Finance for Geeks
ericsink.com
ericsink.com
Finance and accounting for non-financial managers. A great intro for beginners.
http://www.amazon.com/Essentials-Finance-Accounting-Nonfinan...
A first year accounting textbook like:
http://www.amazon.com/Accounting-Principles-Jerry-J-Weygandt...
Then either buy a book on QuickBooks or put yourself on a course. QuickBooks is the best accounting software for startups by far. Only dive into QB once you have a good grasp of accounting principles because it abstracts away the basic accounting equation and double entry system and will give you a false sense of security.
Then to get a solid grasp of finance and how investors focusing on fundamentals view your business, read Security Analysis by Graham and Dodd. The '09 edition has some wonderful additions and updates from the finance gods.
The financial statements of public companies are available at sites like ycharts.com and I recommend reading them and testing your knowledge by spotting things like dips in net income with no corresponding dip in revenue and figuring out why.
What I've described above is about 2000 pages of reading. But slowly work through it and you will come out the other side empowered.
Of course some fundamental ideas (debits vs credits) are complicated enough to explain that most who try are just confused and confuse the reader.
Disclaimer: I write accounting software (LedgerSMB) so pretty sure I am a geek who has a decent working knowledge of finances or maybe even a accounting geek.
http://martin.kleppmann.com/2011/03/07/accounting-for-comput... http://news.ycombinator.com/item?id=2298471
After reading that article it finally all made sense to me.
> Your version of Linux is essentially the same as mine. If you try to charge too much of a premium, I will undercut you on price, [...]. Open source companies tend to operate at lower gross margins. That doesn't mean that open source can never work as a business model. However, no matter what anybody says, if two companies have the same risks and operational costs, the low-margin company is a lot harder to manage than the high-margin company.
I get the impression that the author is somewhat stuck into the common thinking of software only as a product. The statement above is true if you try to sell licenses. However, there are lots of more clever Open Source business models out there.
For instance, you could treat software as an infrastructure like a street or a computer network. You get paid on improving parts of it and/or providing services around it.
Of course, software is neither a product that is first designed and then mass-produced in factories, nor is it a street on which regular roadworks are necessary. However, treating it as the latter seems to be more suitable for Open Source software.
In constrast, SaaS is usually quite the contrary of Open Source. You do not only pay per license, but for usage time and/or the amount of data. You don't see the source, you can't make any modification, you don't have any direct access to the machine, and you are (usually) stuck to a single vendor. All of this could be fixed, of course, but as of now, the economy model around SaaS is more an aggravation of the proprietary model, and nowhere similar to Open Source business models.
"In contrast, custom software development or consulting has a lower margin, because programmer time is included as cost of revenues. For every hour of time we charge, we have to pay an hour's wage to the developer who performed the work."
So still in a low gross margin position, where the only way to scale the business is to sell more programmer-hours.
If you fix bugs you need to contribute back to the trunk, at which point anybody can use them without paying for the dev time. Paying devs to work on such a project is useful mostly as a marketing tactic, and to develop in-house expertise on the tech.
Let's face it, all open source business models boil down to repackaged and rephrased consultancy work, which scales by making more paid hours. It's as simple as that.
High salaries, marketing costs, for SaaS companies infrastructure? ISV is not necessarily 'long guy working out of his attic' - that model is only sustainable for a small subsets of software.
To be fair, the article talks about funding, which is finance, but brushes over the differences between debt and equity finance and doesn't provide the tools to evaluate when, what, and how to finance.
Tech start ups are probably in a, take what you can get, position for funding. Still, having an understanding of finance could help with evaluating things like convertible notes which start as debt and can optionally convert to equity.
[1] In entirety: "See Iceland".
* As in all invoices are printed on government-issued, numbered sheets of paper and you must track the paper invoice to the sheet you purchased from the tax office, and the same goes with packing slips which are called "transit vouchers"
So I don't think it would be a short article at all.....
Assets = Liabilities + Share holder's equity
That is true from an accounting standpoint but does not tell you what a business is worth.
Here are the 2 easiest approaches for "non finance people"
1) Value at a future date of selling the business divided by perceived risk.
Steps: A) figure out what the perceived absolute maximum value your business is worth in 5 years. B) determine the perceived percentage chance of that happening C) multiple by that percentage. D) discount by risk free rate (this will be over many, many people's heads, but it is the risk free rate because the "risk" is built in to the percentage) E) that is the max value.
* Improve the perceived future value or the perceived percentage chance of success or decrease the estimated risk free rate and you will increase your current value dramatically.
2) Use an NPV model to determine the value of your business. This is not a good way to go for VC funding
Its unlikely that anyone who was reading that article to learn about the basics of accounting would be able to gain anything at all from your comment.
See http://pages.stern.nyu.edu/~adamodar/ Buy that guys book, read it, and you will be much better off.
Here is an example (my own) of how to make a comment about business minutia on HN.
http://news.ycombinator.com/item?id=2863071
Don't write like you are some sort of genius because you know more about accounting/finance/ops/whatever than people on a forum which is predominantly engineers. ("No, no, no, no.")
I added a framework for valuation and accounting which is a much more accurate than what was written in the article and in a fraction of the space.
The point I am making is very valid and extremely important for people to read after reading that article which is completely wrong in almost all ways.
I'd write it again anytime and gladly be downvoted in the off chance one person reads it and is saved from making huge errors later. (I will skip the "no, no, no" part and adjust tone to keep from seeming arrogant.)