learn dino-crib 3-capital

Capital & VAT

~3 m

Session 3 - Capital and making things to sell

Using Capital
  • You’ve got your company
  • you’ve got your first prototype built
  • now it’s time to spear fish your first bootstrap customer.

We’re going to look first at how to update your [bookkeeping][book] to account for [VAT][vat] and then we’ll either [crowd-fund][crd] or [issue some shares][shr] to get some more capital and look at the consequence of success with customer #1.

VAT - Value Added Tax

The concept is simple. If you add value to something you buy, then you get taxed only on the value that you add to that thing.

Example

You buy some fabric, some stuffing, a Rasberry Pi Pico-W2, a battery, some wires, write some code and make a robo-rexy to sell.

  • VATbills = VAT you pay when you buy goods i.e. fabric
  • VATsales = VAT you pay when you sell goods i.e. rexy robots
  • VATHMRC = VATsales - VATbills
  • Simple !!! you paid tax on the Value that you added to the raw materials (or services)
rexy-working

BUT .. VAT is meant to be fair so some goods are exempt from VAT

UK
No Vat
X

In the Venn diagram above it shows that only things bought and sold in the UK are subject to VAT.

  • If you buy or sell abroad, then that transaction is classed as No-VAT because it’s outside the jurisdiction of UK VAT laws.
  • some essential categories are exempt , like insurance, children’s clothes, education
  • some goods are zero rated i.e. within the UK, but the vat rate is 0% e.g. takeout pizza, trains (but not the parking at the train station or the seat reservation)
  • some services are charged at a lower rate

Bottom line - it’s horribly complicated - use a software package if you can! Tweak the major items on your spreadsheet to show VAT - your purchases are now 20% off, but you have to pass the cost to your clients

Shares - raising money

Shares represent fractional ownership of a company. You can sell some of your share of your company to raise money to buy things you need, like a production line, a lorry, a swimming pool or whatever you think is needed to run the company.

  • haw many shares does your company have?
  • what is the company worth
  • how much is each share of your company worth?
  • if you need £100k for a production line and you sell 10% of your company - you’re worth £1M

Other ways of raising money are:

  • take a loan from a Bank (secured or unsecured)
  • ask a friend - you might get a good deal
  • ask Ivan down the local pub - he looks a bit shady but is always lending money. His mate Boris is always injured
  • get a grant

Homework

  • update your accounts to account for VAT
  • figure out if you need more capital to build your first prototype
  • run the accounts for months 5 & 6 so we can see how you’re doing next week
  • answer the question - who is going to be your first customer and what’s the commercial arrangement?