Why numbers and reading accounts correctly are important for business.

Numbers matter.

The recent case of Mara Seaweed is a good example of how not to try to raise money by crowdfunding.

To start with, as we have already pointed out, the total of £500k that they are raising is not the total they are raising on Crowdcube; as they had already had £300k of it pledged - off the platform. So the current pitch's claim that they have raised nearly 80% of their total is at best misleading. Trust is an important friend when crowdfunding.

More worryingly the debacle of the Dragon's Den has shown very clearly that this business has no one on board with any clue about numbers. The CEO lost the plot and made some gaffs about turnover and gross profit - understandable under pressure. What is not understandable is her willingness to compound this error with a far more alarming one. She stated very clearly that the company expects to be making a net profit margin of between 30 and 40% when it has a turnover of £8m. This, she claimed, was based on research her advisers had done into Dorset Cereals - a niche food brand that was sold for £60m to ABF.

We checked Dorset Cereals accounts back to 2003 and in no year did the NP ever exceed 20% and in all but one year it was between 10 and 15% - so under half the figure Mara are projecting. GP and NP are critical figures for a business - they control the cash and cash is essential if you want to remain solvent.

Mara's CEO claimed that serious advisers had given her this figure.

Of course it is entirely possible that her advisers had read a report in the Telegraph that stated Dorset Cereals had made a profit of £16m on a turnover of £36m in 2012. This would have given them a NP margin of 44%. However it does help to be able to read accounts and then you would realise that this figure included a one off payment of £14m for the sale of an intangible asset ie the Brand Name. The real NP was £2m on a £36m t/o or 5.5%.

So do you think Mara have built their whole business on a massive mistake??

We could have told them all this had they asked - the crowd is now very reluctant to back them with only £67k of the £200k raised and time running out. We have little doubt that the business has potential and that the current management's inability to accept their own shortcomings is going to ruin that. It's a crying shame.