacity for these investments to be paid. We'll detail the funding sources. In one of the modules we'll see which are these different sources. Towards the end we'll list these sources, both those to do with capital, and the internal or external sources, and the quantities of each and what details we should obtain. As you can see, the funding and investment plans need to coincide. Or the investment and funding plans. They need to match up, just like when we go shopping If we have 100 euros and we get there and it turns out our shopping is 125 euros, we won't be able to leave with the shopping. If we redirect the investment we need to do, therefore, the funding needs to match. One of the most common errors is not having adequate funding for the investment we need to do. It's a bad starting point. If the company starts limping, it'll be difficult for it to thrive. So, this is a key moment for the company. One detail, for example, could be that the translation company would fund the €5,500 it needs via own funds, contributions of €3,000 and a loan for €2,500 with a cost of 8% and repayment terms of 12 months. If we tie this to the €5,500 that we need and this cost is manageable, this cost will go to the P&L operating account, and our investment plan and funding plan would match. Next we'll study this virtuous cycle. Let's start with the initial balance, which is the first thing we've done. We didn't know what a balance was, but we've done it. We have an investment and a funding plan and that sets up our first balance. It's a snapshot of the current state. The initial balance is the snapshot on Day 1. This snapshot on Day 1 is changed with the results account, which will tell us the detail of the expenses and income and these will be paid and charged at different points. The treasury's forecast will allow us to control the payables and the receivables. This movement of the company from the initial balance, which is the first photo, will give us in another moment another photo which we'll call balance, where the investment plan and the funding plan have been transformed into what we call assets and liabilities. We'll have time in the following modules to analyse concretely each of these accounting states.
